‘Buy American’ plan will not help US workers

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One of Joe Biden’s first acts as US president has been a continuation of a bad policy of his predecessor, Donald Trump, not a break with it. He has signed an executive order that doubles down on Mr Trump’s “Buy American” rules for federal government procurement. This is a mistake, even if made for an understandable political reason.

Mr Biden wants his presidency to restore the status and wellbeing of ordinary workers, many of whom supported Mr Trump, after suffering the sharp end of automation, globalisation and economic change, for decades. That is a noble agenda. But it does not justify this sort of crude protectionism.

All protection is a tax on consumers of the protected products, for the benefit of their producers. There is rarely good reason to expect these gains to go to ordinary workers. A good portion of them will go to shareholders and managers. Meanwhile, the costs will fall on buyers. In this case, that buyer is the government, which will end up wasting scarce fiscal resources on unnecessarily expensive goods and services.

These are not just theoretical objections. According to empirical work at the Peterson Institute for International Economics, in 2017 US federal and state taxpayers paid $94bn more for the goods and services these governments bought than they needed to. Moreover, according to the study, “the annual taxpayer cost for each US job arguably ‘saved’ by Made in America probably exceeds $250,000”.

That sum is certainly not what was gained by the ordinary workers who were supposedly helped. On the contrary, most of the implicit transfers of money leaked into other hands. Since the policy drives up the prices US producers can charge, moreover, private-sector customers are likely to source more purchases abroad, which must offset much of the supposed gain. Protection from competitive pressure is also likely to slow innovation and hence productivity growth among US producers — the opposite of what strong and sustained wage growth requires. This is, rather, a way of creating a group of fat rentier companies.

That is not to say that public procurement should be a free for all. Mr Biden is keen to halt if not reverse the decline in unionised jobs. That is a legitimate goal, which must be addressed by more comprehensive policies. But it would be right to require minimum standards of worker treatment and organisational rights from bidders — US and foreign alike — for federal contracts.

The administration should also require reciprocity in foreign markets, creating opportunities for US producers elsewhere. The Peterson Institute’s study indicates, for example, that US business could gain much from greater opening of EU public procurement to foreign groups. That is a legitimate target for action. Simply excluding foreign suppliers, in contrast, could be costly. Others will surely be happy to use US protectionism as an excuse to lock US companies out of their markets.

Mr Biden’s move may be largely symbolic: big contracts are covered by the market access requirements of the World Trade Organization’s Government Procurement Agreement, to which the US is a party. If so, the symbol is a bad one. It signals a raising of barriers and distracts from powerful ways to pursue a pro-worker agenda.

The US government has long neglected many such tools. It is one of the rich world’s measliest spenders on active labour market policies — the government services that help workers find new and better jobs. It should also beef up its Trade Adjustment Assistance programme. Helping US workers is indeed essential. But ill-targeted protection is a damaging way to do so.

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