Buy American and Fair Trade Policies to Spur National and Global Economic Recovery

When Congress enacted the federal recovery plan, many state and federal leaders demanded "Buy American" provisions to ensure that the recovery plan funds would be directed to job creation in communities devastated by layoffs, particularly in steel and other manufacturing sectors especially hard hit by the economic meltdown.  While these provisions were fiercely resisted by multinational corporate interests (and watered down in the final federal bill), they are one key policy to help revive the U.S. manufacturing sector and reorient the economy away from the neo-liberal "free trade" policies that have undermined wage standards throughout the economy.

The reality is that the U.S. manufacturing sector is in free fall, threatening a core engine of our economy and threatening to lower wages further for workers in our nation.  And this is just part of a more general crisis, at home and globally, of falling wages undermining global demand and further weakening the overall economy. 

As this Dispatch will outline, Buy American policies are a first step in promoting an alternative to the trade and deregulation policies that fueled the current economic crisis.  Ultimately, we need policies that strengthen local tools for economic growth at home, combined with fair trade policies to raise wage standards abroad as well.   Also, as corporate interests increasingly use trade agreements to restrict state authority to protect worker, consumer and environmental interests, states are increasingly reviewing those trade agreements in order to restore states' ability to effectively respond to economic crises and protect the long-term interests of working families. 

Instead of the casino economy of financial excess, rising economic inequality and stagnant wages, we need to restore an economy based on a vibrant manufacturing sector at home and a fair trade system globally that raises wage standards for all workers around the globe.

Table of Contents

- The Problem: The Collapse of the Manufacturing Economy

- Why "Buy American" is Good for Global Economic Recovery

- Implementing Recovery Plan's "Buy American" Provisions in the States

- Using State Spending to Raise Wages Globally

- Reviewing Trade Agreements to Strengthen States' Ability to Respond to Economic Crisis

- Conclusion: The Need for a Bottom-Up Recovery


The Problem: The Collapse of the Manufacturing Economy

While the common perception is that manufacturing jobs have been declining for decades, the truth is that between 1967 and 1997, manufacturing jobs cycled between a low of 16.5 million and a high of just over 19 million. After 1997, however, the numbers began to drop precipitously, reaching 13.9 million in 2007—its lowest point since 1949.  Between 2001 and 2007-- long before the financial crisis -- states lost 3 million manufacturing jobs with those losses only growing since then.

Corporate Excess, Not Workers' Wages, Drove U.S. Manufacturing Collapse:  Despite attacks on workers and unions as the cause of the decline of American manufacturing -- notably present in the rhetorical attack on the auto bailout -- the reality is that manufacturing wages in the U.S. are lower than many other nations as highlighted the Economic Policy Institute highlights in its report, Squandering the Blue-collar Advantage :

  • Of the 20 richest countries tracked by the U.S. Bureau of Labor, the United States ranks 17th in hourly pay for production workers in manufacturing.
  • Of the 16 nations with higher compensation for production workers in manufacturing, the United States has the most productive workforce (save for Ireland with a manufacturing workforce less than 2% the size of that in the United States) in terms of “value-added per employee” (a common measure of productivity).

While health care costs are a problem for U.S. manufacturers, the real problem is overpaid CEOs and managers.  In fact, if the wages of U.S. managerial and non-supervisory labor were similar to the median wages of their counterparts in comparable countries, U.S. manufacturing would have a 6.4% cost advantage over major trading partners.  These excessive salaries and compensation at the top, in addition to the wealthy's other bloated gains such as the financial sector's bubble, are what have truly undermined the U.S. economy.

"Free Trade" Deals have been Pushed by the Same Multi-National Companies Benefiting from Low Wages Globally:   The companies opposing Buy American policies are the same ones that pushed the deregulation and "free trade" policies that got us into the current economic mess in the first place. As the Economic Policy Institute explains, "Companies like Caterpillar...want unfettered access to cheap steel from countries like China, which poured more than $15 billion into energy subsidies into that sector in 2007 alone.  Chinese steel imports more than doubled between January and November 2008, while U.S. steel production fell nearly 40%."

If manufacturing and a high-wage economy for workers in America is to be saved, it will be in spite of the corporate elite that is interested only in their own global profits.

Center for American Progress - Wage Inequality Is a Global Challenge
International Labor Organization - Global Wage Report 2008/09
Economic Policy Institute - Big business lobbies for importers
Economic Policy Institute - Squandering the Blue-collar Advantage: Why Almost Everything Except Unions and the Blue-Collar Workforce Are Hurting U.S. Manufacturing
Public Citizen's Global Trade Watch - Firms That Sent U.S. Jobs Offshore Now Claim That Investing U.S. Taxpayer Funds in America Is "Protectionism

Why "Buy American" is Good for Global Economic Recovery

Despite the myth, "Buy American" provisions are neither a threat to global trade nor are protectionist ("fair trade" policies aren't protectionist either as will be discussed below). In fact, the greatest danger is that without such domestic purchasing provisions in stimulus packages around the world, global production and trade could collapse.

Protectionism is when private purchasers of any product are required to buy only domestic versions of a product or are required pay such a high tariff on foreign products that it creates the same result.  The "Buy American" provisions in the recovery plan, on the other hand, are quite limited, applying only to the purchase of iron, steel and manufacturers goods by government agencies using recovery funds.  Though this is hardly enough to undermine the global trading regime, fears that federal spending would not lead to creating domestic jobs threatened to undermine support for the overall hundreds of billions needed for the stimulus.

How Domestic Buying Mandates Can Spur Global Trade Growth:  Globally, all nations would be better off if each would engage in fiscal stimulus, but any individual country doing so might be hurt if they are the only ones. Requirements to buy domestically may be the key to convincing enough nations to pass sufficient amounts of stimulus to jump start the global economy.

The problem right now is that nations fear that going into heavy amounts of debt could undermine their economies in the future. Even worse, if stimulus spending goes to buy foreign products, that debt will do little to revive their own economies in the immediate future. The Economist magazine recently highlighted resistance to stimulus spending by countries like the Netherlands out of fear that money spent would just flow through trade to other countries because of the European Union's internal trade rules, where the gains to growth "will not remain within one country’s borders, nor will that growth be controlled by any one government."

Domestic buying provisions tied only to the debt being used to pay for stimulus funds can solve this dilemma.  By enacting domestic buying requirements, each nation can expect to reap immediate job creation results from that stimulus debt, while their citizens will be free to spend their new salaries on all manner of goods, foreign and domestic, thereby adding to global demand.   If domestic buying requirements tied to stimulus debt encourage nations to engage in greater stimulus, the end result will be greater global spending, greater global demand and expanded global trade -- despite the tut-tutting of the "flat earth" free traders.   

Implementing Recovery Plan's "Buy American" Provisions in the States

The core of the Buy American provisions in the federal American Recovery and Reinvestment Act are in Sec. 1605:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

There are exceptions for particular projects where the lack of availability of U.S. alternatives would increase the price too much or where doing so would undermine international trade agreements to which the U.S. is a party.  This builds on the 1933 Buy American Act, which applied to federal contracts, and the 1982 Buy American Act, which applied to transit-related projects funded by the federal government. 

"Buy American" Policies Don't Violate Current Trade Rules: As this report by the Association for American Manufacturing outlines, the Buy American provisions in the Recovery Act are designed to be consistent with both international law and the practice of many of our trading partners. The U.S., for example, did not subject any state level procurement actions to NAFTA, including state procurement financed with federal funds, and it has specifically excluded federal funds for mass transit and highway projects from all trade agreements to which it is a party. Also, other countries maintain domestic spending requirements for government procurement:

  • A number of Canadian provinces maintain “Buy Canada” and other policies that put U.S. suppliers at a disadvantage.
  • In Europe, goods with majority EU content receive preferences over U.S. goods in certain water, transportation, energy, and postal services contracts.
  • China’s 2002 Government Procurement Law requires government entities at the central and sub-central level to give priority to local goods and services in contracting decisions, with some exceptions.
  • India’s procurement law has given preferences to goods provided by domestic state-owned enterprises, and the office of the U.S. Trade Representative reports that foreign firms “rarely” win government contracts.

Because the U.S. and thirty-seven states have signed onto the World Trade Organization's General Procurement Agreement (GPA), the recovery plan's Buy American rules can only be applied in a limited fashion to other signatories of the GPA, but this does not apply to major steel producers such as Russian, China, Ukraine, India and Brazil which are not GPA signatories. 

Even with sources from countries that are members of the GPA, one independent corporate legal analysis of the Buy American provisions noted that whatever the constraints on the federal government due to trade agreements, the 13 states and District of Columbia which have not themselves signed onto the GPA "should be free to apply ARRA funds for public building and public work projects in accordance with the Buy American provision." Other states that agreed to the GPA may be able to rely on certain exemptions, such as for construction-grade steel, motor vehicles and coal, as well as improvement of environmental quality or mass transit, highway projects and potential funding going to local communities not covered by the GPA.

States and Communities Support Buy American provisions:   A recent poll shows that 84% percent of Americans support “Buy America” provisions.  So far, more than 350 “Buy American” resolutions have been passed around the nation, with notable action in a number of key industrial states:

Other Buy American bills include Alabama's HJR 346, Kentucky's HCR 147/HCR 144, and Minnesota's S 241/H 352.

The United Steelworkers has a "Buy American" Resolution Tool Kit including model resolutions, fact sheets, and other resources to help spread support for Buy American resolutions in other states and communities. 

Thompson-Hine - How Will the Buy American Provision of the ARRA/Stimulus Package Conform With U.S. WTO Obligations?
Public Citizen - Backgrounder: Companies that Offshored Jobs Attacking "Buy America"/Stimulus on False Grounds
Association for American Manufacturing -  Buy America: Key to America's Economic Recovery
AAM - Poll: Americans Overwhelmingly Support ”˜Buy American’
United Steelworkers- Make Our Future Work 'Buy American' Resolution Tool Kit

Using State Spending to Raise Wages Globally

Beyond buying American goods, governments can work to raise wage standards globally by requiring that all contractors, whatever their country of origin, meet labor, environmental and human rights standards.

Problem of Rising Wage Inequality is Global:   The wage inequality problem in the United States is just an extreme version of a global problem of low wages undermining global growth.  An International Labor Organization study last fall, entitled Global Wage Report 2008/09, found that since 1995 inequality between the highest and lowest wages has increased internally in more than two-thirds of the countries for which there is data.  The U.S. leads the advanced economic world in rising inequality, but there has been similar rising wage inequality in countries ranging from Germany to Poland to Thailand to China.  As the Center for American Progress argues, "declining wages mean a decrease in global purchasing power and a slow down of global consumption," fueling the loss of manufacturing jobs since consumers around the world lack the income to purchase goods.  

Combating the Global Race to the Bottom:  Sweatshops and the "race to the bottom" of lower global wages is not actually a foreign problem but one driven by our own multinational corporations.   For example, while China has contributed to stagnant wages through ruthless suppression of organizing by independent unions, multinationals from wealthy nations have been a chief driver of the low-wage expansion in China.  Morgan Stanley’s chief economist Stephen Roach estimates that 65% of the tripling of Chinese exports —from $121 billion in 1994 to $365 billion in mid 2003 — is traceable to outsourcing by Chinese subsidiaries of multinational corporations and joint ventures.

The problem is that there are 150 million unemployed workers in China, far more than the actual number of workers in the United States.  With so many workers competing for jobs, wages are likely to remain at rock-bottom rates, hovering at about $100-$120 month for industrial workers .this for long hours 6 or 7 days a week in often toxic and unregulated work conditions.  Global Labor Strategies wrote in 2008 in a comprehensive evaluation of strategies for raising wage standards in China and globally:

"Raising wages in China is one of the prerequisites for bringing the global economy and the Chinese economy into a better balance. Higher wages would not only reduce some of China's allure as an export platform, but would also stimulate China's potentially huge domestic market. More money in the pockets of ordinary Chinese could translate into more total jobs in the global economy."

Many right-wing leaders have sought to scapegoat undocumented immigrants for wage problems in the U.S., but Jeff Faux of the Economic Policy Institute has explained the dilemma: "Since NAFTA's inception in 1994--indeed, for the 20 years of neo-liberal 'reform'--the Mexican middle class has shrunk and the number of poor has expanded . . . So the northward migration continues."  Raising living standards in Mexico and other countries where migrants are suffering from failed trade policies is a far better solution to immigration concerns than the punitive policies proposed by the right.

While any comprehensive solution must include global trade deals that include requirements to respect the right of workers to form unions and collaboration to promote higher wage standards, state governments can take action through their government contracts to effect wage standards in countries from which they purchase goods and services. 

Ending Subsidies for Sweatshops:  Subsidizing Sweatshops II released this month by Sweatfree Communities details a range of U.S. government contracts going to sweatshops around the world that "inadvertently use tax dollars to increase the downward pressure on labor rights and wages, hastening a race to the bottom which is costing many U.S. workers their jobs."  It doesn't have to be that way, as communities and states increasingly are toughening procurement standards to require that government contractors raise wage, safety and environmental standards at their overseas operations and subcontractors.

Already, eight states, thirty-five cities and many other local government units have adopted "sweatfree" procurement policies to require contractors to raise workplace standards.  These include California, Illinois, Maine ( 2001 law, 2006 law, 2007 law), New Jersey, New York (2006 law, Apparel, Sports Equipment), OhioPennsylvania (Policy, March 2004, Resolution, July 2008), and Vermont.

In Oklahoma last year, state Representative Rebecca Hamilton filed HB 3067 to address the trade-driven causes of immigration.  The bill repealed portions of last year's anti-immigration law, and instead, made it illegal for the state of Oklahoma to contract with any company that has closed American facilities and opened new factories outside the country, unless they operate those factories in compliance with United States wage, safety, and human rights guarantees. Rather than punishing hardworking immigrants, legislators can support American-made goods and fair labor standards. 

Global Labor Strategies - Why China Matters: Labor Rights in the Age of Globalization
China, the WTO and Globalization: Looking Beyond Growth Figures
AFL-CIO - Stop Sweatshops 
Sweatshop Watch:
Sweatfree Communities - Subsidizing Sweatshops II and Adopted Policies and Model Code of Conduct and Sweatfree Procurement Policy
Sweatfree Washington - Learn about efforts to pass sweatshop-free ordinances in Washington State.


Reviewing Trade Agreements to Strengthen States' Ability to Respond to Economic Crisis

As we detailed two years ago, and various allies such as Global Trade Watch, the Forum on Democracy and Trade, and the AFL-CIO have documented, a key threat is the increasing encroachment of trade agreements on state authority over a range of labor, environmental and consumer concerns.  Here are just a few threats to state procurement rules detailed in this recent Global Trade Watch fact sheet :

  • Requirements for recycled content in paper and other goods or energy from renewable sources are exposed to challenge;
  • Trade deals may limit state governments from disqualifying government contracts because of labor, safety or environmental records or practices;
  • Holding corporations responsible for human rights abuses-- as was done with the successful Apartheid-era bands on doing business with companies operating in South Africa -- could be banned.

New proposed trade agreements could not only further limit state procurement powers but undermine other areas of state authority.  Proposed WTO's General Agreement on Trade in Services (GATS) rules could undercut efforts to promote universal health insurance by barring certain health regulations and state professional licensing laws as illegal "service monopolies" or undercut state powers over zoning and land use or gambling limits.

States Taking Action:  Various states have established oversight committees to develop expertise on the effect of international trade agreements on state powers and better position states to weigh in during the trade agreement negotiating process to highlight states' interests in pushing for fair trade agreements.   For example the Maine Citizen Trade Policy Commission (CTPC) was created by statute in 2003 and held public hearings on the Central American Free Trade Agreement (CAFTA) in 2004 and has lobbied U.S. trade representatives on an ongoing basis.  

More generally, what have also been called "Jobs, Trade and Democracy Acts,"  establish not only oversight authority but would prevent governors from signing on to trade agreements without approval by state lawmakers. 

New Jersey's legislature has engaged in one of the most thorough reviews of how its state policies impact outsourcing and offshoring and the final report of the commission set up the legislature has a range of recommendations for changes in policy, from enacting trade oversight commissions, discouraging contracts for businesses eliminating in-state jobs by offshoring them, discouraging privatization more generally, strengthening anti-sweatshop rules, requiring a living wage for all contractor employees, and strengthening public transparency of the contracting process.

Building Coalitions for Fair Trade:   Critical to any successful fair trade will be building a broad coalition of legislators, community groups, unions, environmentalists and human rights groups.  Such a coalition must work together to promote a global vision of growth through raising wage standards globally as an alternative to the reining neoliberal "free trade" regime of limited local autonomy and a race to the bottom of lowered wages and expectations.  For a good example of such a coalition and its principles, see Washington State's Platform for Fair Trade  which includes, among other provisions:

  • commitments to enforceable environmental, labor, health and human rights standards in trade agreements;
  • protection of public goods and services from deregulation and privatization;
  • commitment to development in the world's poorest countries;
  • protection of democratic participation and local authority over key public decision-making.

New Jersey Commission on Outsourcing and Offshoring Final Report 
Jobs, Trade and Democracy Act Language
Progressive States Network - Preventing Trade Deals from Undermining State Power
Public Citizen's Global Trade Watch - Guide to States' Rights and International Trade  and Fact Sheet Series: Trade Agreement Threats to State and Local Policy and WTO, NAFTA and ”˜Free Trade Agreements’ Even Meddle in How We Can Spend Our Tax Dollars
Forum on Democracy and Trade
Trade Reform, Accountability, Development and Employment (TRADE) Act - Learn more about a bill that creates a positive and pragmatic vision for fair and sustainable international trade.
AFL-CIO Global Economy Website - Wide-ranging set of resources (including news and blogs) on the impacts of trade policy on worker rights.
Sierra Club's Responsible Trade Program - Information on how trade policy affects national & international environmental protection

Conclusion: The Need for a Bottom-Up Recovery

Investing in the manufacturing economy is the first step in promoting policies that raise living standards for working families.   Rather than focus economic growth on the favored few at the top of the economic pyramid as was true throughout recent decades, we need a new global economic system that encourages cooperation in helping each nation raise wage standards for all workers.