Another Reason To Hate Protectionism

By Daniel Indiviglio

Most economists agree that protectionism is a pretty bad idea. Just ask former President Herbert Hoover whose Smoot-Hawley trade tariff helped create the Great Depression. Still, it's hard for politicians to learn this lesson, as trying to protect American jobs through legislative measures sounds like a great idea in theory. In practice, that's a different story. We're beginning to see some bad protectionism in action. The stimulus package's "Buy American" provision is making projects harder and associated job growth slower.

Bloomberg reports that contractors who want to use stimulus funds are having trouble, because the water filters made by General Electric that they need to use are made in Canada. As a result, they can't use them under the Buy American provision. Bloomberg explains:

Contractors are searching the U.S. in vain for filters as well as bolts and manhole covers needed to build wastewater plants, sewers and water pipes financed by the economic stimulus. As officials wait for federal waivers to buy those goods outside the U.S., water projects from Maine to Kansas have been delayed.



In a global market, a protectionist measure isn't only bad from an economic standpoint: it's also disastrous from a practical standpoint. That's what this story demonstrates. At least one Congressman understands the problem. Rep. Kevin Brady (R-TX) is calling for a review of the Buy American provision in the stimulus. Bloomberg quotes him as saying:

"There are some real downsides to Buy American," Brady said in an interview. "It delays projects. We have to look at what jobs we are losing."



I think that's right. It's one thing to require that stimulus projects be completed in the U.S. It's another thing to require that parts in those projects have been manufactured in the U.S. That's just not a realistic requirement in today's world.

Even beyond the practical complications beginning to manifest themselves, a provision like this provides fake job growth. Once the stimulus money dries up, any new jobs created in manufacturing to produce those parts used for stimulus projects might go down the drain with it. If those parts were only selected due to coercion through the Buy American provision, then when government money runs out, contractors will go right back to using any foreign-made parts they used before. They didn't select those parts because they hate America; they chose them because they were the best products at the best prices. As a result, this provision doesn't create the kind of long-term job growth that Washington should be aiming for. It provides short-term jobs that satisfy some lobbyists, but ultimately make the economy worse.

This article available online at:

http://www.theatlantic.com/business/archive/2009/08/another-reason-to-hate-protectionism/22944/