Is 'Buy American' Bad for America?

Is 'Buy American' Bad for America?

Congress should have known better.

Last winter, a long list of global companies -- GE, Siemens, HP, Sony, Caterpillar, Cisco, Dow Chemical, IBM, Microsoft, United Technologies, Xerox and many more -- warned the Obama administration in a letter [PDF] that a "Buy American" provision in the $787-billion economic stimulus package would make it harder to get the money out the door to create jobs.

Turns out they were right.

The Buy American regulations are complicating life for business, slowing down construction-ready projects and sparking trade tensions with, of all places, Canada.

I learned about this problem only recently during a conversation with Daryl Dulaney, who is the CEO of Siemens Industry, a large U.S. division of the German industrial conglomerate that includes "industry solutions, industry automation, drive technologies, building technologies, mobility and Osram Sylvania." With its German roots, Siemens may be more sensitive than most to American jingoism. But Dulaney is as middle American as they come -- he's a graduate of Ohio State and Northwestern who lives in a Chicago suburb -- and he's just one of 30,000 Siemens workers in the U.S.

{related_content}Siemens, in other words, employs more Americans than all but a relative handful of American companies.

Companies like GE, Cisco and Danaher, all headquartered in the U.S., have struggled with the Buy American rules as well, as the Wall Street Journal recently reported.

"The Buy American provision is centered very much on where you do manufacturing and assemble products," Dulaney told me. Many state and local governments, he said, "view the Buy American act as meaning the products must be 100% made in the United States."

That's unrealistic. "We all have global supply chains," he said.

Siemens had hoped to bring in $8 billion in revenues from stimulus-related projects, the company said. But it has struggled to sell some products -- energy-saving building technology, for example -- because some of the circuits are assembled in foreign countries. Dulaney said that less than 5% of the stimulus funds administered by the U.S Department of Energy has actually been spent.

For its part, GE needed a special exemption from the EPA to sell a $100 million waste water treatment system to Frederick County, Maryland, because some of the membranes are made by a GE subsidiary in Canada.

Cisco, meanwhile, had to petition the National Telecommunications and Information Administration, an agency overseeing an initiative to roll out high-speed Internet access to rural areas, for an exemption from the Buy American rules. Requiring U.S.-made parts would be "grossly inefficient" and a "radical departure" from normal practice, said Cisco, the largest maker of networking equipment, according to Bloomberg News. The exemption was granted.

All this has slowed down the spending of money that was designed to create jobs.

Of course, the bigger danger of Buy American rules is that our trading partners will retaliate. Since more than 90% of the world's consumers live outside of the United States, which remains one of the world's three largest exporter -- Germany and China are the others -- we stand to be harmed more than anyone by a trade war.

As Dan Gross wrote recently in Slate's The Big Money:

For much of the past two years, virtually all growth in economic activity has taken place outside America's borders. As a result, U.S.-based companies are becoming even more reliant on non-U.S. customers and operations for sales.

Sales from outside the U.S. account for about 47.9 percent of revenues for the 253 companies in the S&P500 that break out U.S. and non-U.S. revenues.

 

So if foreign governments acted like Congress, we'd be in trouble. Just this week, a left-wing Canadian think tank proposed that the government there develop its own Buy Canada campaign, according to the Canadian Press.

"Our governments should emulate what is best in the U.S. buy-local procurement policies and employ them to benefit Canadians," said the Canadian Centre for Policy Alternatives. "This stance would undoubtedly irk certain American interests, but they could hardly cry foul."

So Buy American sounds great -- until you think about it.

By the way, Siemens' Dulaney and I talked about the company's energy efficiency business as well as the Buy American issue. He told me that the single biggest obstacle to energy efficiency in building is the difficulty that building owners have in borrowing money to retrofit their properties. I've asked The Energy Collective to post a podcast of our conversation, and it should soon be available here.

UPDATE: I've just been sent this story from the National Post of Canada. The headline is "Buy American horror stories building" and it says that pipe fittings for a public water system in Sacramento are literally being ripped from the ground because they were made in Canada. Crazy. Some Canadians are calling for surcharges on American movies being show in Canada. Even crazier.

GreenBiz.com Senior Writer Marc Gunther is a longtime journalist and speaker whose focus is business and sustainability. Marc maintains a blog at MarcGunther.com. You can follow him on Twitter @marcGunther.

Images CC-licensed by Flickr users *Micky and kevindooley.