How Is That Whole Buy American Thing Working Out?

(MoneyWatch)  All levels of the United States governments are facing a quandary about how best to maximize the result of the "Stimulus" and other spending as well as maximizing the number of jobs being created within the U.S. The original language of the $787 billion "Stimulus" bill passed by Congress put severe restrictions on buying services and goods from outside the United States. When it was pointed out that this would violate the various trade treaties signed by the U.S. it was modified. Unfortunately it does not apply to the states and local governments who are executing a great deal of the contracts.

Now the fact that even Canada and Mexico who under the North American Free Trade Agreement (NAFTA) are our closest trading partners lose out in this work. In fact the Federation of Canadian Municipalities passed a resolution last Friday calling for Canada's town and cities to reject using U.S. companies. This nonbinding resolution is focused on trying to get the national Government to meet with the U.S. and work things out.

Other international trade partners like Singapore have begun to raise issues with the U.S. legislation and efforts. Over the last forty plus years the worlds economies have become much more integrated with the U.S. relying on imports of manufactured goods, raw materials and now even service type jobs. If there is not growth across the world as well as in the U.S. the recession will not end quickly or easily.

During the Great Depression one of the primary causes of its length was that most of the world's great powers passed protectionism and tariff legislation. This while understandable turned out to be a mistake as already some nations relied on exports to maintain their economies. The Smoot-Hawley Tariff in the U.S. is one of the best examples of this and has become for better-or-worse the poster child for not doing this type of legislation.

Anytime there is a requirement like this in any contract it adds time to the award. The government contracting officer needs to make sure that the bidders are certifying and proving they meet the "Buy American" restrictions. The whole goal of the "Stimulus" was to get money out into the economy quickly to jump start it again. The blogger, AJ Strata, at The Strata-Sphere, has done a good job of tracking expenditures of funds since the passage of the bill and the effect on jobs. His most recent post is here. Unfortunately job losses are high and are even higher then predicted without the "Stimulus" bill. Strata feels that a good part of this is due to the slow execution of the funds.

To add fuel to the fire it is reported that the draft Climate Change bill working its way through the House and Senate has a "Buy American" provision in it. This relates to the development and production of electric vehicles. This language will probably not stand as it too, like the "Stimulus" violates U.S. treaty obligations. This is a sign though that politicians will consider any economic legislation in the future to force more Buy American legislation through.

What will be the end result of all of this? Further attempts to limit the government's money to U.S. companies may mean the best deal is not reached or slower execution of funds. If there were no treaty obligations like NAFTA or the World Trade Organization (WTO) then the government could just make a decision to do this and live with the effects. Those these may end up being negative to the economy as a whole.