‘Buy American’ -- why not?

Federal government purchases make up about 20% of the U.S. economy, yet the United States is almost alone among the major developed nations and China in not having a significant “buy domestic” government procurement program.

No single economic stimulus initiative would do more in the short and long term to resuscitate U.S. employment, especially manufacturing employment, and to materially reduce our economy-zapping massive trade deficit than a fair “buy American” program.

However, when even a fairly limited program was put forward in February as part of the economic stimulus plan, you would have thought that protectionist cowboys from the U.S. had attacked global motherhood and apple pie.

Representatives of our major trading partners immediately began discussing among themselves how to respond to the United States’ alleged “protectionist drive,” with China raging the loudest. Editorials overly influenced by the nation’s self-serving free-traders hit several newspapers across the country, with the New York Times warning that “rather than supporting employment at home, the ‘Buy American’ effort could ultimately cost American jobs.” And the usually credible Peterson Institute estimated that such an initiative would save or create a meager 9,000 jobs. But out of a total U.S. labor force of 155 million, the correct answer has to be at least a couple million or more because we are talking about transitioning so much of the U.S. economy -- most of nearly $3 trillion in annual government purchases -- to domestic-only origins.

In his first inaugural speech, President Franklin Roosevelt said that the nation’s greatest task was “to put people to work.” At the time, 13 million Americans were unemployed, and the economy was much better balanced between manufacturing and services.

Now, however, there are nearly 30 million effectively unemployed Americans, according to Bureau of Labor Statistics figures for July. Manufacturing industries now represent just 11.5% of GDP; the number of people working in manufacturing account for only 9% of the jobs in the country; and we have run an average trade deficit in manufactured goods of more than $500 billion a year over the last five years.

The United States, with its enormity and geographic diversity, simply cannot prosper in the long term with less than 12% of its GDP coming from manufacturing. And because federal government purchases are strongly weighted toward manufactured goods, “buy American” would be a significant immediate boost to manufacturing’s regeneration.

It is naive and irresponsible to believe, as some in the administration do, that a service job is just as good as a manufacturing job. In fact:

* Compensation in manufacturing jobs was on average 15% greater than in non-manufacturing jobs in 2008, according to Bureau of Economic Analysis figures.

* Service jobs do very little to help the U.S. balance of trade and mostly just move incomes around the country.

* Manufacturing has by far the largest multiplier effect of all job sectors, creating $1.40 of additional economic activity for each $1 of direct spending, 2.5 other jobs on average for each job in the sector and, at the upper end, 16 associated jobs for each high-tech manufacturing job, according to a 2009 Milken Institute report.

In February, the loudest screams in opposition to the modest “buy American” requirements proposed in the stimulus package came here at home from the U.S. Chamber of Commerce and the Consumer Electronics Assn., and overseas from China.

Yet both the U.S. Chamber of Commerce and the electronics association are dominated, in their finances and thus in their policies, by multinational overseas companies that have large-scale operations in countries with their own significant buy-domestic programs.

It was particularly galling to hear objections from China, which is responsible for a staggering 78.5% of the U.S. trade deficit in manufactured goods so far this year.

China had an implicit buy-domestic program for years, and now, as part of its own stimulus program, it has a very explicit, countrywide “buy Chinese” policy. On May 26, Beijing said that henceforth government procurement must use only Chinese products and services unless they are not available within the country or can’t be bought on reasonable commercial or legal terms.

“Buy American” provisions of one form or another have been around since the 1930s, and it is not opportunistic, unfair or inappropriate, as some have said, for us to have a strong one now, subject, as with other countries’ programs, to goods being available in-country on reasonable terms.

It is important to note that “buy American” will have little or no impact on the cost of purchases by workers, as this initiative targets only purchases by the federal government, the effects of which are thus almost entirely captive to our own economy. That said, for the vast majority of Americans, the gains in lower prices because of trade and cheap imports long ago began to be outweighed by wage losses.

But it’s not only Congress that needs to do the right thing; there seems to be problems as well with some in the administration.

In April 2008, during the presidential campaign, Barack Obama promised that he would “ensure that our government procurement policies strengthen, rather than compete against, the interests of our domestic businesses and that they help create jobs for American workers.”

Yet Commerce Secretary Gary Locke recently waived important portions of the “buy American” obligation for the Broadband Technology Opportunities Program, saying they would be inconsistent “with the public interest.” And the Office of the U.S. Trade Representative has been working for the last month to curtail the inclusion of any such provisions in future U.S. legislation.

All of this is wrongheaded. Rather than diminishing the already modest “buy American” provisions of the stimulus package, we should, in ways consistent with our World Trade Organization obligations, be expanding them to cover all national government procurement as other major powers do. And pending legislation that would ably accomplish most of this is Sen. Sherrod Brown’s (D-Ohio) and Rep. Mike Michaud’s (D-Me.) Trade Reform, Accountability, Development and Employment Act.

At the same time, however, as we are adopting our own buy-domestic requirements, it is critical -- because the issues are linked -- that China and the U.S. also quickly agree on a fundamental readjustment of our bilateral trade relationship to better serve the long-term interests of both nations.

“Buy American” is neither un-American nor anti-globalization. It is simply good, necessary, balanced and reciprocal economic policy.