Tuesday, February 17, 2009

Jobs vs. Protectionism in the Stimulus Package

Jobs vs. Protectionism in the Stimulus Package

The $787 billion spending legislation being signed on Feb. 17 by President Barack Obama is designed to jolt some life into a moribund economy. Already, though, provisions to use the money to "buy American"—whether that means American iron, steel, or labor—is sparking a debate about whether such rules in a global economy amount to protectionism.

Organized labor and small U.S. manufacturers won an amendment to the stimulus bill to ensure that more materials used on construction and infrastructure are made in the U.S. Critics of the H-1B visa program won tougher rules governing when banks that are bailed out by the Troubled Assets Relief Program (TARP) can fill jobs with skilled immigrants.

The final language drew criticism from abroad, where editorials and government officials warned it could run afoul of trade agreements. But both provisions are less stringent than earlier versions had been, and neither is likely to have a radical effect on how stimulus spending takes shape.

Opposition from Exporters

The clearest attempt to wall off foreign companies from U.S. spending came in a "Buy American" provision. That rule requires that only U.S. iron, steel, and other manufactured goods be used for public buildings and public works funded under the bill. However, it comes with several key caveats. For one, the language states that the Buy American policy must not violate U.S. obligations under existing international trade agreements. Nor does the rule apply if American goods aren't available in sufficient quantities or if they'll increase the cost of the overall project by more than 25%. Federal highway, transit, and airport projects are already covered by similar Buy American requirements.

The battle over the provision had been contentious. On Feb. 3, 100 business groups and companies—including the U.S. Chamber of Commerce, General Electric (GE), Caterpillar (CAT), and other major construction, defense, and high-tech companies—wrote a letter to Senate leaders warning that a far-reaching Buy American rule "will harm American workers and companies across the entire U.S. economy, undermine U.S. global engagement, and result in mirror-image trade restrictions abroad that would put at risk huge amounts of American exports."

But advocates of the provision—including the Alliance for American Manufacturing, a partnership of manufacturing companies and the United Steelworkers union—said such rules are needed to stem the tide of layoffs in the U.S. construction and manufacturing sectors.

Coalition Claims 'Major Victory'

In negotiations, the Obama Administration sought to reconcile the opposing sides. White House spokesman Robert Gibbs told reporters on Feb. 12 that the final bill achieves this. "I think where we ended up with the Buy America provision is the right compromise that respects the Buy America laws that we've had on our books for many, many years while also ensuring that the language doesn't create unnecessary trade disagreements in a time of economic crisis," Gibbs said.

Scott Paul, executive director of AAM, said in a prepared statement that the resulting language was "a major victory for American manufacturers and workers." He said: "Buy America is good news for laid-off workers in construction and manufacturing, and good news for the global economy by helping to spur U.S. growth."

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