by Perry Newman
As an economic stimulus package makes its way through Congress, there is strong public sentiment in favor of requiring the use of American steel, iron and other manufactured goods in the infrastructure projects likely to be funded.
The thinking is that by purchasing domestically produced goods we will keep our money here, stimulate our own industries and employ our own workers. It’s an attractive concept — all of us want to support our workers and our industries.
There are, however, many reasons why neither the taxpayer nor the consumer would benefit from such “Buy American” provisions. To understand why, it’s important to look at the supply chain and its impact on cost.
Why do constructors consider purchasing goods such as steel and iron from foreign sources? Because they sometimes can find them at a lower cost, or with shorter delivery times. If they can find a quality alternative abroad, and that alternative costs less than a comparable domestic product, the constructor’s bid will reflect that lower cost. This keeps the cost of the project down and the owner or buyer happy.
In the case of government-funded infrastructure projects, if the constructor is compelled to source only from American suppliers, the project likely will cost more than if the constructor could consider alternatives. Who ultimately pays for the higher costs? The American taxpayer.
Considering the scope of the stimulus package, the difference in the cost of steel and iron could be billions of dollars. That’s an important consideration.
What’s more, aside from the proposed stimulus package, protectionism does us no favors. Many homes here are built of wood. Much of that wood comes from domestic sources, but a great deal is from lumber mills abroad. The cost of imported lumber is frequently lower than the cost of domestically produced lumber. The result, once again, is that the use of foreign-source lumber often results in lower overall costs, which are passed on to consumers in the form of a lower asking price.
Should the consumer be required to purchase a home constructed of domestic lumber, which may cost him more? Or should the builder have the option of choosing the materials she wishes to use?
And there are still other reasons why protectionist measures fail to protect us.
If we suddenly shut our markets to billions of dollars of imported steel and iron, the certain result is that those countries that would like to export steel and iron to us will turn around and hit us in industries right here at home.
In 2007, Maine paper companies exported roughly $550 million worth of products abroad. In the same year, Maine seafood producers exported nearly $175 million of product, and our farmers exported more than $20 million of Maine-grown crops. That’s nearly three-quarters of a billion dollars worth of Maine goods shipped into the global stream of commerce.
The Commerce Department estimates that for every billion dollars of exports, 20,000 jobs are sustained. Looking at Maine’s paper, seafood and agriculture exports alone, that’s 15,000 jobs that depend on exports.
If we freeze Canada, China and the other markets out of our domestic markets, those countries likely will act to protect their own industries and workers by imposing retaliatory tariffs or quotas on many American products, including those that we in Maine produce.
The result will be that prices of many Maine products will become prohibitively high to foreign purchasers. Our exports will decline precipitously, resulting in shift reductions, mill shutdowns and job losses. When we lose jobs, we’re not exactly protecting our workers.
At best, protectionism produces short-term and uneven gains. Keeping our money here at home might initially support domestic supply chains, but before long the prices we pay for many goods would go up as domestic supplies are stretched. Many Maine jobs that depend upon exports would be lost, owing to retaliatory measures.
Like it or not, in the global marketplace, we have to compete. Competing means putting on the pads and getting in the game. It means taking on challenges, adapting to changing conditions and working harder than the next guy.
Really, I don’t worry about America when we are forced to compete. I worry about America when we choose not to.
Perry B. Newman is founder and director of Atlantica Group, an international business consultancy in Portland.