Biden, like Trump, embraces the 'Buy American' folly

What Jeff Jacoby says below was for a long time conventional wisdom on both sides of American politics.  And it is still largely true. Buying local tends to prop up inefficient producers who really need to find something better to spend their time and efforts on.

 

Jacoby is however wrong to see Trump as the simplistic "buy American" advocate we have seen in the past.  Trump does after all have an economics degree from a prestigious economics school (Wharton) so would obviously be well aware of the problems with a buy American agenda.  

So while his rhetoric was at times sweeping, what Trump actually did was finely calibrated.  He protected American industries only when the social impact of foreign trade was grievous.  The headline example of that is that coal and steel towns got help from Trump when they were suddenly hard-hit by foreign trade. Trump endeavoured to revive coal mining in particular. He recognized, in other words, that there were some cases where  buying overseas rather from American producers could be socially disruptive and should therefore be deplored.

Tariffs have long been seen as a legitimate instrument of government and it was simply conservative of Trump to use them to give a breathing space to disrupted communities

But the very distinctive thing about Trump's tariffs was that he actually used them to FREE UP trade. He put tariffs on other countries in order to pressure them into removing their tariffs on American goods. And he did have considerable success at that. So at the end of the day trade was freed up overall, not reduced. He actually used tariffs to promote free trade

Whether Biden will use trade restrictions in a similar intelligent way remains to be seen but it seems unlikely

IN HIS first weeks as president, Joe Biden has been busily undoing much of his predecessor's legacy. On issues ranging from climate to abortion to immigration, Biden has signed executive orders and proposed new regulations aimed at reversing Donald Trump's policies. But when it comes to one of Trump's most damaging economic obsessions — his "Buy American" agenda — Biden is following in Trump's footsteps.

Trump was the most protectionist president of modern times. Hostility to free trade was a key theme of his 2016 campaign and of his inaugural address. "We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs," he declared. "Protection will lead to great prosperity and strength.... We will follow two simple rules: buy American, and hire American."

He was wrong. His protectionist policies failed. Yet now comes Biden, and vows to go even further.

On Jan. 25, the president issued a series of directives toughening Trump's policy of requiring the federal government to buy US-made products. Biden's orders, as summarized by the White House, impose higher hurdles for imported components used in US manufacturing and direct government agencies to "crack down on unnecessary waivers" — i.e., to allow fewer federal agencies to procure foreign-made goods in cases when they determine that a preference for American products would not be in the public interest.

But "buy American" mandates, though popular with the general public, are never in the public interest.

The idea that the federal government should be compelled to buy its products and supplies from US producers and suppliers — or, to put it differently, that the government should be barred from spending taxpayer dollars on goods made abroad — dates back to the Great Depression. On his last full day as president in 1933, Herbert Hoover signed the protectionist Buy American Act, which for the first time required government agencies to give preference to domestic goods for all contracts above a $10,000 threshold. Supporters of the law argued that it would strengthen American industry, fuel job-creation, and boost the fortunes of American workers.

The same argument is still being made by advocates of "buy American" policies. Biden's new executive orders, said the White House, "will ensure that the federal government is investing taxpayer dollars in American businesses—both small and large. These investments will help create well-paid, union jobs, and build our economy back better so that everybody has a fair shot at the middle class."

That may sound patriotic and reasonable. But the effect of Hoover's law, and myriad subsequent domestic-preference statutes and regulations, has been to drive up the cost of goods and services bought with public funds and to prevent jobs from being created. According to one scholarly estimate, scrapping "buy American" restrictions would add $22 billion to the US economy and generate an estimated 363,000 new jobs. Another analysis, by Gary Hufbauer and Euijin Jung of the Peterson Institute for International Economics, calculates that "the annual taxpayer cost for each US job arguably 'saved' by made-in-America [requirements] probably exceeds $250,000."

"Buy American" laws and regulations have driven up the cost of goods and services bought with public funds and prevented jobs from being created.

There is a superficial appeal to the notion that US procurement dollars should be reserved whenever possible for US producers. But like a lot of superficially appealing notions, it doesn't hold up to scrutiny. No one would ever insist that officials in Cambridge or Worcester be compelled to buy equipment and materials only from vendors and producers located within their municipal borders. After all, there are so many more options — often less expensive options, higher-quality options, or more reliable options — to be found in other towns. It would be equally absurd to insist that Massachusetts agencies be barred from contracting with firms in Ohio or California. Economic well-being doesn't come from locking up trade behind local or state boundaries, but from expanding it beyond those boundaries. What is true of neighborhoods, cities, and states is equally true of countries.

Protectionist mandates deprive American taxpayers of the benefits that come from access to worldwide supply chains and the broadest possible competition. By sheltering domestic producers from competitors abroad, "buy American" rules reduce the pressure on those producers to innovate, improve quality, and become more efficient. Rare is the American business that is capable of achieving sustained excellence, or of remaining at the cutting edge of its industry, if it never has to face challengers.

Those entrusted with taxpayer dollars should be required not to "buy American," but to buy wisely — to get the highest quality at the most reasonable cost. When American-made products meet that standard, by all means buy them. When imports are available at higher quality and lower cost, that is where taxpayer dollars should go. Surely Biden would agree that Herbert Hoover's policies have done enough harm. This is no time to double down on them.

http://www.jeffjacoby.com/25195/biden-like-trump-embraces-the-buy-american-folly