We’re Not Perfect, But…

I just read an article in the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051404241.html?nav=hcmodule) which details some of the depressing fallout from the “Buy America” provisions of the US stimulus package. Interestingly, the article focuses on problems faced by Canadian companies (!) under those provisions. Here’s the opening paragraph of the article:

“Ordered by Congress to “buy American” when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.”

I, and I gather, Canadian companies, had assumed the provisions in the bill that required that all measures taken under it would be consistent with US treaty obligations, would spare the Canadians and other signatories of the WTO Government Procurement Agreement (GPA) from pain. Apparently not. According to the article:

“…[I]n recent weeks as federal authorities drafted broad guidelines for implementing the law and hundreds of states and towns have begun preparing for stimulus-related projects, Canadian companies have been surprised to discover that while some federal contracts are still open to Canadian materials and equipment because of trade treaties, most of those issued by state and local governments are not.

The Government Accountability Office estimates that state or local officials will administer about $280 billion in stimulus spending, including about $50 billion for transportation projects. But federal authorities have determined that construction projects even partially funded with stimulus dollars must also buy American, dramatically increasing the universe of affected contracts.”

This is really awful stuff and particularly bad in terms of our economic relationship with China. The US has for a long time been pushing China to accede to the GPA and one of the incentives pushing China forward toward this goal (albeit very slowly) is to get access to the government procurement market in the US. But if even Canada is facing increased obstacles, surely China will see this incentive withering. And in the meantime, the proponents of “indigenous innovation” and industrial policies in China continue to use government procurement as a tool to support national (or local) champions in ways damaging to foreign companies (and China’s long-term development).

In addition, this type of US action enters some kind of an amplifier/distortion device when it reaches China . The result is that the overall openness of the US economy gets short shrift, while the voices of Chinese protectionism and industrial policies summarize the situation as: “the US practices protectionism to promote its interests, so we should too.”

This brings me to my final point: in my past incarnation as a government official representing the US before Chinese audiences I would often wince as I had to explain actions such as those discussed here. I’d usually try to explain the political dynamics behind the measure without perverting my principles by defending them. That said, I never felt defensive on these issues. I would usually sum up my comments on a policy like this by noting that while it might be seen as protectionist and bad economics, when looked at overall, the US economy remained the most open major economy in the world for trade and investment and this was a key element of our economic success. Left unsaid was the idea that even with these new measures, China had a huge distance to go before its level of trade and investment barriers were reduced to anything near that of the US.

I can never remember who said that one measure of a person’s intelligence is the ability to hold two contradictory thoughts in their mind at the same time. Not sure if this qualifies as a test, but to me: 1) the Buy America provisions in the stimulus package are awful. If we can’t roll them back, at a minimum we need to continue to press the fight to prevent the further growth of protectionism in the US; and 2) we are still the most open major economy in the world; China would benefit from keeping that element of our economic success foremost, even as it (correctly) criticizes individual wrong-headed US policies.

Explore posts in the same categories: China, Economy, Innovation, Investment, Trade

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