Politics, Business & Culture in the Americas

The Costs of Economic Nationalism

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In the midst of the financial crisis and job insecurity, economic nationalism has resurfaced in its most unproductive and dangerous form, having implications not just for U.S. producers but for Latin American markets as well.

In the approved Senate version of the $800 billion U.S. stimulus package, the Senate inserted a provision requiring that all manufactured goods used in projects financed by the plan be produced in the U.S.  In a later version, the Senate watered the provision down to say that the requirement should not violate existing international trade commitments.  But while the “Buy American” provision–even in its vague, watered-down form–may not be protectionism in the strict sense, it will have the same effect: increasing costs of projects, wasting taxpayer dollars, sparking retaliation from our trading partners in the hemisphere, and undermining U.S. jobs.

According to a study by the Institute for International Economics (IIE), the provision would only generate 9,000 jobs, a fraction of those needed. If you build in the expected cost overruns due to closing off competition, it will likely translate to even fewer, as fewer projects get funded.

The real cost, though, will come overseas, as our trade allies retaliate against U.S. companies. Already the proposal has sparked vocal complaints from editorial boards, economists such as Paul Krugman, and even the U.S.’s number one trade partner and neighbor, Canada.

Let’s take the case of Latin America. For decades now U.S. companies have argued against anti-foreign restrictions on bidding for state contracts. Companies as diverse as heavy machinery manufacturers to software companies have contested limitations on their right to compete with local companies on public contracts.

Their complaint? That by establishing artificial barriers to competition, Latin American governments were creating inefficiencies in the allocation and management of public contracts (not to mention the potential for corruption) and failing to serve the interests of taxpayers by not ensuring that public projects go to the cheapest and most efficient supplier. The U.S. government in its bilateral negotiations with governments and in multilateral forums supported this argument.

But the problem with the U.S. Congress’ “Buy American” provision is more than hypocrisy. It also threatens retaliation. If existing governments in the region follow suit with their own “Buy Brazilian” or “Buy Ecuadorian” rules, it will freeze out heavy machinery companies, infrastructure and software enterprises from hard-won markets. The result will hurt the American producers and their workers, according to the IIE by as much as 64,000 lost jobs.

Sadly, this throwback to economic nationalism misses a fundamental fact about the integration of the Americas. Today, steel, cement, automobile, and machinery companies exist in a borderless world. Mexican cement companies own U.S. plants. Automobiles “manufactured” in the U.S. have crossed borders numerous times during their assembly. Today in terms of ownership, production and inputs, we are too intertwined to define what is “U.S.”and what is “other.”

Doing so is harmful to U.S. interests, out of step with history, and ultimately hurts the very person it’s supposed to help: the U.S. worker. We should oppose the “Buy American” provision in the stimulus package and insist that it be removed now as the bill goes to conference between the House and the Senate.


Christopher Sabatini is the former editor-in-chief of Americas Quarterly and former senior director of policy at the Americas Society and Council of the Americas. His Twitter account is @ChrisSabatini

Tags: Economic Stimulus, Free Trade, US
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