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March 04, 2010

Green Job Offshoring Reignites Buy America Debate

Last month, an American University think tank made this startling conclusion: 79 percent of the $2 billion in clean energy grants under a U.S. Treasury/ Energy Department stimulus initiative have gone to foreign - not U.S. - companies. By industry estimates, the program has lead to well over a thousand net job losses in manufacturing.

While President Obama ran and won (and has since advocated) a green industry agenda that creates jobs in the U.S., the AU report finds that the Energy Secretary and American Wind Energy Association stating for the record that the grant program did not have immediate U.S. manufacturing job creation as a major goal.

Yesterday, Sen. Sherrod Brown (D-Ohio) joined Sens. Bob Casey (D-Pa.), Chuck Schumer (D-N.Y.) and Jon Tester (D-Mont.) in calling for a suspension of the grant program until legislation can be passed that makes sure the federal agencies prioritize U.S. job creation. In Schumer's words, "We should not be giving China a head start in this race at our own country's expense."

And as the New America Foundation showed, all of this is part of a longer term "green trade deficit" the U.S. has yet to address.

This latest kerfuffle has reignited last year's debate about Buy America provisions. People need to remember two things: Buy America has been shown to aid U.S. job creation, and neither the stimulus bill nor this latest Brown amendment change long-standing U.S. policy.

First, what do we know about the job impact of Buy America?

  • Last year, PERI, a University of Massachusetts-Amherst think-tank, put out a study finding that a stimulus package that was used to buy only U.S. products would create 77,000 additional jobs, mostly in manufacturing, relative to a package that did not have Buy America provisions.
  • The Peterson Institute, a pro-WTO group, tinkered with the PERI projections, and concluded that Buy America stimulus package would still create jobs (albeit a lower 9,000). However, the Institute tacked an additional scenario onto these estimates, suggesting that a wave of foreign retaliation against the U.S. would wipe out the job gains.
  • Stewart & Stewart, a leading trade law firm, took a closer look at the Peterson projections, and found that it made several flawed assumptions: it assumed away any indirect job gains (i.e. new manufacturing jobs leading to increased demand throughout local economies); the retaliation estimate is plucked from the sky (choosing some trading partners, ignoring others); it assumes a very low level of “import leakage” in manufacturing in the pre-stimulus scenario; it assumes full employment; and it is not take into account existing foreign procurement restrictions on U.S. exports (of which there were many even pre-crisis). 
  • Finally, the U.S. Chamber of Commerce recently put out a follow-up study that found a net job gain of 24,109 from a Buy America stimulus package. Like Peterson, they had to construct scenarios of massive new retaliation to get the estimates into the red.

So, all things equal, one has to say that Buy America helps create jobs, and the more strict it is, the better. What are the arguments and counterarguments?

  1. Retaliation. As noted, the Peterson and Chamber studies rely on a scenario of massive retaliation in order to summon up net job losses. Has this happened in reality? According to the WTO, there has been no tsunami of protectionist retaliation in the last two years, and indeed, negligible differences in trade openness.
  2. Legal changes. Countries are more likely to retaliate if they feel that legal changes are being made to the status quo which create new disadvantages for their exporters. But Buy America is not new policy: it has been around since the New Deal. It was considerably weakened (starting in 1979) when it was rewritten to allow products from members of (what is now) the WTO procurement agreement and various bilateral pacts to be treated as if they were Made in America. These longstanding advantages to dozens of other countries remain intact under the stimulus package. Life is only different for countries like Brazil and China that have not committed their procurement policies under such a pact: these were procurement markets where the U.S. didn't have trade pact rights before the crisis and not now, and vice versa. Again, the emphasis is on nothing changing, and retaliation not being triggered.
  3. Trade pact compliance. As noted, Buy America both in and out of the stimulus bill, was (unfortunately) written to fully comply with U.S. international trade obligations. This considerably weakens its U.S. job creation impact, but it also weakens the argument that we would expect to see retaliation.
  4. Evidence. If there were evidence of massive retaliation or bureaucratic hurdles from Buy America, we would expect the Chamber of Commerce to have produced evidence by now. In fact, their recent study could not produce a major instance of either, only three (3!) business owners who were worried about such. Meanwhile, the Alliance for American Manufacturing produced scores of business owners testifying to actual jobs created through Buy America stimulus from around the country.
  5. Negotiated solutions. The only instance of any country loudly complaining about Buy America was the right-wing Harper administration in Canada. Arguably, these complaints were driven by ideology and a desire to box in Obama more than an actual worry about job losses from trade disruption. But, they haven't retaliated, in part because the administration and Congress was able to cut deals not once but twice to make these complaints go away. 
  6. Popularity. Buy America plays very well with the American electorate - in polls, it gets a much higher rating that the stimulus itself. In other words, the Buy America bits help carry the overall package. In an election year where Tea Partiers are making the stimulus bill's offshoring of jobs an election issue, it is not surprising that forward-looking Democrats are feeling the need to preempt the criticism with the Brown bill.

The Brown legislation in particular is a very important step, but not the radical step it's being made out to be. The bill merely extends the stimulus Buy America procedures to the grant program. As we already showed, the stimulus procedures follow our WTO obligations and allow for the use of imports once several conditions are met. The only other obligation in the bill is that the Treasury analyze and take into account the impact of a grant on U.S. job creation, and then share these findings with Congress. In other words, we are essentially looking at a transparency and good government measure, not an import prohibition. (And, of course, the ability to appease Harper will not be taken away by the Brown amendment either.)

A bigger point needs to be made here: it was a real mistake for past U.S. presidents and legislators to consent to redefining procurement as a trade measure. How public dollars are spent are an expression of our values as Americans - they should be used to promote green values, lift up working families, and build the industries of tomorrow. The WTO and other flawed trade agreements cheapen the conversation by putting the trade impact above all other considerations: this is not only bad policy, its disempowering politics.

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Comments

Don Juan of Austria


I appreciate what these Senators are doing.

The rest of our elites (academic, think tank, and government) care more about keeping other countries happy than our high unemployment rate in this country.

And our business elites all think they live in another country, and can't see past next quarter's profits.

No other country has any right to any of our stimulus spending, and I seriously doubt that our manufacturers (who produce in the U.S. with U.S. labor) are getting much of other countries' spending.

We desperately need politicians who are willing to stand up forcefully to the Chamber of Commerce and to other countries' hypocritical governments.

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