The absurdities of ‘Buy American’

When the stimulus bill was being crafted, I wrote three posts lamenting the protectionist Buy American provision attached to the bill.

The last of these three demonstrated that the provision was needlessly creating lots of ill will north of the border.  As I am in Canada right now, I found the following story from the Sydney Morning Herald particularly laughable:

US President Barack Obama’s stimulus spending has run into a problem: A shortage of General Electric water filters.

GE makes them in Canada. Under the program’s `Buy American’ rules, that means the filters can’t be used for work paid for by the $US787 billion ($935 billion) fund.

Contractors are searching the US in vain for filters as well as bolts and manhole covers needed to build wastewater plants, sewers and water pipes financed by the economic stimulus. As officials wait for federal waivers to buy those goods outside the US, water projects from Maine to Kansas have been delayed.

“It’s added a whole new level of difficulty,” said Kathy Emery, a senior engineer for the West Virginia Department of Environment. “We’re continually having changes and further guidance” from federal rule-makers, she said.

At stake are the president’s efforts to fuel an economic recovery in the US by funneling stimulus funds to communities, including $US6 billion for municipal water projects. Lawmakers mandated that the money be spent on US products, with exceptions to meet international trade obligations.

GE says it assembles high-tech filtration systems for North American markets at its plants in Toronto and Oakville, Ontario, with parts from Hungary and elsewhere.

These are the absurdities that result from protectionism. In a globalized economy, it is often difficult to say where a product was actually made.  For example, there is a huge transfer of parts to GM Detroit from GM Canada in Windsor, Ontario, which is actually geographically south of Detroit and right over the border.  Were GM building cars under the Buy American provision, this type of transfer would be illegal.

The article points out that, just as the plants in GM Canada are fully integrated with GM Detroit, the GE facilities in Oakville and Toronto are fully integrated with GE’s US operations as well.

The purchasing rules are hurting the stimulus program, said US Representative Kevin Brady, a Texas Republican. He has called for a congressional review of the Buy American plan.

Losing jobs

“There are some real downsides to Buy American,” Brady said in an interview. “It delays projects. We have to look at what jobs we are losing.”

Lawmakers in America who pander to voters who do not live in these communities might think these provisions are justified.  However, this one example is one of scores of similar logistical minefields created through protectionism. Here is another from the same article.

At Aquarius Technologies, which sells equipment to US wastewater plants, domestic business has slowed to a trickle, said Tom Pokorsky, president of the closely held company in Port Washington, Wisconsin.

`Buy American has stopped US wastewater work this year,” he said. “I’m surviving by selling to Canada.” Even that market won’t be safe if Buy American sparks a “Buy Canada” retaliatory initiative, he said.

After watching trucks send manhole covers flying, officials in Auburn, Maine, switched to hinged covers years ago. The ductile-iron ones they used were made across the border in Canada.

While they waited for weeks for a waiver to buy more covers for a new sewer project, Norm Lamie ordered steel plates placed over the exposed holes. “EPA did eventually give us the waiver,” and the manhole covers are in place, said Lamie, general manager of Auburn’s water and sewer district.

To my mind, the biggest takeaway here is that this is what should be expected when the government inserts itself into a relatively free market legislatively.


‘Buy American’ backfires – Sydney Morning Herald

  1. Jolt says

    The real question is why isn’t GE making the filters in the US? Does the US lack the ability? Unlikely.

    With all likelihood it’s that transfer prices due to tax incentives, and other subsidies, makes production in Canada advantageous for GE.

    So sure, the “Buy American” provision may result in absurdities per your posting but government twiddling (on both sides of the border) has for years created inefficiencies and bad incentives.

    The Canucks can be furious all they want…

  2. Name says

    I think NAFTA’s provisions mean Canadian products are considered the same as American products under federal “Buy American” rules.

    1. Edward Harrison says

      They do not, unfortunately. That was the purpose of the referenced article – to highlight this fact.

Comments are closed.

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