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Infrastructure plan must not succumb to free-trade mythology

February 20, 2018

In a meeting with House and Senate members this week, President Trumpwas reportedly surprised to learn that his newly released infrastructure plan didn’t include any “Buy America” requirements. The president had issued an executive order last April stating: “It shall be the policy of the executive branch to buy American and hire American.” 

Op-ed originally appeared on The Hill February 18, 2018

Administration staff writing the initial infrastructure plan appear to have overlooked that order, however. But an infrastructure package cannot create jobs in the U.S. if it exports taxpayer dollars to Asia and Europe.

Thus, the president’s proposal is far less strategic than it should be, and the administration should promptly revise it to incorporate Buy America requirements. Infrastructure repair is one of the rare areas of bipartisan consensus in Washington.
The nation’s crumbling bridges and roads are in need of structural upgrades, as are ports, waterways, airports, sewage plants and water treatment facilities.The public strongly favors tax dollars being spent on American-made goods and services for these works since using American-made inputs will help to boost domestic job creation.

Significantly, the U.S. government is the single largest customer in the world. Its massive purchasing power can strengthen existing industries and even support innovative new enterprises. It was strategic government spending, for example, that built Boeing, Intel and AT&T.

But if this spending is misplaced and directed toward low-priced vendors overseas, it will simply incentivize foreign countries to subsidize their industries and harvest U.S. taxpayer dollars. 

China is currently sitting pretty when it comes to the infrastructure game. Beijing has massively boosted its government-owned steelglassrubber, and auto parts industries, all while deliberately undervaluing its currency to gain a price advantage.

The result has been a skyrocketing trade surplus with the U.S. that reached a stunning new annual record in 2017 of $375 billion — a massive annual stipend from U.S. consumers that helps China grow its economy, arm its military and expand its geopolitical power.

South Korea, Taiwan and Japan employ similar strategies to support their metals industries and other key sectors —undercutting otherwise efficient American competitors. President Trump recognizes this mercantilism and understands that the U.S. must be similarly strategic and not succumb to naive free-trade mythology.

The first step, then, should be for a strategic infrastructure plan that directs spending toward U.S. companies, rather than rewarding foreign mercantilism.

Critics have argued that imposing domestic preferences would start a “trade war.” It’s an important subject, since many of the trade agreements America has signed obligate the U.S. government to treat foreign products similarly to domestic goods.

A side agreement relating to the World Trade Organization (WTO), called the Agreement on Government Procurement (known as GPA), requires Washington to consider goods from 42 other countries on an equal footing with U.S. products. 

The rationale for these obligations was that “free trade” should be extended to government procurement. Presumably, U.S. companies would be able to sell more product to foreign governments.

Unfortunately, it hasn’t worked that way. The General Accounting Office (GAO) reported in 2017 that the U.S. government buys far more from overseas firms than foreign governments purchase from U.S. companies.

In fact, the GAO noted that the United States has directed a greater percentage of its government procurement to foreign competition than the next five largest countries combined.

Other nations aggressively apply their own domestic procurement policies despite signing international agreements. The EU, for example, follows a plan to purchase from within the EU.

It’s also doubtful that Japan and South Korea — also signatories to such agreements — allow U.S. companies access to the same government contract opportunities enjoyed by Mitsubishi and Samsung. Once again, the promised free-trade utopia bears little relation to the reality of national interests across the globe.

Fiscal spending and infrastructure should be seen as strategic tools to win the global competition for good jobs and industries. President Trump’s staff should rethink their initial infrastructure plan and apply the power of government spending to rebuilding domestic supply chains.

They should also refuse terms in future trade deals that constrain the nation’s ability to buy American and should consider withdrawing from the GPA. 


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