Legal Commentary

Obama Weighs In Against Buy America Stimulus Provisions

By Big Tent Democrat

David Sanger does a good job of reporting the story:

The Senate, at the urging of White House officials, agreed Wednesday night to water down some of the “Buy America” provisions in its version of the $900 billion economic stimulus bill. The vote gave President Obama a victory in the first test of how he will balance his campaign promises to toughen protections for American workers against a storm of protests by American trading partners who have threatened retaliation.

The White House had been seeking assurances that any requirements barring purchases from abroad did not significantly expand existing law or violate existing trade treaties. The language approved by the Senate said such provisions should be “applied in a manner consistent with United States obligations under international agreements.”

(Emphasis supplied.) So Buy America will stay in place as it exists - with preferences for US goods, unless we have reciprocal agreements with other countries. So what was this really all about? US steel and iron producers, who apparently need bigger preferences:

“Buy America” is hardly a new idea — Congress has passed similar requirements for seven decades — and in many cases it is not considered a violation of trade treaties.

The first efforts to compel the government to buy American goods go back to the Great Depression. Scott N. Paul, the executive director of the Alliance for American Manufacturing, said Wednesday that “there are ‘Buy European’ programs that are a lot stronger than what is being described” in the Senate bill, and he argued that the European protests were simply efforts to gain an edge in future trade disputes.

Even as the protests from Europe poured in, Democratic lawmakers from steel-producing states warned Mr. Obama that if he backed away from the provisions, they would oppose the whole stimulus bill — perhaps an empty threat, but perhaps not. “If it’s not in, I’m not supporting this package and I’ll bring a lot of votes with me,” said Representative James L. Oberstar, the Minnesota Democrat who is chairman of the House Transportation Committee.

This dispute puts a fine point on an issue I discussed during the primaries - that Obama would not be the "fair trader" many in the Netroots expected. As a free trader, I was happy to note it was all campaign bluster from Obama:

Other members of Mr. Obama’s party issued similar threats, reminding Mr. Obama that he was the candidate who early in his campaign called for renegotiation of the North American Free Trade Agreement and constantly cast the stimulus bill as a way to create or save at least three million jobs.

But Mr. Obama is constrained by trade agreements, Nafta included, and a commitment that the United States joined at an emergency meeting of the world’s 20 largest economies in Washington in October. All countries agreed on “the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty.”

Many presidents have been caught in a similar vise, but few at a time of such economic stress. Bill Clinton ran for the presidency in 1992 raising questions about Nafta, which had yet to be ratified, and vowing to link China’s human rights record to its trading status. He later pushed Nafta through Congress and got China into the World Trade Organization, assuring its trading rights, without regard to its human rights record.

But for Mr. Obama it is a particularly difficult moment because of his emphasis on creating jobs. He has steered clear of adopting Mr. Clinton’s arguments about how free trade leads to greater American exports.

There has long been a debate raging on the value of protectionism in spurring job growth (from the days of "domestic content legislation and even earlier, to Smoot-Hawley.) I have been a staunch free trader and remain so. This debate on the added Buy America provisions in the stimulus bill puts a fine point on it. But in the end, the existing Buy America provisions will apply to all government spending, including the stimulus bill - but it will not be the absolute prohibition on foreign purchases some wanted, especially in the steel and iron industry. BAA provides a 6% preference for American goods - absent an exception (unavailability, reciprocal agreements, etc.)

For now, the steel and iron industries will have to find a way to make that work.

Speaking for me only

Full post as published by TalkLeft on February 05, 2009 (boomark / email).

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