Thursday, January 29, 2009

Buy American is NOT the Issue - Obama Is

Over at HotAir, Ed Morrissey rants today about the Washington Post's report on the provisions in the stimulus package that force contracts doled out via the bill's money to buy 100% American steel and iron. He makes a nice big show about how it smells like Smoot-Hawley and could destroy our international trade, expanding on a point made in the Washington Post:
Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

Now, I hate to be the bearer of bad news to all you stimulus hawks out there, especially since I've been digging through this thing looking for everything wrong with it since the day it was released to the public, but this argument is a bit misguided, and I figured I'd better let everyone on our side in on the actual facts of the matter so we've got a leg to stand on when some HuffPo or Kos lunatic calls us out on it.

The Buy American Act is nothing new. It was initially enacted in 1933, and the provision that controls Buy American in terms of the FAR clauses on federal contracts was enacted in 1954. You can read through the reams of information about it if you'd like, but I know it pretty well from experience so you could also let me outline it.

The Buy American Act, in a summary look, already requires that no less than 95% of all construction materials and services on federal contracts be purchased within the United States. There are three exceptions, and they are all exceptionally impossible to prove, at least to a politician:

1. The goods/services being purchased within the US results in a public disservice.

2. The goods/services being purchased are entirely unavailable in the US.

3. Unreasonable Cost

I looked into circumventing the 95% rule a few years back, with the intention of trying to buy about a million dollars worth of steel from overseas. At the time, we were in a phase in construction where it was actually cheaper to re-buy steel sections from China than it was to get them rolled here, because we were exporting so much to them for their Olympic building spree.

I proved that there was an adequate savings to the federal government, but the fact that I had not made the request pre-award was the immediate disqualifying factor. There is too much sentiment against sending tax-payer dollars out of the country to ever get this done.

At this point, however, adherence to LEED standards for construction projects is really going to override any concept of going outside even your local area for materials anyway. Most, if not all, federal contracts will be requiring LEED certification at this point. And most of those projects will be requiring that as many materials come from within a 500 mile radius as possible.

Even if we could go out of the country for materials at this point, the simple fact of the matter in terms of any construction project, and especially in this economy, where the price of steel in particular has declined about 30% in the past six months, is that you're not going to get it much cheaper by the time you take into account for the tarriffs and shipping anyway.

There. Now that I've sufficiently strangled away any hopes you had of siezing upon this as a soapbox topic, let me tell you what the real problem is.

It's still Smoot-Hawley.

It's still the idea of protectionism and isolationism, and it's still everything that Ed Morrissey rants about to perfection today.
We already have large trade deficits, thanks to our massive wealth transfers each year to oil-producing nations based on our unwillingness to pump our own crude. If we touch off a trade war, which this will almost certainly do as it violates all of our WTO and bilateral trade agreements, other markets will close their doors to American products, such as cars and technology. Instead of closing our trade gap, we will explode it, and even those oil imports could get retaliatory tariffs from our two closest trading partners, Canada and Mexico, our two largest foreign suppliers of crude.

So what are we going to do about it?

Well obviously those of us in the construction industry are going to do what we have to do. And we'll be the benefactors when anything does actually cost more since our percentage fees will be of higher volume since the volume we calculate them on will be higher. So we'll make out OK on the government-created construction bubble, at least for a few years, even if our country's ability to export crumbles around us.

But guess who can do something about it.

The One.

From Wikipedia on the Buy American Act:
The President has the authority to waive the Buy American Act within the terms of a reciprocal agreement or otherwise in response to the provision of reciprocal treatment to U.S. producers.
Unfortunately, however the President has surrounded himself with a horde of moronic Keynesians, so it's unlikely he'll waive the Act, even if its in the best interests of the country's economy as a whole.

But considering his insistence on forcing through his pay-for-play porkfest of a stimulus, I'm guessing that the well being of the country's economy is the last thing on the Chairman's mind.

1 comment:

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