Is ‘Buy American’ a Slogan Worth Preserving?

Call it the Rubber-Chicken War—the looming trade dispute between the United States (which has announced punitive tariffs on imports of Chinese tires) and China (which is threatening retaliation against American poultry exports). Against the background of the G20 trade talks in Pittsburgh, that contretemps made this an auspicious time to examine the age-old question of protectionism. Last week, beginning the fourth season of public debates sponsored by Intelligence Squared US, six panelists discussed the proposition that "Buy American/Hire American policies will backfire."

Those arguing for the motion were Columbia professor Jagdish Bhagwati, former U.S. trade representative Susan Schwab, and Dartmouth economist Douglas Irwin.

Disputing the premise were United Steelworkers chief Leo Gerard, Harper's magazine publisher John R. MacArthur, and Jeff Madrick, a fellow at the Schwartz Center for Economic Policy Analysis at the New School. Excerpts:

IRWIN: In the economic-stimulus bill, one section requires the use of American--made steel in all stimulus-related construction projects unless it costs more than 25 percent above foreign suppliers. Now, this is a good deal for the American steel industry, but it's a bad deal for the rest of us. By raising the cost of construction projects, our nation can afford fewer of those projects. That means fewer jobs will be created with the limited amount of money we have to spend.

Picture the Bay Bridge in San Francisco. California had to repair the bridge a few years ago, and the domestic steel bid came in at—guess what?—23 percent above the foreign bid. Why it wasn't 24 percent above, I don't know. But that added $400 million to the cost to repair the bridge. Steel is very capital-intensive; when we increase production we don't hire a lot of workers. Construction is very labor-intensive. There are about 150,000 steelworkers in the United States, and 7 million construction workers, 1.5 million of them unemployed. So why do we give U.S. steel producers a 25 percent [advantage]? They were the only industry powerful enough to get it into law. It's corporate welfare, pure and simple.

GERARD: The fact of the matter is that China did win the bid for the Bay Bridge, and the Bay Bridge is almost eight months behind schedule, and the steel that came from China won't hold the weld. And they're not sure if they're going to have to rip it all down and rebuild it, so if we talk about lost dollars and productivity, it's way more than the number that Doug used.

Think of the auto industry. For some reason, we're prepared as a society to tolerate a deficit in automobiles between South Korea and Japan of $45 billion a year. A billion dollars equals 13,000 family--supporting jobs, just in the auto sector. We can't get into their market; they have a view that buying a Japanese car in Japan is a good thing.

China has recently announced that it intends to dominate the world in renewable-energy products. A company called Suntech Power Holdings said in an interview that to build market share, it's selling solar panels on the American market for less than the cost of materials, assembly, and shipping. And we're saying that we want to be the leader in renewable energy, but we don't have a program to stimulate demand or to buy renewable-energy products that are made in America.

BHAGWATI: THE problem with the opposing side is you think protecting steel will create jobs in the steel industry. But you are opening up a whole series of additional effects. One, of course, is that downstream industries typically become more uncompetitive. When President Bush put on steel tariffs, the effect was to price out a whole lot of steel-using industries, including autos. There was a famous study that about 200,000 jobs may have been lost.