Buy American Restrictions: Bad for Jobs, Bad for Business
By Lawrence P. Farrell Jr.
The American Recovery and Reinvestment Act of 2009 set the stage for a heated debate on the importance of global trade as one of the nation’s greatest sources of economic strength.
Earlier versions of the legislation contained draconian “Buy American” provisions that required U.S.-made iron, steel and manufactured goods be used in public works funded by the bill. This raised a predictable outcry from our trading partners, particularly the European Union and Canada.
In response to such protests, the bill was modified in the final stages of negotiations to include a requirement that Buy American provisions be implemented consistent with U.S. international agreements. In addition, the legislation allowed for the existing waivers that are part of the current Buy American law — which has been in place since 1933 — to remain applicable to projects appropriated under the ARRA.
The softening of the language in the final agreement between the House and the Senate was welcome news, but the debate leading up to the compromise is a reminder of why protectionism is bad business in today’s global economy.
Efforts to protect U.S. workers end up costing jobs if other countries emulate U.S. policies in retaliation. Protectionism goes against the spirit and letter of binding international commitments that were codified by the World Trade Organization and other bilateral agreements. Only recently, the United States was successful in persuading the G-20 to refrain from new trade restrictions.
Millions of American workers rely on global trade for their jobs through exports, foreign direct investment and imports.
The Smoot-Hawley tariffs that followed the stock market crash in 1929 are cited by most historians and economists as contributory to, if not a primary cause, of the Great Depression. If history is any guide, this is the worst possible time to be raising trade barriers.
NDIA has long opposed any additional Buy American restrictions for the defense and security industries. We joined 78 other associations and businesses in a letter to President Obama that summarized several reasons why these mandates would undermine our global responsibilities.
Existing Buy American laws and regulations already require the use of U.S. goods for federal projects except in circumstances where international agreements provide otherwise — generally agreed to mean that 50 percent of American materials are required. There is bipartisan support for existing law. The original House-proposed legislation would have raised this to 100 percent.
What is not generally appreciated is that global trade has benefited the United States in many ways. The defense and aerospace industries have been among the nation’s steadiest producers of jobs and export revenues. These industries generate the largest trade surplus of any U.S. manufacturing sector. They are a source of economic strength that are still showing modest growth at a time when many other industries have seen dramatic downturns.
According to the Aerospace Industries Association, U.S. aerospace industry exports worth $98 billion last year gave that sector a positive trade balance on the order of $60 billion. A cursory look at some major weapon systems made overseas reveal some startling statistics. For example the Gripen fighter produced in Sweden has 45 percent U.S. content. When one includes the weapons on the Gripen, the U.S. content grows to 55 percent. The Joint Cargo Aircraft that is produced by Alenia in Italy has 55 percent U.S. content. And when production shifts to Florida as a prelude to sale to the U.S. Air Force, that U.S. content grows to 65 percent.
These deals would not be possible in a protectionist environment. Alenia is investing more than $100 million to build the Florida plant, and at rate production, will employ more than 600 workers in northern Florida. Alenia, with approximately $3 billion in revenues, buys annually more than $500 million in goods and services from U.S. suppliers. There are other examples.
The U.S. defense industry has deep and profitable relationships with overseas partners, sometimes buying, more often selling. And the United States has access to the best global technology for its weapons systems, in many cases buying a world-class piece of equipment, developed and brought to operational maturity on another country’s nickel. And finally, like the Italian firm listed above, other foreign companies have chosen to locate in the United States, not only to sell to U.S.
defense customers, but to pursue international business from their U.S. base. As it turns out, the United States is a pretty good place to do business with its flexible labor laws, and excellent state support. None of this would be possible from a protectionist posture. The U.S. economy benefits greatly from a relatively open global trading regime.
Despite these times of economic hardship, it is important that we don’t allow short-term thinking to jeopardize the nation’s economic gains that millions of Americans who work in defense and aerospace have worked so hard to achieve.