Economics

Subsidy-Crazed Brussels Bureaucrats Denounce Protectionist America

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It's a bit rich for the European Union to express outrage at American protectionism, but the bureaucrats of Brussels are nevertheless right about the absurd "Buy American" provision in the "stimulus" bill. From the FT:

EU officials have expressed concern that the requirement for companies to use US steel and manufacturing products in projects funded by the bill could encourage a wave of protectionist measures from other countries.

The European Commission says it will examine any legislation to determine whether it violates a World Trade Organisation treaty signed by the US, EU and Japan. Signatories of the Government Procurement Agreement must open government contracts to foreign companies.

"If the provisions finally passed by the Senate and approved by President Obama infringe the provisions of the GPA, to which the US is a signatory, this is something we will have to consider taking them to the [WTO] over," said Peter Power, EU trade spokesman.

Mr Power indicated that the EU was hoping to make its position clear to Washington before a bill was approved.

In Sunday's New York Times, economist Douglas Irwin, author of the terrific book Free Trade Under Fire, warns the "buy American" crowd that if we are forced to pay inflated prices for American steel, for instance, the stimulus package will produce the unintended (but easily foreseen) consequence of hurting American companies doing business abroad:

American manufacturers have ample capacity to fill the new orders that will come as a result of the fiscal stimulus. In addition, other countries are watching closely to see if the crisis becomes a general excuse for the United States to block imports and favor domestic firms. General Electric and Caterpillar have opposed the Buy American provision because they fear it will hurt their ability to win contracts abroad.

They're right to be concerned. Once we get through the current economic mess, China, India and other countries are likely to continue their large investments in building projects. If such countries also adopt our preferences for domestic producers, then America will be at a competitive disadvantage in bidding for those contracts.

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  1. So it begins.

  2. What?? Signing global treaties might turn out bad for us?? Shock! Surprise! Amazement!

  3. Obama said as much today.

  4. I bet it would help if we installed big concrete walls around our borders, just to check goods going in and out. Added benefits include a reduction in illegal immigration and a sense of nationalist pride!

    We should implement this immediately.

    [/Stalinist]

  5. You know, like a lot of people, I pay about $1.00 more for eggs if they are free range eggs. I think it’s more humane and so I’m willing to pay that much. I also spend about two dollars more for a hamburger at this one joint because I like how the guy hires neighborhood kids and supports the YMCA as opposed to the competition on the block. A friend of mine pays more for gas because he refuses to go to the Citgo in his town because he says Chavez is a socialist and he will not support his oil company.

    I’m not sure what is wrong with the government, if it is going to spend money anyway, doing the same thing, supporting providers of goods and services that you want to see succeed. And since it is the U.S. government one would think it wants to see U.S. companies succeed.

  6. MNG-

    The difference, obviously, is that you do what you do by choice – not under government sponsored duress.

  7. For everyone’s edification, here are the exceptions to the ‘buy american’ provisions in the house version of the stimulus package:

    (b) EXCEPTIONS
    Subsection (a) [the requirement to use only produced US iron and steel in the procurement for projects authorized by the stimulus legislation -ed] shall not apply in any case in which the head of the Federal department or agency involved finds that-
    (1) applying subsection (a) would be inconsistent with the public interest;
    (2) iron and steel are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or
    (3) inclusion of iron and steel produced in the United States will increase the cost of the overall project by more than 25 percent.

  8. MNG,

    1. Basic economics strongly concludes that protectionism hurts the economy far more than it helps it. For example, every US job saved in the steel industry by protectionist measures costs 10 US jobs in steel-consuming industries. So even if you bought the rationale, the mechanism for attaining those ends is absolutely wrong.

    2. Decision making by the government is notoriously political. Providing the option of being a favored industry is awesomely corrupting and inefficient even beyond the inherent inefficiencies of general protectionism.

    3. Even if you buy the argument that the government’s doing the government’s business can legitimately be protectionist in its dealings… When the spending is a stimulus package that displaces private spending by design, using “public” decision making to choose favorites is taking advantage of a purported emergency to change the balance of choice in the economy as a whole.

    You want more?

  9. Smoot-Hawley has left the building.

  10. No I haven’t…

    Muh-ha-ha-ha-ha-ha-ha!

  11. I’m not sure this is really all that new; I mean, I realize it’s a new wrinkle, but it seems there already is a “buy American” clause in federal highway money

    I found this out by pure coinkydink today as I filled out a new constructability/biddability checklist for Florida DOT contracts. Remember the bill hasn’t passed yet, so this is old policy.

    Since the project had no bridges or building I was able to put a big fat check in the N/A column.

  12. God, four years of this whiny BS from the unreasonable reasontards.

    I know, how about if everyone works for a dollar today, and if they think they deserve a raise we just call them a welfare queen. I mean they must have some sort of crazy entitlement mentality if they want to be paid for working.

  13. (3) inclusion of iron and steel produced in the United States will increase the cost of the overall project by more than 25 percent. [bold added]

    That means US steel can be twice as expensive as canadian steel and still be required. Unless you can name a project that steel alone is 25% or more of the project cost.

  14. For example, every US job saved in the steel industry by protectionist measures costs 10 US jobs in steel-consuming industries.

    I typed this from memory and immediately questioned it myself. The actual numbers are that steel-consuming industries account for 10 times the GDP of the steel industry and over 50 times the workers. Equating jobs protected to jobs lost is hard to do, but it surely wouldn’t be as much as the 10-to-1 GDP since the consuming industries provide value add over the steel. A better guess, considering the high rents steelworkers make, would be closer to 2-to-1.

  15. how dreary/lefiti,

    You have to type the entire metaphor/strawman. Not just the hilarious retarded part. It just won’t stand alone.

  16. Now cue BakedPenguin to make a Teh AWESome comic strip about lefiti again.

  17. MikeP,

    It escapes me as well. I do remember from my memory that every job saved in the steel industry costs cosumers/taxpayers roughly $200k per worker.

  18. We should encourage this type of talk on the part of the E.U.

    Then when they try to prevent Africans selling food in France so that French farmers can keep their captive markets, we can beat them over the head with their words.

  19. Then when they try to prevent Africans selling food in France so that French farmers can keep their captive markets, we can beat them over the head with their words.

    Hypocrisy in trade disputes is hardly novel. See: US-Canada relations.

  20. Basic economics strongly concludes that protectionism hurts the economy far more than it helps it.

    That’s because economics assumes that he who dies with the biggest GDP wins. Does is occur to you that people may place value on other things besides accruing an ever-larger GDP?

  21. “That’s because economics assumes that he who dies with the biggest GDP wins. Does is occur to you that people may place value on other things besides accruing an ever-larger GDP?”

    Who? Nevermind. We live in a democracy, my vote cancels out yours! BOO-YA!

  22. Oh. That’s right. Lefiti only believes in democracy when it suits his desires.

  23. Let me tell you about the secret of natural GDP enhancement…

  24. I always just assumed they were porn stars . . . the more you know, I guess.

  25. . . . the more you know, I guess.

    PSA, plz! It’s for Teh Childrenz, after all.

  26. *takes mental note of Dagny’s advice*

    Thanks Dagny.

  27. That’s because economics assumes that he who dies with the biggest GDP wins. Does is occur to you that people may place value on other things besides accruing an ever-larger GDP?

    Since the argument that protectionism is a net loss for an economy is not based on GDP but on what people want to consume, it escapes me why you bring up GDP.

    If your point is that people should not be free to consume what they wish to consume, but rather should be directed by the state to consume those things the state thinks should be produced — and thereby achieve some sort of spiritual, cultural, nationalist, or proletarian epiphany — then let’s just say that we differ.

  28. If goods do not cross borders, armies will

  29. What affenkopf says…

  30. What exactly makes Brussels ‘subsidy-crazed’? Like the US, the EU subsidizes agriculture, but off the top of my head I can’t think of any industries that get the kind of favorable treatment required by the Senate stimulus bill. Maybe Moynihan would enlighten us.

  31. “I’m not sure what is wrong with the government, if it is going to spend money anyway, doing the same thing, supporting providers of goods and services that you want to see succeed.” – MNG

    In a nutshell:
    1. It costs more for the government to do so. While you can spend your money anyway you want to, the government is spending other people’s money. It should be more cost-conscious than you.

    2. That kind of policy potentially hurts more American jobs than it helps. Contrary to populist rhetoric, the USA does sell a lot of goods to other countries. A protectionist policy might start a trade war. You are unlikely going to face economic sanctions for pursuing your organic egg buying policy.

    MNG, it might behoove you to read the arguments in the orginal post before posting a response to it.

  32. “Decision making by the government is notoriously political.”

    Well of course, but so my point is that many consumers act this way (they won’t buy certain coffee because they don’t like it’s labor policy, or certain gas because it’s connected to a socialist thug, etc). And often this means promoting “inefficiency” in the strictest economic sense (i.e. when I buy more expensive free range eggs I could be buying eggs produced much cheaper and hence more productively). Does someone want to make the argument that me buying free range eggs or my friend purposely buying more expensive Exxon gas rather than Chavez’s Citgo gas is a bad thing because it “promotes inefficiency?” Certainly there are values other than economic efficiency that it is OK for me to think of when I buy goods and services.

    “MNG, it might behoove you to read the arguments in the orginal post before posting a response to it.”

    If you mean because the E.U. may retaliate then duh, I was making another point, but even if we think about that it could just as well be an argument that our treaty with them is screwy.

  33. MNG, you and your friend are using your own morals or whatever to buy what you want. It is not forced upon you. That is the point.

  34. Certainly there are values other than economic efficiency that it is OK for me to think of when I buy goods and services.

    Economic efficiency is not the same thing as, e.g., energy efficiency. Economic efficiency measures the cost to the economy as a whole to satisfy the demands of its consumers. Those demands are determined by the consumers’ values, and if those values include supporting local free range chickens or not supporting Chavez, then satisfying those demands is not in and of itself inefficient.

    And when I pointed out that government’s picking favorites for protection is even more inefficient than apolitical protectionism, that is because every dollar spent lobbying government to get protectionist legislation is a dollar lost to the economy. That is an inefficiency above and beyond the inefficiency of prohibiting people from buying what they want to buy that is at the core of protectionism.

  35. I bet it would help if we installed big concrete walls around our borders, just to check goods going in and out.

    And don’t forget the mines. Lots of mines…Or mimes. Mimes would be good, too.

  36. I bet it would help if we installed big concrete walls around our borders, just to check goods going in and out.

    And think of the economic stimulus!

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