2/25/2009

Buy American Dance Goes On

by Sean Hayes (Korea Times 2/21/09)

The American stimulus bill is to be signed into law with a ``buy-American'' provision mandating that stimulus-funded programs only fund those that utilize U.S. manufactured goods.

Additionally, it makes it more difficult for banks, which received funds under the Troubled Assets Relief Program (TARP), to hire immigrants.

In order to appease free-trade Republicans, President Barack Obama pushed for language noting that the United States will honor its international agreements. The language doesn't change the effect this bill will have on the superpower and the world.

The United States is a country built on the notion of political and economic freedom. With vibrant and robust free market capitalism and a political system able to react quickly to changing dynamics, it has maintained one of the most prosperous societies the world has ever known.

Because of our financial crisis, opponents of free trade were able to successfully fight to include in the stimulus bill the buy-American principle and other similar provisions in order to ensure the protection of jobs in industries that are unable to compete with external competitors. The opponents may ``save'' a few jobs, but the costs far outweigh the benefits.First, Brazil, China, India and the rest of the developing world have numerous public works and other projects that often are awarded to U.S. firms.

American companies like Caterpillar and GE strongly opposed the buy-American language, since they realize that these provisions put America at a competitive disadvantage. Will these countries, and the rest of the world, use this as an opportunity to not purchase U.S. aircraft, tractors, financial services, reactors and high-tech electronics?

If history is a prediction of the future, the Great Depression is a useful lesson. The Smoot-Hawley Tariff, according to the vast majority of mainstream economists, set off a trade war with Europe that led to a deepening of the Great Depression, the deterioration of U.S. industries, and a deepening resentment in Europe to the United States' reactionary response to a worldwide depression.Secondly, free trade benefits all buyers and sellers, while trade barriers benefit certain sellers at the expense of other sellers and all buyers.

The elimination of ``outside'' competition, as history has shown, leads to an increase in cost. An increase in cost leads to the inability to buy other services from other buyers.For example, in Korea, the same Hyundai car bought in the United States will cost a considerable amount less.

The U.S. consumer, thus, buys the Hyundai and has a gain over the Korean purchaser of the car. This causes the Korean consumer to have less disposable income and thus less power to purchase additional products.Who loses? Of course consumers lose, but let's not forget that other sellers lose. The other sellers, because of the reduction in purchasing power of the Korean consumer, lose the opportunity to sell.

Lastly, the world needs a champion for economic freedom. The United States has taken the lead in most of the last century, but it seems no other nation is capable or willing to champion the benefits of political and economic freedom. If the United States doesn't take the lead, who will?Korean President Lee Myung-bak has an opportunity to show Asia the benefits of economic freedom. He has vowed to reform the way Korea operates, but a great deal of his measures adopt the same top-down regulatory approach advocated by his predecessors.

The world has seen the benefits of free trade and economic liberties. Hopefully, it will not regress and lose sight of the benefits trade and economic liberties has garnered for customers and sellers.

_____
SeanHayes@ipglegal.com