Buy American
Take the Buy American provisions. In the original House bill, all infrastructure projects funded by the stimulus package were required to use U.S.-made iron and steel; the Senate added language extending that requirement to all manufactured goods. There seemed to be a sensible premise to this — how better to stimulate the economy than to provide a guaranteed market for goods “Made in the USA”?
But the rest of the world did not see it that way. The president of the World Bank, Robert Zoellick, called the idea “very dangerous,” while Canada’s ambassador to the U.S. wrote in a snippy letter to the Senate that “the United States will lose the moral authority to pressure others not to introduce protectionist policies.” The European Union threatened it would “not stand idly by.” Major U.S. companies also weighed in. GE and Caterpillar, for example, lobbied against it, fearing that the inevitable retaliation would hurt their ability to export or win contracts abroad.
As it turns, out, there was less to the Buy American stuff than met the eye. The U.S. has had similar provisions in effect since 1933, and most countries give some preference to domestic producers in sourcing government projects. But the provision did go well beyond the norm, and violated U.S. commitments under NAFTA, the WTO, and any number of other trade-related acronyms.
In response to pressures from these groups, Congress added language that nothing would be done that violated existing U.S. trade agreements. This weakened “Buy American” considerably. Though Chinese, Indian, and Brazilian suppliers are still affected, there are loopholes here, too. Foreign sourcing can also be used if domestic procurement is 25 percent more costly or would be “inconsistent with the public interest” — a phrase so ambiguous that in practical terms it guts the bill entirely.
In principle, members of Congress can still go back to their districts and tout “Buy American”; in practice, the provisions have been watered down into a very thin gruel.
Trade Skirmishes
April showers bring May flowers, and just as inexorably, economic stress brings out the protectionists. According to a March report from the World Bank, in the past six months, 17 members of the G-20 have implemented 47 different trade barriers in the form of subsidies, higher tariffs, or import restrictions. Harvard economist Kenneth Rogoff is worried. “The U.S. is in such great danger of backing away from free trade,” the former chief economist at the International Monetary Fund fretted to The New York Times recently. “The next two years could be a disaster for free trade.”
Consider the case of the Mexican trucks: Under the 1995 North American Free Trade Agreement, the North American borders were supposed to be open to cargo transport by 2000. Nine years later, mostly because of union opposition, that has not happened. (The pretext was that Mexican trucks were not as safe and clean as U.S. ones; there is no evidence to support this.) So Mexican trucks can only operate near the border. Worse, Congressional Democrats slipped a provision into the budget bill canceling funding for a pilot program that has allowed Mexican trucks to ship goods around the U.S. Justifiably ticked, Mexico responded by imposing tariffs on $2.4 billion worth of U.S. imports.
Not nice, but that will not stop the wheels turning on the two countries’ $350 billion trade relationship. In fact, earlier this year, Mexico cut its tariffs on 70 percent of all imports. Mexico is not interested in a trade war. And neither is President Obama; he has already hinted at reinstating the truck program. Moreover, his rhetoric as President has been conspicuously more friendly to free trade than when he was as a candidate.
Under the rules of global trade as set down by the World Trade Organization, all countries have wiggle room in their terms of trade, and most have set their tariff rates far below the maximum allowed. So while India raised its tariffs on steel, it was still within the WTO rules. And that’s the point. Unlike the 1930s, there is a well-established and reasonably well-functioning trade architecture in place. The economic stresses right now are intense, and it’s not helpful that Europe is raising subsidies on dairy products, Brazil is hiking tariffs on steel, and China is banning Belgian chocolate. But these are trade scuffles, not harbingers of a trade war.
Restricting Visas
For an example of a boneheaded, counterproductive, and frankly nasty bit of anti-foreigner policy, look no further than the provision in the Senate version of the stimulus bill that forbade companies that took bailout money from hiring immigrants on H-1B visas. Among the companies affected: Citibank, JP Morgan, and Goldman Sachs.
In the context of a 150 million-person labor market, the measure was not that big a deal. But it was troubling nonetheless because it betrayed economic sense in favor of an anti-foreigner sensibility. “It was shortsighted and wrongheaded, because these are the people who come in, seize opportunities, and start things,” says Indian-born Jagdish Bhagwati of Columbia University. “It just doesn’t make sense, even during a recession.”
A little background: There are 65,000 of these visas granted every year, plus another 20,000 for foreign graduates of U.S. universities with advanced degrees. In recent years, the cap has been reached on the day of filing, April 1, and the final selection made by lottery.
The argument for banning bailed-out companies from using the H-1B program is that companies receiving U.S. funds should be hiring U.S. workers. But there is no evidence that H1-B holders displace U.S. workers. And there is overwhelming evidence that highly skilled immigrants are great for the economy. Want proof? Consider the results of two recent studies, one by Duke University and one by the National Venture Capital Association. Among the results:
- Foreign nationals accounted for almost a quarter of international patent applications in 2006 — up from 7 percent in 1998.
- More than half of Silicon Valley start-ups had at least one immigrant founder; the figure for California as a whole was 39 percent.
- Immigrants to the U.S. have helped to found one in four public companies over the past 15 years.
- In 2005, publicly traded, venture-backed companies founded by immigrants to the U.S. generated more than $130 billion in revenue.
In light of all this, one could argue for more H-1Bs as a tried, true, and cheap long-term stimulus. That may be politically impossible at the moment. But what was possible was a weakening of the H-1B restriction, and that is what happened. Recipients of bailout funds can employ workers on H-1B visas, but they have to go through a few more steps to do so. That’s not a perfect outcome, but it’s better than the original.
