Letters to the Editor For April 2010

March 7, 2010
Debating the Buy American provision

Empty Chamber

Re: "'Buy American' Provision Boom or Bust?"

"Your Feb. 18 article contains warnings from the U.S. Chamber of Commerce about the Obama stimulus package's domestic purchasing requirements that don't deserve to be taken seriously.

As the article reported, the Chamber has warned that tit-for-tat "retaliation by foreign competitors [against these requirements] could cause U.S. companies to lose 1% of potential foreign stimulus procurement opportunities and result in 176,800 job losses." Broader adoption around the world of "buy national" requirements would cost many more jobs, the report adds. But the warnings come from a Chamber report whose logic and methodology are fatally flawed. Specifically, the report presents an utterly implausible portrait of the import share of the U.S. federal procurement market. Moreover, it completely ignores the likely effects of the organization's preferred policy response -- a stimulus package with no Buy American requirements at all. Consequently, the report's conclusions about the net effects of the Buy American provisions are equally implausible.

The problem begins with the Chamber's major understatement of the U.S. government's use of imported manufactured products that are vulnerable to the Buy American provisions. The study pegs this figure at less than 9% of the manufactures to be procured by the stimulus program -- a figure extrapolated from Washington's own estimate of the share of imports in federal procurement generally. Therefore, the Chamber study contends that "rigidly" implementing the Buy American provisions would reduce imports by only $3.2 billion and save relatively few U.S. jobs.

But these federal figures are nowhere near detailed enough to measure the foreign content of manufactured products coming out of U.S.-located factories. Because these foreign content levels are high and continually rising, the actual import share of federal manufacturing procurement is surely much higher. Indeed, the latest government figures that measure imports of parts and components of final products, as well as the final products themselves, show that imports had captured nearly 30% of the U.S. manufactures market overall in 2007. That's three times the Chamber report's figure. Thus, if federal consumption of manufactures is not radically different from overall U.S. consumption of manufactures, dropping the Buy American requirements could in theory produce three times the U.S. job loss projected in the study.

Moreover, odds are that the 30% figure has risen since 2007. Why? Because of the global economic crisis. As should be clear to any student of global trade, the widespread slowdown and reversal of growth and rise of new trade barriers around the world has placed a greater premium than ever on exporting to a huge, still-wide open market like the United States. As a result, trade partners that were never shy about using subsidies, dumping, currency manipulation, and other predatory policies to boost sales in the United States are undoubtedly even less shy now. And thanks to organizations like the Chamber, which have always coddled such predation (because it often benefits member companies that produce overseas), domestic companies and their workers have few effective defenses.

Could retaliation produce export losses, as the Chamber study predicts? Of course. But unless foreign governments declared all-out war on U.S. products, they would be much smaller than the import-produced losses that would stem from dropping Buy American provisions in the stimulus package and similar future programs. After all, the government procurement systems of many U.S. trade partners that have signed the World Trade Organization's government procurement agreement are considerably less open than America's. The procurement systems of nonsignatories, like China, India, and Brazil, are less open still. Therefore, the U.S. shares of these foreign government markets are far smaller than the foreign shares of the U.S. government market. American producers have that much less to lose abroad, and that much more to gain at home.

Most important, the Chamber's Buy American report stands for the kinds of one-way free-trade policies directly responsible for the massive U.S. trade deficits and debts that triggered the ongoing global economic crisis. More of the same is the last thing that either America or the rest of the world needs.

Alan Tonelson
Research Fellow
U.S. Business and Industry Council

Whose Side are They On?

Re: "First Up -- The Case for Investing in Manufacturing," March 2010

Your article is dead on. If our government doesn't realize how essential manufacturing is soon, they will regulate it out of business and lose the remaining manufacturing base we have. There are many countries and international companies that are gaining ground on the United States and are delighted by the way our government is many times effectively on their side. Thanks for your accurate and insightful article.

Les Berryman P.E.

The vast majority of manufactured products, over the whole range from low to high tech, can be produced for far less in China and other low-wage countries. As a result, it is almost impossible to export more and a struggle to import less. The products that are derived from U.S. subsidized R&D will naturally be made in the lowest-cost production environment, especially to serve the export market. Thus, the benefits of our subsidizing R&D go 80% to 90% to the low cost production country and only 10% to 20% to the United States. We fund the R&D for one year. They get the production for 10 years. My solution: Any product that results from government subsidized R&D, including tax credits, university research, etc, must be produced exclusively in the U.S. for the first 10 years or the subsidy must be refunded with interest, or maybe at two times the subsidy to balance the R&D that does not result in a product.

Harry Moser
Chairman Emeritus
Agie Charmilles LLC
Lincolnshire, Ill.

I was stunned but not surprised by the key statistic in this article, which was that the United States was first in R&D/GDP percentage globally in the late 1960s (or whatever your baseline was) and is now ranked eighth.

However, I believe that I know exactly when it started. It started in the summer of 1969 when President Nixon cut funding for the National Science Foundation by 50%. I am guessing that it was the budget change for the next government fiscal year. I remember this happened then because I had just graduated with a bachelor of arts in physics at the beginning of June and was going to pursue a physics Ph.D beginning in September. At the time, I believe that NSF was the vast majority of non-military government R&D.

My bachelor of arts was "cum laude" because I wrote a senior physics honors thesis on federal funding of R&D. I still remember seeing a graph from some document, probably published by the government, that showed time in years as the independent variable and R&D as a percentage of the economy as the dependent variable. It was a line graph from sometime in the 1940s to sometime in the 1960s. The R&D/GDP percentage steadily increased for every year in that period. Then, in 1969 Nixon "bent the curve down" after the document had been published.

I have not looked for my honors thesis in decades. I may even still have it with more precise language than this message. But I do believe that the situation is clear. We have been living off of the first place position that we had for another 40 years.

My current political stance tries to be middle of the road. That is the hardest place to be politically in the United States today.

Name Withheld by Request

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