Obama on 'Buy American' collision course?

Job gains offset by losses?
But the economists estimate that those gains could be more than offset by American job losses if U.S. trading partners such as Canada and Japan respond by imposing their own protectionist measures. Their estimate of jobs lost under that scenario ranges from 6,500 to 65,000, depending on how strongly U.S. trading partners react. 

Buy American requirements are not new. Federally funded highway and bridge construction projects, for example, have had a Buy American provision since 1982.

Most Buy American provisions in state or federal law operate through price preferences. By adding a percentage, 20 percent for example, to foreign bids on government construction projects, they make many lower-cost foreign bids less competitive.

But the Buy American provisions in House and Senate bills are absolute: They ban use of foreign-made goods.

Another difference between the Buy American provision in the stimulus bills and the previous ones is size: “What’s different here is it’s a massive federal project of unprecedented size,” said Schott, the Peterson Institute economist, referring to the $142 billion in infrastructure spending in the Senate version of the stimulus bill.

He said that foreign governments give preference to their own firms and contractors when funding infrastructure projects, just as the federal government and state governments do in the United States. “But this augments this existing scope of Buy American procurement at a time of great global economic stress,” Schott said. “Why risk significant disruption or complication to our efforts to work with foreign governments on the global economic crisis?”

Japanese prime minister voices opposition
The Buy American provisions already have stirred concern overseas.

The Financial Times reported Wednesday that Japanese Prime Minister Taro Aso, in a speech in the Japanese Diet, condemned the provisions as a violation of international trade rules.

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European Union officials also said that the trade bloc would likely file a complaint with the WTO if the final legislation contains language strongly favoring U.S. suppliers, the Wall Street Journal reported Wednesday.

The controversy is also pitting American steel manufacturers against export-oriented U.S. businesses, such as the construction equipment manufacturer Caterpillar, which fear that foreign governments will retaliate by shutting U.S. companies out of their own infrastructure projects.

Bill Lane, the Washington director for government affairs for Caterpillar, said that 63 percent of the company’s sales were outside the United States in 2007. While Caterpillar stands to be one of the chief beneficiaries of increased spending on infrastructure projects in the United States, it also hopes to benefit from governmental infrastructure projects in China, Southeast Asia, India and Europe as those nations boost spending to combat the global recession.

Those foreign contracts for Caterpillar could be jeopardized if the United States launches a round of protectionist policies across the globe, said Lane.

“If the United States embraces a turn inward, other countries will clearly follow suit," he said. "Our ability to export to other countries will be severely limited.”

“In the 1930s, the United States and the other nations of the world embraced a policy of turning inward — with catastrophic consequences for the U.S. economy,” Lane said. “We could be at a similar point right now.”

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