The Worst Part of the Stimulus

It appears we may have a stimulus package that nobody likes and nobody thinks will fix the country. With all the partisanship gift packages in there – it appears the Democrats are trying to ram through everything they couldn’t do in the last eight years – there is one part of the package that is extremely unnerving that the media, naturally, has ignored. This is the noble but very badly flawed “Buy American” clause in the Stimulus Bill, which has an excellent potential of making the recession far steeper and deeper than it already is.

Introduced by Senator Byron Dorgan (D-ND), this would give “preference to American-produced materials and products,” especially commodities like raw materials and agriculture. In other words, if a new bridge is built preference would be given to American steel, cement, machines, etc. Sounds good? A nice payback against companies that outsource jobs? WRONG.

If the recession has taught us anything, it is that Tom Friedman was right. The world is truly flat and our economy is global. The recessions that whacked Japan and Russia 10 years ago barely registered elsewhere. But we have brought down the entire global financial system. When a financial crisis in the U.S. indirectly destroys the economy of Iceland, you’ve got a global problem.

Companies and cities that build bridges have as much right to find the best and most economical commodities they can. And many of them have been going overseas to find things like steel to build their bridges. This is one of the biggest benefits of the global economy and global trade. You don’t need me to tell you how vital exports and free trade are to American companies. “Buy American” would be a huge step backward to the days of isolationism and protectionism. In fact the last time the economy was this bad, protectionism boosters succeeded in passing the Smoot-Hawley Tariff Act, one of the worst laws ever passed in modern history and something that prolonged the Great Depression for years.

Shutting off the trade flow to other countries will guarantee one thing – other countries will respond in kind. The result would cost far more American jobs than the stimulus could ever produce. Dorgan’s clause is not nearly as far-reaching as Smoot Hawley, but the global economy is far more linked than ever and a tit-for-tat closing of foreign markets to U.S. goods (and vice versa) would make the recession worse than it already is.

To his credit, President Obama has already stated he doesn’t like the clause. And I’ve got to hand it to John McCain, who has been all over Dorgan’s mistake. But it’s possible Obama will overlook it just to get the thing signed. Let’s hope he reconsiders, or the stimulus will be far less underwhelming than many already fear.

More Info:

The Organization for International Investment: A trade group my company belongs to lists the reasons why Buy American would be horrible for America.

Buy American Debate: A listing of op-eds from economists and union bosses who dread having Buy American as part of the Stimulus

My earlier post on why foreign trade and investment is good for U.S. companies and workers