Commentary: 'Buy American' clause should be dropped

Forget about Iraq, the Middle East or searching for a new White House puppy. President Barack Obama's first key decision will be whether to support a "Buy American" clause. It is strongly supported by his Democratic Party and labor unions, but U.S. allies say it would trigger a trade war like the one that led to the Great Depression.

Which way will Obama go? Will he risk antagonizing Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and the AFL-CIO, whose support he badly needs to pass his almost $900 billion economic stimulus package? Or will he heed the calls from the European Union, Canada, Brazil and other U.S. trade partners, as well as key Republicans in Congress?

Or, to put it more bluntly, will Obama conclude that he has little choice but to govern with the solid support of the Democratic majority in Congress or will he risk sacrificing some Democratic votes in exchange for a small minority of Republicans in hopes of building a bipartisan, centrist, legislative base?

The "Buy American" clause, included in the administration's stimulus package that the House passed last week, calls for ensuring that funds for infrastructure projects such as highways and bridges be only used to buy U.S.-made steel, iron and other materials.

A Senate version of the bill further demands that the stimulus package's funds for infrastructure projects be used exclusively to purchase U.S.-made manufactured goods, such as shovels or cranes.

"It's basic common sense," AFL-CIO policy director Thea Lee explained to me. "American taxpayers will spend close to $1 billion to stimulate the U.S. economy and create U.S. jobs. To the largest extent possible, within our international obligations, we should try to use those dollars to buy American products."

Supporters of the bill reject claims that the "Buy American" clause would violate the spirit – if not the letter – of U.S. international trade commitments.

"There are waivers and exceptions built into our trade obligations that allow us to give a preference to American goods to a certain level," Lee said.

"There is no reason why not to take advantage of provisions that we have negotiated into these trade agreements."

Leading U.S. trade partners see it differently. Passage of the "Buy American" clause would lead to "a rush of protectionist actions" that could "create a downward spiral like the world experienced in the 1930s," Canadian Ambassador Michael Wilson said in a letter to congressional leaders earlier this week.

Brazilian President Luiz Inacio Lula da Silva told reporters that "protectionism at this moment will aggravate the crisis." Trade experts say that Brazil would be among the most hurt by the "Buy American" clause because it exports steel to the United States and – unlike Canada, Mexico, Chile or Peru – does not have a free trade agreement with Washington that would exempt it from many of the measure's provisions.

Pro-business groups note that U.S. exports fell by nearly 25 percent in December, and that other countries are suffering similar drops in trade.

"In that context, any U.S. moves that are seen as protectionist could really give a moral sanction to governments around the world to raise trade barriers themselves," says John Murphy, vice president of the U.S. Chamber of Commerce.

Asked by ABC News about his position on the "Buy American" provision, Obama said Tuesday that he wants to avoid measures that would "signal protectionism," adding that there is "a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe."

While critics of the "Buy America" clause cheered Obama's words – it was the president's first indication of where he's leaning since Vice President Joe Biden had made comments that appeared to back the measure last week – they caution that the White House may back a watered-down version of the bill that could still be perceived by U.S. trade partners as protectionist.

My opinion: Your statement was right on the mark, Mr. President! What's important is not only the letter of the law, but the signal it sends to the rest of the world.

If it gives U.S. trade partners an excuse to pass their own "Buy national" laws, U.S. exports will plummet even more and more U.S. jobs will be lost than this provision would help save. Now, please make sure that "Buy America" doesn't turn into "Bye, America."