Why are there restrictions on spending US taxpayer money on US goods?

February 7, 2009 6:08 PM

Why are there restrictions on spending US taxpayer money on US goods?

I'm asking for an education, as economics is something I've never fully been able to wrap my brain around. My current view of this topic could be totally off base, at which point I may just need to be told (gently) why I'm wrong.

Over the last week and a half, various newsmedia ran brief stories about the 'Buy America' clause in the proposed stimulus package needing to be reworded. From what I gathered in the brief news items, the original statement was something along the lines of 'All materials for infrastructure projects must come from US based suppliers'. After warnings of 'trade wars' from Europe and Canada, the statement had to be modified to include'...in accordance with all international trade agreements'.

Help me understand. As it is a stimulus package to stimulate the US economy, paid for by the US Taxpayers, it would seem to follow that we would want to keep the money... in the US. It is a one-time stimulus package, not a overruling policy. It only addresses money being spent by the government - tariffs are not being implemented, nor is there any additional restriction on private businesses international import/exports. So why are other countries bothered by it?

I honestly don't know where to start here. I tried calling my senators offices, the staffers were not able to identify what exact trade agreements would be violated, and vaguely mentioned the WTO, but no details. So any specific information, or general logic behind why it's a bad idea to restrict this money to US companies would be appreciated.

(As a side note, is there any way to see the complete, actual wording of bills currently being considered?)

posted by waxlight to Law & Government (17 answers total)

For one thing we can't manufacture 80% of what we use. We have farmed out our manufacturing industry to the lowest bidder.

as to your side note: you might want to check out this group: http://www.downsizedc.org/page/read_the_laws
posted by patnok at 6:18 PM on February 7, 2009

Best answer: Read the bill (all 4 versions) at the Library of Congress' THOMAS site. GovTrack.us is another (not governmental) site that links to what bills are popular.
posted by ALongDecember at 6:18 PM on February 7, 2009

(As a side note, is there any way to see the complete, actual wording of bills currently being considered?)

thomas.gov
posted by Flunkie at 6:19 PM on February 7, 2009

It only addresses money being spent by the government

The big danger in any laws that impact international trade is that they will do to us, what we do to them. There are many US industries including defense contractors who make a lot of money selling things to foreign governments. They do not want those foreign governments instituting similar "buy local" rules.
posted by smackfu at 6:21 PM on February 7, 2009

As a side note, is there any way to see the complete, actual wording of bills currently being considered?

Opencongress.org is good for this sort of thing.

So why are other countries bothered by it

If their industries have been making money selling raw good to us, other countries will lose money with a "Buy America" program. If America does this, then other countries are threatening to do the same, which would hurt global trade and considering the pain of the global economy is in right now, America really shouldn't be rocking the boat. I think there's also various trade agreements which discourage or forbid and if the US reversed those early decisions, that would piss off lots of countries.

Try Googling "Buy Ameria" in the news section for more stories on it.
posted by Brandon Blatcher at 6:25 PM on February 7, 2009

So why are other countries bothered by it?

Because other countries have enacted laws which affect their own spending, in return for similar laws in the US. The moment the US government starts passing 'US-only' spending laws, it's in breach of its treaty obligations - no matter what the nominal purpose of that spending. You can bet the US would get pissy in the reverse scenario.
posted by pompomtom at 6:27 PM on February 7, 2009

Response by poster: I would understand other countries having a problem with a -policy- of "Buy America", but this is not a policy being enacted - it is a specification in -one- package, following the intent OF that package - to stimulate the US economy.

Which specific treaties/agreement lay out the obligations of the US in regards to spending policy? (not arguing their existance, just trying to fully educate myself)

Thanks for the links to the bill's wording - I can see I have quite a bit of reading to do!
posted by waxlight at 6:35 PM on February 7, 2009

Best answer: We are a member of the World Trade Organization and have contractual obligations with other member countries regarding free trade. In our WTO obligations we have committed, among other things, to not discriminate between domestic products/services and those of our trading partners. And passing a law which says, the gov't is going to buy $819 BN worth of goods and services, but only from domestic sources, does exactly that.

There are about 30,000 pages worth of actual contractual agreements (GATT agreements) so it's understandable that your senator's office was a little vague. I think the easiest way to get your head around this is to look at some of our trade disputes; that will show you how we expect to be treated by our trade partners and why they get upset if we subsidize domestic industries.

The next logical question would be, but we've already given funding to various financial institutions, doesn't that violate our agreements also? I think so. We may see fallout down the road or maybe not because many other nations are doing the same thing.
posted by txvtchick at 6:54 PM on February 7, 2009 [1 favorite]

it is a specification in -one- package, following the intent OF that package - to stimulate the US economy

It's multi year spending on numerous projects that they would be shut out of, simply because they aren't American. If the situation was reversed, America would be pissed also.
posted by Brandon Blatcher at 6:57 PM on February 7, 2009

And look at it this way - the "buy American" really does have the potential to damage American companies and taxpayers too. (I know it's counter-intuitive but bear with me). Say you specify that all steel used for infrastructure projects would be purchased from US sources. The Chinese are not happy about this, so they decide to slap a retaliatory export fee on coke (a raw material needed for steel which China has a lot of) or just restrict exports of it. What happens then? The price of steel goes way up and the infrastructure project just got a lot more expensive.
posted by txvtchick at 7:03 PM on February 7, 2009

The problem is that not every other country is willing to do stimulus. Germany in particular is being stingy, which means we end up stimulating their economy, without them stimulating ours. While that sounds kinky, it's actually kind of bad.
posted by delmoi at 7:10 PM on February 7, 2009

Smoot Hawley:

The Smoot-Hawley Tariff Act (sometimes known as the Hawley-Smoot Tariff Act)[1] was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels. In the United States 1,028 economists signed a petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half. In the opinion of some economists, the Smoot-Hawley Act was a catalyst for the severe reduction in U.S.-European trade from its high in 1929 to its depressed levels of 1932 that accompanied the start of the Great Depression.[2][3]

"Buy American" requirements suggest a rise in this type of protectionism.
posted by jenkinsEar at 7:14 PM on February 7, 2009

>why are other countries bothered by it?

Because it arguably violates the long-standing and hard-fought free trade agreements with Canada and Mexico.
posted by megatherium at 7:36 PM on February 7, 2009

The main problem is that most large US companies could not survive if their products were only bought by US customers. They need exports. If the US implements a protectionist import policy (i.e. it costs more to sell a non-US product here because of import taxes, or if there is a "quota" of US taxpayer expenditure that must by American), other countries will follow suit, harming US company exports. The market for most products really is global and it would be harmful for the US to institute protectionist policies. In particular, the US is worried about China and the EU instituting import levies or quotas against US products, as these are major markets for the US. This is why a fair number of large multinationals based in the US have been lobbying against the "buy American" clauses in the Stimulus Act.
posted by Susurration at 8:03 PM on February 7, 2009

why are other countries bothered by it?

I can imagine a few countries are specifically concerned about any effect on their own exports, but basically, the US has been the chief drum-beater for free trade for at least a generation, particularly since the Reagan Administration. This does not just include NAFTA, but numerous bilateral trade pacts to economies representing about 1/13 of the world economy but 42% of US exports. Thus the free trade agreement has been an explicit tool of US trade used to open up markets to US goods.

People who have been lectured to and bullied about free trade don't like it when we don't walk the walk.
posted by dhartung at 11:37 PM on February 7, 2009

As an Aussie who has just seen our government hand out many billions with no parochial limits, it is annoying to see protectionism in the states.
We have a free trade agreement with the US, which in my, and many others, opinion, is quite favourable to the US. The argument presented to the Aussie public was largely we would make up an y disadvantages with volume.
So we are pretty sensitive to the idea that the US will take advantage of these agreements when the sun shines, but default on them when it is gloomy. As others have said.
I sympathise with US folk who are doing it tough, but a law that props up a failing US steel maker or similar, at the expense of globally competitive industries like software or entertainment just impoverishes us all in the longer term.
Whether the global free trade of goods and capital, without a corresponding free transit of people, is sustainable, is a bigger question.
posted by bystander at 3:16 AM on February 8, 2009

Response by poster: I sympathise with US folk who are doing it tough, but a law that props up a failing US steel maker or similar, at the expense of globally competitive industries like software or entertainment just impoverishes us all in the longer term.

I'm thinking that my question perhaps should have been more about the definition of "free trade" and the existing trade agreements the US is part of.

Taken out of context, it would make sense that if you're trying to stimulate your countries economy, you'd want the money that you're using to stay in the country, which was why I didn't understand the modification of the Buy American clause. However, if you look at this one bill as setting presidence for other bills, then I can understand the concern. And if you put it back into the context of what the US may or may not have done (I say it that way as I, myself, do not know), then I can understand other countries' annoyance.

Thanks for everyone for their answers - between the thomas.gov link and the trade dispute links, I think I have good places to start looking for details!
posted by waxlight at 8:38 PM on February 8, 2009