Wednesday, February 4, 2009

Should America "Buy American"? Remember the Golden Rule

Today, joining European leaders and U.S. President Obama, Japanese prime minister Taro Aso weighed in on the ethics of the "Buy American" clause (championed by the U.S. steel industry) in the stimulus bill passed by the U.S. House of Representatives last week. From Bloomberg:

"'Buy American' is definitely wrong," Aso said today in parliament. "It's clearly against the spirit of the World Trade Organization to say you must use American steel to make bridges."

From a strictly utilitarian perspective, more American companies use steel than produce it. Protecting a few U.S. steel jobs at the expense of larger U.S. companies bears scrutiny. As economist Douglas Irwin put it in the New York Times: "General Electric and Caterpillar have opposed the Buy American provision because they fear it will hurt their ability to win contracts abroad."

But it is worth remembering another, perhaps more universal ethical principle--the Golden Rule--in making policy.

In this Christian Science Monitor editorial, the Golden Rule is invoked:

If "Buy American" is not expunged from the recovery package, President Obama will cede his moral authority to lead the world away from mutually destructive trade policies – triggered by a crisis for which the US shares much blame.

To recover, America will have to export more, not less. "Every man for himself" won't accomplish this; only the golden rule will.

Economist Douglas Irwin also calls on the Golden Rule in the New York Times op-ed:

Remember the golden rule, or the consequences could be severe. When the United States imposed the Smoot-Hawley Tariff in 1930, it helped set off a worldwide movement toward higher tariffs. When everyone tried to restrict imports, the combined effect was a deeper global economic slump. It took decades to undo the accumulated trade restrictions of that period. Let’s not make the same mistake again.

Similarly, Nayan Chanda warns against "beggar thy neighbor policies" in the Straits Times:

The legal challenge aside, one unavoidable consequence of any “Buy American” provisions in the stimulus package would be retaliation from China, Europe and other countries now in the process of allocating government funds to boost their sagging economies. Concerned about the wider ramifications of this retaliation, US business groups — including major companies such as Boeing, Caterpillar and General Electric — have called on Congress to resist such protectionist measures.

Despite the lessons of history, the dangers posed by protectionism are often seen as a problem for tomorrow while saving jobs is a fiercely urgent task. The world now needs leaders who can stay calm in the face of the raging storm and work together to stimulate their own economies without triggering a new wave of protectionism.

"Buy American" provisions may temporarily provide job security for some Americans, but the contagion of protectionism will stunt global trade and bring misery to Americans and the rest of the world.


Anonymous said...

Free trade is one thing. Wage arbitrage is another. How bad does the US trade deficit have to get before people think there is a problem?

Matthew Hennessey said...

BBC, February 11, 2009: "US trade deficit at six-year low"

Full story here.