'Buy American' will lose U.S. more jobs

Mark Perry, professor of economics at the University of Michigan, Flint.

TEXT OF STORY

Tess Vigeland: Today the Obama administration announced 10 new projects designed to goose the $700 billion stimulus package. The White House says more than 600,000 jobs will be saved or created. But the package still has that "Buy American" clause that caused so much controversy. And commentator Mark Perry says because of that clause, when it comes to jobs, it may be Americans who lose.


MARK PERRY: "Buy American" provisions make sense politically, because they create huge political payoffs for elected officials who protect jobs in domestic industries. But, economically, Buy American rules, like all forms of trade protectionism, make no sense at all, since research shows that for every job protected and saved, about two jobs are lost.

Why? Because Buy American provisions and tariffs protect inefficient domestic producers from more efficient foreign rivals. Take steel manufacturers. American firms that buy domestic steel are forced to charge consumers more. So retail sales decline, and thousands of jobs are then lost in countless industries that use steel as raw material.

And as American consumers and companies are forced to pay higher prices for products with domestic steel, they have less money to spend on other purchases. That's billions of dollars in sales lost to other industries, resulting in lower production and even fewer jobs.

Protectionism also provokes retaliation. This weekend, representatives of Canadian cities, upset with the "Buy American" rules, voted for "Buy Canadian" policies that could block American companies from bidding on city contracts. The inevitable result will be a decline in trade with our largest trading partner, and a loss of yet more American jobs.

Consider what happened in 1930 when the U.S. raised tariffs on 20,000 foreign goods despite the protests of more than 1,000 economists. Our trading partners fought back, and U.S. exports and imports fell by 70 percent, causing huge job losses here and around the world. In fact, some would argue that it was protectionism that helped to make The Great Depression so "Great."

Buy American provisions ultimately destroy more American jobs than they save. If we want the U.S. and world economies to recover from the recession as quickly as possible, we should end the "Buy American" rules.

VIGELAND: Mark Perry is a professor of economics at University of Michigan in Flint.

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