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Problems With "Buy American" Clause

Anthony Randazzo
February 2, 2009, 6:40am

Last month, leaders from the U.S. steal, iron, and manufacturing industries lobbied for--and easily got--a "Buy American" clause to be placed in the stimulus. Essentially, the clause forbids money from being spent on materials that are produced outside the United States. While it might seem patriotic, it really just reflects the lack of economic understanding in Congress today. Here is the exact wording:
None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States. (Senate version, S.336 [S.1])
There are several problems with this. Beyond the free trade issue, why do these industries feel they need a guarantee clause from the government? If they are the best, and can offer the most competitive price, why want the clause? Unless they aren't offering the best price or best service, in which case this "Buy American" clause is implicitly wasting tax dollars. Yes, the bill is trying to stimulate the economy by providing work for businesses--but with how villified "big business" is today, its surprising that Congress would care enough to put this exclusivity clause in and help American firms monopolize their market. If this was done out of concern for the businesses then just give them tax breaks, not cash. (Oh, and what if a firm is owned outside the US but the stuff is manufactured in the US, does that count? Is that an American company?) This clause also has made our allies upset. We are in effect, saying "we don't want to trade with you" in certain things. What about when European stimulus packages prescribe building a bridge (like France's infrastructure spending plan), don't we want American firms to be able to compete to offer services? Why, when it comes time to stimulus spend, would countries suddenly become protectionist? Especially in a world that was made as wealthy as it is by globalization! Now, to be fair the Senate version does include this clause: "Subsection (a) shall not apply in any case in which the head of the Federal department or agency involved finds that– (1) applying subsection (a) would be inconsistent with the public interest." How "the public interest" is defined is unclear and politicians may point to this as a way to say they won't waste taxpayer dollars. But this line also seems to negate the whole clause if it means to say that tax dollars won't be wasted on high bidders. The bill basically says: Buy American in all cases, except when American stuff is more expensive. Why not just say: buy the most competitively priced stuff. Or better yet, why can't we just assume that the government will be as frugal as possible with tax dollars? Oh, right, how silly of me to think such a thing.

Anthony Randazzo is Director of Economic Research


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