U.S. Buy American Provisions

The United States has been in economic depression since the onslaught of the financial crisis in 2008， with jobs as the top concern of the country’s people and government. Job creation is also the focus of debate during this American Presidential election. The unemployment rate has been above 8% since 2009， according to the statistics of U.S. Department of Labor. To stimulate the economy and increase the employment rate， the White House issued a slew of Acts， such as the American Recovery and Reinvestment Act of 2009 and the American Jobs Act of 2011. In these acts， were included Buy Americans Provisions， which is a stark trade protection measure. This policy is controversial both in the United States and outside the country， since it is said to be counterproductive in job creation.

Buy American provisions

ARRA (American Recovery and Reinvestment Act of 2009) included a protectionist “Buy American” provision which imposed a general requirement that any public building or public work project funded by the new stimulus package must use only iron， steel and other manufactured goods produced in the United States.

Such provision was also seen in the American Jobs Act 2011. Section 4 of the act， with the heading “Buy American — Use of American Iron， Steel and Manufactured Goods”， contains a directive that none of the funds made available by the American Jobs Act may be used for “the construction， alteration， maintenance， or repair of a public building or public work unless all of the iron， steel， and manufactured goods used in the project are produced in the United States.”

The United States was once the firm supporter and executor for free trade. The painful lesson learned by the Americans from the Smoot-Hawley Tariff of 1930， was that a rush of “beggar-thy-neighbor” policies would hurt the interests of all trade members finally. The U.S. was one the most important proponents of GATT. After the original Buy American Provision in the 1930s， the U.S. made similar provision in 1980s only in a limited public fields and limited contract volumes. However， after fifty years of supporting free trade and globalization， it seems that the U.S. is turning its trade policy from free trade to protectionism.

Implications of the provisions

This turn would not benefit the economic growth or increase jobs. A policy brief from the Peterson Institute for International Economics， a Washington-based think tank， concludes that the Buy American provisions would violate US trade obligations and damage the US reputation， with very little impact on US jobs.

The effect of the provisions is that jobs would be lost across the entire manufacturing sector while only a small number of jobs are gained in iron and steel and a few other industries.

Gary Clyde Hufbauer and Jeffery J.Schott in a Peterson Institute report calculated the positive impact on steel industry jobs of the provisions. They estimated that the additional US steel production fostered by the Buy American provision will amount to around 0.5 million metric tons. This in turn translates into a gain in steel industry employment equal to roughly 1，000 jobs. In the giant US economy， with a labor force of roughly 140 million people， 1，000 jobs is a very small number. The reason that only a very limited amount of jobs were created is， the iron and steel industry is very capital intensive， and the industry has been going down not just since the financial crisis but almost 20 years ago.

The negative job impact of foreign retaliation against Buy American provisions could easily outweigh the positive effect of the measures on jobs in the US iron and steel sectors and other relative industries.

In response to the Buy American measures， other countries had mapped out their own echo and retaliation strategies， particularly Canada and the European Union. European Commission trade spokesman Peter Power told journalists in Brussels that the United States will not get away easily with expanding “Buy American” protectionist measures as part of its economic rescue plan.

After strong opposition from the trade members， on February 3， 2009， President Obama stated that the Buy American Provisions were “a mistake” as they would send a protectionist message to the world and risk a trade war. As a result， he wanted “to see what kind of language we can work on this issue.” On February 16， 2010， the United States and Canada agreed on exempting Canadian companies from Buy American provisions in ARRA which would have hurt the Canadian economy. There are some exceptions for the Section Four of the Jobs Act， which states that if using all-American products increases the cost of the project by more than 25 per cent， the requirement will be waived. So too if the goods needed for the project aren’t manufactured or available in the U.S.

Similar provisions in the past

A review of American trade history shows that Buy American Provision is the child of the economy depression and happened after almost every recession in the United States’ economy.

As far back as in the 1930s， together with the Smoot-Hawley Tariff of 1930， the Buy American Act of 1933 signed by President Hoover in his last days in office， required the United States government to prefer U.S. made products in its purchases.

There was similar act in 1980s — the“Buy America Act” which came into effect in 1983. It is not to be confused with the one mentioned above. This one applies only to mass-transit-related procurements valued over US$100，000 and funded at least in part by federal grants. By then， the GATT had been there for over 30 years since 1948. Since the GATT provides a framework for trade relations， the multinational trade relationship couldn’t be destroyed as easily as in the 1930s. The government provisions could not violate GATT or GPA. So the government limited the provision to specific purchasing departments and product categories.

The Buy American provisions in the Recovery Act and Jobs Act are a signal that there will be more and more reciprocal trade retaliations in the future， especially in the background that multinational trade system met a lot of difficulties in the Doha Round and the world economy is in a recession.