‘Buy American’….ask a Canadian
By: Ainsley Brown
Will Buy American achieve its stated goals, and that is to stimulate the American economy through the American Recovery and Reinvestment Act?
Ask a Canadian?
Oh that’s me.
The latest reports indicate that the Buy American clause in the American Recovery and Reinvestment Act is currently under review. It may even be dropped from the bill.
Ask a Canadian: “all of this is good news, even better news if it actually happens.”
But why? What’s wrong with Buy America? After all:
- There is already a Buy American law on the books – Buy American Act.
- This Buy American clause is after all only part of a stimulus – government procurement – package, which will only represent a small part of the over all US GDP and will not reflect an overall strategy in the US economy.
- Most importantly, from a US citizen’s perspective, why shouldn’t a US stimulus plan, meant to stimulate the US economy, paid for by US (current and future) tax dollars, do just that – stimulate the US economy by Buying American?
Ask a Canadian: “all good points. Yes, yes and yes. Then what’s the problem?”
The problem is this:
- Yes there is already a Buy American law on the books but Canada has been granted many waivers as part of Canada/US trade commitments. This new clause would take these away by being of much broader application.
- Yes this is government procurement but it will have, that is if the plan works, spill over effects in to the rest of the US economy, therefore, a Buy American mentality could set in to the overall economy.
- The US economy does not operate in isolation from the world economy. What’s more the Canada/US economies are amongst, if not, the most integrated in the world. Goods, in various states of completion, move back and forth across the border so often that a good with a Canadian label on it may have more US input in it than Canadian and vise versa.
Buy American makes sense politically on all fronts, it is very popularist – it sounds great (it rolls of the tongue nicely, say it with me now: Buy American); besides it sounds like exactly what the government ought to be doing for its citizens, especially at a time of economic crisis.
However does it make diplomatic or economic sense?
Ask a Canadian: “no it does not. On the diplomatic side of things, to Canadians, well at least to his one, this is another case where our fiends to the south have spat on our heads and told us it was raining – please note that spat is not the word I wanted to use, the real word is another four letter word that begins with p and ends in s.”
Sorry for the vitriol but what our American friends should understand is that Buy American seems to us as do not Buy Canadian. Is this how you treat your biggest trading partner; a country which you share the largest non-militarized border on earth with; a county with which you have the greatest cultural and historical connections with; a country fighting with you shoulder to shoulder in Afghanistan; and the country, despite what the British think, you have a true special relationship with? Is it?
As for the rest of the world, do you really want to send the signal that you America, the architect and chief proponent of the modern era of globalization, has turned its back on the very system which it developed internally and later exported globally? Is it?
What if other countries stared to include a Buy Canadian; Buy Chinese or Buy European clauses in their economic recovery plans? What would be America’s reaction then?
What about economically?
Ask a Canadian: “again this is a no. The theory behind Buy American is that American money will be spent on American projects, which will need American goods, which in turn will result in Americans being employed. These people will then turn a round and being to spend and Voila – well in the most simplistic of terms – an American economic recovery.
This clause ignores the economic integration of the Canada/US economy and the US economy with the rest of the world. Just from a practical stand point it makes very little sense, not because it will be difficult to enforce – which it will be – but mainly because it has the high potential of having the opposite effect.
Yes that’s right, the opposite effect.
And here is why – I should say three reasons why:
1. Let us use steel as an example. Why steel? Well simple, it seems to be in popular parlance in this discussion. According to ‘Buy American’ no Canadian manufactured steel could be used in infrastructure project, let’s say bridge construction. So high quality, (perhaps) cheaper and readily available Canadian steel cannot be bought for use in our example. Right.
Now let’s say that the American steel isn’t of high or higher quality – at least not at the start of the project – what happens to the project then?
Now let’s say the American steel is of higher quality but it isn’t cheaper than comparable Canadian steel, what happens to the project then?
Now let’s say that the American steel is of higher quality, is cheaper but is not readily available or available at all (because American steel mills don’t have the capacity to meet the new demand), what happens to the project then?
Let me tell you – I am sure you have guessed already – there will be the notorious construction cost over runs; costing taxpayer more. But more to the point, it will result in delays in projects getting off the ground or pausing mid-stream – the end result being fewer Americans being employed. The opposite effect.
2. Let’s stick with steel. Now I am not an economist my any stretch of the imagination but if there is greater demand for steel in America and the supply in America cannot catch up with demand because American steel mills do not currently have the capacity and the short fall cannot be filled by foreign (Canadian) steel, what will happen to projects then?
Do I really need to say it? I think I do – the opposite effect.
3. Sticking with steel, what about the Canadian steel already in American inventories? Are construction firms, Federal, State or Municipal agencies to sit on existing resources, while they Buy American? I think not.
And all of this is before getting in to the issue of the prospects of trade wars with America’s major trading partners.
I would like to end with one more issue and this is national treatment. I wasn’t going to include this issue, in fact I never even thought about it until I visited Trade Lawyers Blog. In the post: What is “National Treatment?,” Cyndee Todgham Cherniak explains the trade law concept and made me think: what about national treatment?
National treatment is the trade law concept, a cornerstone of the WTO and the GATT system before it and of NAFTA, which states that there ought to be non-discrimination – through government policy; taxes; regulations etc – between domestic and imported goods. Ms. Cherniak put it best: “Picture a circle – once inside the territory, there cannot be discrimination between local and foreign goods…”
So yeah, what about national treatment? Does the word of the USA, in the WTO or NAFTA, mean nothing?
Well this is where things get interesting. It would seem that the Obama administration wants the Buy America clause to be consistent with America’s trade obligation, and the Senate has obliged.
However, will the House of Representatives agree when they negotiate with the Senate to come up with the final bill? Let’s hope so.
This is an interesting discussion of a topic that profoundly affects all Canadians…perhaps even as much as our own election. Sounds like you’ve thought this through pretty well.
One other argument against the “Buy American” clause that you touch on above when talking about other countries imposing their own “buy local” requirements: some American businesses will be hurt while others will be helped by the requirement to buy American goods; however, American exporters as a class will almost certainly be harmed. It is impossible to imagine that there will not be trade sanctions in retaliation. Canada, the EU, China, and many others will certainly use the “buy American” clause as an excuse to retaliate. America is in danger of sparking a trade war and reverting the world to more protectionist ways. America should practice what it preached for the last 50 years.