A WSJ article today titled, Steel’s Buy America Ploy, discusses a simple method a US industry can use to get government support to sustain it against its competition without asking for a handout. By asking for Buy America clauses in the expected-to-be-gigantic infrastructure spending plan, the steel industry and other US materials supply companies will receive protection against foreign competitors. This amounts to a “pick the winners” strategy since US companies will receive contracts regardless of their efficiency (except vis-a-vis each other). Foreign suppliers would be locked out of this substantial business regardless of the quality and cost of their products. As a result, every project will cost more for the US taxpayer than is necessary.
What many don’t realize is that a Buy America clause, which sounds patriotic and perfectly reasonable to many observers, is equivalent to raising tariffs against these imported projects just like the notorious Smoot-Hawley tariffs of 1930. It is protectionism in another form. However, since it’s in another form, it may be possible that this action will attract substantial Congressional support since legislators can always proclaim afterwards that they didn’t raise tariffs like in the 1930s.
Will Congress and President Obama succumb to this protectionist pressure? We’ll have to wait and see. But for those convinced of the positive competitive effects of free markets, it is important to raise awareness that Buy America is just disguised protectionism.