Buy America = Protectionism???

In Bill Bryson’s book The Life and Times of the Thunder Bolt Kid he recounts his childhood growing up in the 50’s. He writes that our country became the richest nation in the world all by ourselves. Our factories succeeded by producing goods that were bought by Americans and, in turn, the factories where those Americans worked were supported by Americans buying their products.

It seems simple, doesn’t it?

Well, a recent Editorial in the NY Times posed the question, “Why is the buy-American idea objectionable, or, alternatively, under what circumstances should it be promoted?” to economists, Senators, and, in general, smart people. And as smart people are apt to do, they consistently disagree with one another.

With regards to clothes the Buy American mantra is no longer possible since 97% of our clothes are made abroad. But what spurred the editorial was the Senate’s introduction of a Buy American clause in the Stimulus 2.0 that would strongly encourage steel for public works projects to be American Steel. Of course this gets a lot of die-hard-free-trade-will-save-the-worlders’ Made in China panties in a bunch.

Some of them claim that it violates Trade laws and others don’t. Come on smart people! It just goes to show you that if you get a bunch of smart people together, they cancel each other out.

Here are the views that I found the most reasonable:

Ha-Joon Chang, an economist at the University of Cambridge, is the author of “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.”

The other is a kind of protectionism that all countries, both mature and developing, sometimes need when they must make sudden large adjustments. Unlike finance, where things can be rearranged quickly, the real economy takes time to adjust. Therefore, when you have a big shock like today’s economic crisis, it makes sense to create the breathing space for the producers to restructure. This is why, even as they are repeating their commitments to free trade, the rich countries are providing their industries a huge amount of direct and indirect protection.
Some people worry that this will lead to a 1930s-style all-out trade war. But in the short run, there is actually no danger of that. Now we have the World Trade Organization, the European Union and many other regional trade agreements that limit protectionism. Of course, in the longer run, if veiled protectionism continues, we run the risk of making a mockery of these agreements and destroying the global trading system.
However, the solution to this problem should not be an adherence to the principle of free trade, which is not workable in practice anyway, but instead to establish a new international agreement that allows a transparent, forward-looking and time-bound protectionism as well as more infant-industry protection for developing countries. In other words, by allowing more protectionism now in a controlled way, we will be able to preserve the international trading system better in the longer run.

Senator Sherrod Brown

…newspaper publishers pontificate about free trade theory, as they see their advertisers flee and their papers shrink. And the corporate executives of some of America’s largest corporations tell us it will cause a trade war, as they collect million-dollar bonuses while laying off American workers and outsourcing jobs to China and India.

These are not people who are about to lose their jobs to bad trade policy. Other than this small, shall we say elite group, you could search far and wide and find almost no one who thinks “Made in America” is a bad idea.

Yet when some of us in the Senate proposed strengthening the buy-America laws, and enforcing the buy-America rules, that have been around for decades, some economists, newspaper publishers and business executives accused us of being — gasp — protectionists.

An $800 billion trade deficit and they accuse the United States of protectionism? Two-billion-dollars-a-day net outflow of trade dollars and they claim we are closing our borders? In Ohio, people would say that accusations like that don’t pass the straight face test.