February Op-Ed of the Month

Congratulations to Samuel Sharp for winning the Cato on Campus February Op-Ed of the Month!

Samuel Sharp is a senior at the University of Cinncinati. His op-ed, ""Buy American" Means Fewer Bridges to Somewhere," cites evidence from advisory member of Cato's Center for Trade Policy Studies, Douglas A. Irwin to illustrate the cost of protectionist policies on the economy they are meant to protect.  Samuel received an autographed copy of William Niskanen's book, Reflections of a Political Economist.

"Buy American" Means Fewer Bridges to Somewhere
By Samuel J. Sharp

As if there were not enough similarities between the Great Depression and the current financial crisis, Congress has revived the failed 1930s doctrine of imposing higher prices on fewer goods as a method to improve the slumping economy. Republicans Reed Smoot and Willis Hawley were to blame during the Depression for high tariffs and wealth-destroying protectionism, but this time around bad ideas have crossed the aisle and are stirring resentment around the globe.
On February 10, the Senate voted 61-37 in favor of H.R. 1, the "American Recovery and Reinvestment Act" which contains a provision in section 1110 denying funding to infrastructure projects "unless all of the iron and steel used in the project is produced in the United States." Lobbyists and politicians have been at pains to demonstrate that the clause is not technically illegal according to World Trade Organization rules, but this token bit of consolation has not softened the aggravated stance of America's vital trading partners.

Canadian MP Jack Layton has vocally pushed for a "Buy Canadian" law in response and European officials are now fighting a war on two fronts, threatening the U.S. with retaliatory measures while at the same time condemning French president Nicolas Sarkozy for his blatant protection of French automakers. To his credit, President Obama has spoken out against the "Buy American" clause, probably because he realizes the cost of a global trade war will make Iraq and Afghanistan seem cheap by comparison. The international outcry over the clause proves it makes as little political sense as it makes economic sense.

Economist Douglas A. Irwin, an advisory member to the Cato Institute's Center for Trade Policy Studies, has pointed out that the price tag for a California bridge restoration in the 1990s was inflated by $400 million because of state procurement laws similar to the "Buy American" clause. Granted, $400 million might seem innocuous within an $838 billion spending plan, but this amount exceeds the cost of the much vilified "Bridge to Nowhere" that was scrapped due to public outrage. Apparently, like all good Keynesians, Congress finds it better to waste money in bad times than in good.

The economic distortions created by forcing builders to use American made steel and iron are certainly more harmful than beneficial. Even if some jobs at steel producers are "saved" by restricting a builder's freedom to purchase less expensive or higher quality steel, an equal number of jobs will be sacrificed at the nation's import facilities as shipments of artificially un-favored imports slow. Market forces in the increasingly global economy clearly demonstrate that the jobs at American importing facilities and shipping companies are much more sustainable than those at manufacturers, so using massive deficit spending to counter long-running trends is hopelessly counterproductive.

Remember, all the spending on infrastructure will be debt-financed and it's difficult to understand why Chinese officials will be eager to purchase treasury bonds issued by a government which uses that funding to construct barriers to Chinese exports. As Center for Trade Policy Studies director Daniel Ikenson has noted, "Out of 263 U.S. anti-dumping and countervailing duty orders, there are 62 (24 percent) in place against Chinese imports. And the extremely prosperous U.S. steel industry accounts for 126 of the 263-nearly half!" The "Buy American" clause thus adds injury to insult and will further weaken Chinese appetite for U.S. government debt. A higher cost of funding of course means higher taxes in the future which will inevitably sap economic growth and slow job expansion. Furthermore, since wasted money on steel for a bridge on California leaves less money for a bridge in Ohio, potential construction jobs are also being foregone as fewer bridges actually get built. Congress should not pass a bill which results in fewer jobs now and higher taxes tomorrow. This goes against both common sense and the original intent of the bill. International trade is an essential crutch for our limping economy, which will assuredly fall flat on its face if the crutch is removed.