TOPICS > Economy

‘Buy American’ Clause in Stimulus Sparks Controversy

February 4, 2009 at 6:20 PM EDT
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Foreign governments are outraged over a provision of the stimulus bill requiring that any manufactured goods used in public works projects connected with stimulus money come from American suppliers. Experts mull the dispute.

RAY SUAREZ: While there’s already plenty of debate surrounding the stimulus, one provision in particular has sparked a major fight between labor groups, members of Congress, and foreign governments.

It’s called “buy American.” It would require that any manufactured goods used in public works projects connected with the stimulus money must come from American suppliers.

That proposal has triggered an uproar from a number of America’s trading partners and from some business groups. Yesterday, President Obama weighed in, saying he thought the “buy American” provision does not belong in any stimulus bill. Here’s what he told ABC’s Charlie Gibson.

U.S. PRESIDENT BARACK OBAMA: I think that would be a mistake right now. That is a — that is a potential source of trade wars that we can’t afford at a time when trade is sinking all across the globe.

CHARLES GIBSON, host, “ABC World News Tonight”: What’s in there now? Do you think that does that? Do you want it out?

U.S. PRESIDENT BARACK OBAMA: I think we need to make sure that any provisions that are in there are not going to trigger a trade war.

RAY SUAREZ: The president’s remarks in turn prompted more reaction today. The Canadian trade minister said he was encouraged by Mr. Obama’s statements.

However, some of the president’s congressional allies insisted the provision remain in the bill. The chairman of the House Transportation Committee, James Oberstar, told reporters, “If it’s not in, I’m not supporting this package, and I’ll bring a lot of votes with me.”

EU opposes protectionism

Richard Trumka
Secretary General, AFL-CIO
It does the European Union precious little good if we spend almost a trillion dollars and our economy doesn't get going.

RAY SUAREZ: We have our own debate on this issue. Richard Trumka is the secretary general of the AFL-CIO, a federation of more than 55 national and international labor unions. It favors the "buy American" provision.

And former Irish Prime Minister John Bruton, who's now the European Union's ambassador in Washington.

And, Ambassador Bruton, you've already communicated your displeasure with the "buy American" provisions. What's the E.U.'s objection?

JOHN BRUTON, European Union ambassador to the United States: Mainly, we see the current economic crisis as a global crisis, that no one country, even a country as big as the United States, can resolve on its own. It needs the cooperation of all the other major economic partners in the world -- China, India, the European Union, so forth.

And the risk is that if we introduce a protectionist measure into a major stimulus bill in the United States, that all of us will start doing the same, and we'll get a sort of domino effect, and we won't as a result get the same bang for our buck in terms of stimulus.

If you try to confine stimulus within an artificial boundary, you will end up paying more money to get less, and that's not what we need on a global basis at this stage.

RAY SUAREZ: Richard Trumka, what about that risk? The United States is a major exporting nation.

RICHARD TRUMKA, AFL-CIO secretary general: Well, many of the other countries have already done this much more than we're trying to do with the "buy American" provision. When China did it, the E.U. said nothing. When France did it, the E.U. said nothing. When Germany did it, the E.U. said nothing. When Korea did it, the E.U. said nothing.

This is a stimulus package to get the American economy going. Now, we're going to spend almost $1 trillion, and we won't get our economy going unless we actually spend that money here and create jobs here. It's American taxpayers saying we want to spend our money to get American jobs and the economy going.

It does the European Union precious little good if we spend almost a trillion dollars and our economy doesn't get going. And while it is an international thing for us to consider, every one of the countries that he represents, that the ambassador represents, has done more to create procurement jobs in their own countries than this provision does in the stimulus bill.

Measure would inflate costs

John Bruton
Ambassador, European Union
If we introduce protectionist barriers like this, we will reduce the value of all our investments in one another's economies.

RAY SUAREZ: What about that, Mr. Ambassador? Not only do you have an interest, Mr. Trumka says, in a healthy, moving United States, but your member countries do the same thing?

JOHN BRUTON: Our member countries are not allowed to do the same thing. The European Commission is exceptionally vigilant in pursuing any member state that introduces state aids that distort competition within the European Union.

And the biggest investor in the European Union from outside is America, and the biggest investor in the United States from outside are the countries of the European Union.

If we introduce protectionist barriers like this, we will reduce the value of all our investments in one another's economies. We'll introduce new restrictions on how we can use our money in the most effective way to create jobs and to create improved welfare.

We've also been very strong in our opposition, very often in conjunction with the United States, to protectionist measures when they're introduced in China. And we need to have the leverage with China to push them much harder to open up their economy to our exports.

But if we start setting the wrong example ourselves in the United States, or if we were to do the same in Europe, then we'd have no case to make to the Chinese.

RAY SUAREZ: Go ahead.

RICHARD TRUMKA: Let me refresh the ambassador's recollection. The E.U. has excluded all federal contracts and all provincial contracts in connection with the fields of drinking water, energy, transportation, and telecommunications. They're completely excluded, and you can give every one of those to one of your countries.

This is a far more narrow provision that seeks to get our economy going, Mr. Ambassador. It's the American taxpayers' dollars.

And let me ask you something. You keep bantering about the word "protectionist." If a consumer, American consumer goes into a store and there's two shirts, one made in the United States and one made in Europe, and that consumer decides to buy the U.S. shirt, I assume you wouldn't call that protectionism?


RICHARD TRUMKA: That's the same thing here. These are taxpayers' dollars, and the American taxpayer says, "I want to buy American-made goods with our goods, with our money so that we can, in fact, get our economy going."

RAY SUAREZ: Let's hear from Mr. Bruton.

JOHN BRUTON: If you want to stimulate the American economy, you need to build bridges, you need to build roads, you need to buy various equipments. If you insist that you're only going to restrict to people whom you may buy that from to a smaller number of competitors, then you'll have higher prices and you'll have less bridge. You'll have less stimulus, less activity for a given amount of money.

By giving -- you quote the analogy of somebody going into a shop. Well, somebody going into a shop is free to choose whether they buy an American-made shirt or if they prefer a shirt that comes from somewhere else that is better suited to them. They make the free choice.

But if this legislation is passed, people who engage in public procurement in the United States will not have a choice. They'll be possibly forced to only buy from one or two possible suppliers when there may be 10 or 12 other suppliers who could supply the good for less and could thereby get more bridge built or more road built or whatever it is one is trying to build.

The important thing about the stimulus, in my view, is that it is intending on improving the infrastructure of the United States so that the United States for the rest of the 21st century will be a much more efficient economy than it currently is.

If you restrict how you may spend that money on infrastructure to a few suppliers, you'll get less infrastructure, and you'll get less improvement in the competitiveness of the U.S. economy. And that's not good for American workers.

Concern over long-term effects

Richard Trumka
Secretary General, AFL-CIO
This is a temporary measure. It's intended to get the U.S. economy going again.

RAY SUAREZ: Quick response to the idea about higher costs making a bill less effective?

RICHARD TRUMKA: First of all, they already do this. Whenever France had a stimulus bill, they said, "We're going to spend every penny of this on the auto industry in France," the E.U. said nothing. They do this already.

JOHN BRUTON: No. I'm sorry, that's not so.

RICHARD TRUMKA: The only way we can stimulate our economy...

JOHN BRUTON: The European Union...

RICHARD TRUMKA: ... is if we buy those items from the U.S. to get our economy going.

RAY SUAREZ: OK, let me -- Mr. Bruton is saying...

JOHN BRUTON: ... the European Union is very insistent that France may not give aid to its car industry that involves any long-term distortion of the market, just as the United States is giving aid to the car industry. We didn't raise any objection. I have not raised any objection to the aid that's currently being given to the auto industry here in the United States, because we see that as a temporary measure.

But introducing something that says that, as far as stimulus expenditure is concerned, all other competitors are excluded from the U.S. market, that's establishing a whole new area of restriction, of competition, at a time when we do not want to use our money wastefully.

We want to get the maximum bang for the money we spend. And if we restrict that money to -- if we were to restrict to all purchases within France or within Europe, or the Chinese were to say, "We're buying nothing American in the use of the Chinese stimulus money," that would be a waste of Chinese money, a waste of European money, and it would be bad for the world.

At this stage, the United States needs to be giving leadership to the world.

RAY SUAREZ: Mr. Trumka, let...

RICHARD TRUMKA: Well, in fact, the Chinese did say that. They are going to spend that money in China. And, in fact, many of the European Unions have said that. You've yourself said that, when it comes to drinking water, energy, transportation, and telecommunications, all U.S. members are excluded.

JOHN BRUTON: You've said that. You've said that. I haven't said that. That's what you said.

RICHARD TRUMKA: This is -- this is -- excuse me. This is a temporary measure. It's intended to get the U.S. economy going again. And let's take -- let's just take one project.

Obama wants to avoid trade war

John Bruton
Ambassador, European Union
If you want a global economy that's don't do this sort of thing as the first piece of legislation that you ask your president to sign.

RAY SUAREZ: Well, no, I need to ask you about the support of President Obama, because at the beginning of our conversation, we heard the president saying that he would do anything to avoid a trade war. He doesn't want to set off any protectionism. And it sounded like he was stepping away from the provisions in the House and Senate bill.

If you've lost the president, have you lost this fight?

RICHARD TRUMKA: Well, first of all, I don't think we've lost the president or this fight. I think what the president was saying was that any provisions that we do will comply with all of our trade laws. They will.

And if we comply with our trade laws, there's no way that they can say this triggers a trade war. Now, surely, the ambassador is not saying that every time there's a procurement law that says, "Buy U.S. products," or, "Buy French products or E.U. products," that that can't comply with our trade treaties, because they do, and that's what the president was saying.

JOHN BRUTON: There are obligations that the United States has signed up to in the World Trade Organization on government procurement. And we are very worried that the proposals in this bill could involve the United States in breaking its international obligation.

RAY SUAREZ: Well, how did you read the president's remarks, Mr. Ambassador?

JOHN BRUTON: That's one of the reasons why we're concerned about it. But we're also concerned at the example that it sets. If you want a global economy that's cooperative, to get the maximum chance of all the countries working together, you don't do this sort of thing as the first piece of legislation that you ask your president to sign.

RAY SUAREZ: Well, we're going to have to leave it there, gentlemen. To be continued. Richard Trumka, John Bruton, gentlemen, thank you both.