Coming Home to Roost: The Downstream Implications of "Buy American"

Over on Supply Excellence Mike Petro does a good job capturing some of the downstream implications of the "Buy American" clauses of the stimulus package. He argues that despite the scaling down of some of the restrictions, the bill nonetheless has "alienated several key trading partners and kicked off a small, but potentially growing, trade war on multiple fronts". Given Mike's background, coming from the producer side of the industry (e.g., US Steel), his critique of the situation is all the more powerful considering the protectionist interests of his past employers (whom you might think would have left more of an indelible mark on him).

To show international opposition for the bill, Mike describes the protest lobbied by Japan, among other countries. Japan's beef -- the tough kind, not Wagyu -- is that the automotive provisions of the bill mandate fleet purchases from Big Three automakers. But as we all know, many Japanese OEMs sold in the US are made from just as much if not more domestic content (and R&D input for that matter) than their Detroit "equivalents" -- but don't tell Washington that. Still, the bill limits fleet purchases to the Big three which Japan is protesting as violating "the World Trade Organization's fundamental principle of non-discrimination". And China is following Japan's action as well, launching what Mike describes as a "formal investigation into possible dumping of U.S. produced electrical steel products into China" in response to related trade spats on this side of the Atlantic against our Sino-trading partner.

Without question, the "Buy American" clauses of the stimulus package are already coming back to hurt the US on the world trade stage. But whether or not Washington realizes the implications of its actions before US industry is hurt even harder from retaliatory measures remains to be seen. Personally, I doubt we'll see much shift in policy. After all, when you're attempting to protect the so-called rights of the few who put you in office and raise the biggest stink (e.g., trade unions, domestic producers) at the expense of the many (e.g., the broader manufacturing lobby) it's pretty clear who will win out. And we'll all be the worse off for it.

Jason Busch

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