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The Danger of “Buy American”

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Efforts to promote free trade in Latin America will be reduced by the "Buy American" clause in President Obama's stimulus package.


BY RICARDO ERNST

The recently approved stimulus package from President Obama was amended so that the "Buy American" clause was less aggressive. The changes were the result of criticism the idea generated in the international arena, sending a clear message to the supporters of protectionism.

As Andres Oppenheimer says in his Miami Herald column, the new version of the clause requires not just that infrastructure projects of the U.S. Government use steel and iron products made in United States, but that this is done in compliance with the United States' obligations in international treaties.

MORE EXPENSIVE

The previous legislation provided that a product could win a U.S. government bidding if the price was up to 6 percent higher than that of a foreign product. The new law raises the percentage to 25 percent. That means that U.S. products could be up to 25 percent more expensive than a foreign product, and win a government tender.

This will encourage other countries to respond in a similar way, causing a reduction of international trade flow, resulting in fewer jobs everywhere. In fact, other countries that are not signatories to the WTO agreement on government procurement - such as China, Brazil and India - have “buy national” laws that are even more restrictive.

Herein lies the danger. As Oppenheimer explains, there is a possibility that the whole world will say `I'm going to do the same. If the Americans are doing it, we should do the same.’

REDUCED FREE TRADE

Latin American countries have benefited from trade with the United States. This protectionist clause creates a rather negative precedent. Efforts to promote free trade in the region will be reduced.

The conclusion is clear. Although the final version of the law complies with international agreements, many industry players in the world will be eager to have captive markets, and require their governments to adopt tougher laws on “buy domestic.'' The precepts of free trade will be clearly affected and we undoubtedly will all be hurt.

Dr. Ricardo Ernst is deputy dean of the McDonough School of Business at Georgetown University and co-director of Global Logistics Research Program. He is also editor-in-chief of Globalization, Competitiveness and Governability. This column is based on his commentary on CNN en Español. 

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