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Steel Industry’s ‘Buy American’ Not Good for Americans

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The Wall Street Journal explains why we shouldn’t put a “buy American steel provision” into the upcoming stimulus plan.

1) The domestic steel industry cannot supply all our needs (20-25% of our steel is imported).

2) American steel companies have become highly consolidated and, without international competition, would be able to raise prices and bilk the government.

3) It’s hard to define “American made” as we have large steel factories that are subsidiaries of foreign companies but employ a lot of Americans.

4) The G20 has agreed to reject protectionist measures. A U.S. “buy American” law would signal to other nations that protectionism is o.k. and a trade war could ignite.

The steel industry obviously wants to make sure they maximize their share of the infrastructure-improvement dollars which the stimulus package will include. But since billions of dollars will be available for those projects and American steel already supplies 75-80% of our domestic needs, won’t the industry come out just fine without extra provisions? Is there really a pressing need to cut off foreign steel providers and risk upsetting international trade?

In a perfect world, all the stimulus money would flow directly into the hands of American workers. But that’s an untenable position. Our economy and our very economic health are too intertwined with other nations for us to reasonably keep 100% of our tax dollars inside our borders. Keeping international trade flowing and prices controlled will, in the long run, be better for our economy than the sort of protectionism advocated by the steel industry.

I suspect Barack Obama will not cave in to the steel industry’s demands. The risks far outweigh the reward. But how he handles the matter will tell us a lot about where is trade instincts actually lie. As the Wall Street Journal concludes: “We hope those who are talking to Mr. Obama about how to avoid a deeper recession are telling him that a global economic downturn is an especially dangerous time to start a trade war.”