'Buy American' Rider Sparks Trade Debate

Proviso Limits Steel, Iron From Abroad

The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

The provisions also confront President Obama with his first test on trade policy. He must weigh the potential consequences of U.S. protectionism against the appealing slogan of "Buy American" and the jobs argument.

The administration has not addressed the issue publicly, and sources close to the issue said it appears that a response is still being formulated.

"We're reviewing the Buy American plan proposal, and we are committed to a plan that will save or create at least 3 million jobs including jobs in manufacturing," White House spokeswoman Jen Psaki said.

The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive. Yet U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents.

The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization. But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.

Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.

"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.

"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."