A controversial “Buy American” clause under consideration for the economic stimulus bill could trigger a trade war, President Barack Obama said earlier this week. Yesterday, steel-state lawmakers threatened to pull support for the package unless the clause — which would require public works projects receiving stimulus funds to use only American-made materials — stays in.
Late Wednesday night, the Senate voted to dilute the clause, adding that it must be “applied in a manner consistent with United States obligations under international agreements.” Since more than 50 countries have trade agreements with the U.S., there will be a whole lot of exceptions to the Buy American rule if the Senate bill ends up becoming law.
In or out, the clause has added another dilemma to legislators’ already unenviable challenge (devise a plan to simultaneously jumpstart the U.S. economy, cut greenhouse gas emissions and reduce demand for oil imports): What does it mean to buy American? Take solar power plants, wind farms and alternative-fuel vehicles as examples. Many use batteries, photovoltaics, wind turbines and various other components manufactured in other countries — and yet they also promote energy independence, a popular idea in Washington. Fact is, in a globalized world, well-intentioned efforts to support domestic suppliers could undermine efforts to speed adoption of renewables and clean vehicles.
While the Senate’s “Buy American” rule does not cover automakers or energy companies specifically, it does govern all manufactured materials purchased with tax dollars by way of the stimulus — an expansion of the House version that called for U.S. iron and steel for big infrastructure projects.
That has historically meant bridges, highways, tunnels and dams, but with a president and Congress pushing for clean energy infrastructure, this time around it could also mean renewable power and grid projects designed to make the national grid more efficient and better equipped for a fleet of electric vehicles. Companies from Japan, Germany, France and South Korea have taken notice of the opportunity, and are beginning to set up shop in the U.S., as the New York Times reports:
There are widespread expectations that Mr. Obama’s stimulus plan will transform the United States into the world’s largest growth market for green technologies. It promises $150 billion over a decade to create five million jobs and update energy infrastructure. But few believe the United States can reach those goals alone.
Keeping in mind that Congress has already doled out more than $13 billion to General Motors (s GM) and Chrysler — and that tens of billions of dollars more have been approved to support advanced vehicle technology (such as for electric car batteries) — separate from the stimulus package, the spread of “Buy American” fever to government investments in the auto industry could send companies back to the drawing board for key components, potentially causing delays. General Motors (s GM) would have to negotiate with a new supplier for its Chevy Volt battery pack, which it plans to assemble from lithium-ion cells made in South Korea. If Ford (s F) teeters over the brink and takes bailout funds, it too would have to rework a plan to use battery cells made at a Saft Groupe factory in France.
According to a recent survey from Kelley Blue Book, nearly 75 percent of car shoppers in the U.S. prefer American-made products, the Detroit Free Press reports. But as the Wall Street Journal noted last week, the old notion of domestic automaking needs an upgrade. According to the Journal, only 66 percent of the American-as-apple-pie Jeep Patriot qualifies for what the National Highway Traffic Safety Administration considers “domestic content.” Toyota’s (s TM) Sequoia, by contrast, is 80 percent domestic. The WSJ put it this way:
The Detroit companies wave the Stars and Stripes when they advertise their wares or look for loans in Washington, but when they talk to investors or the business press, they stress their aggressive efforts to promote “global sourcing,” a code for, “Buy More Parts from China and Mexico.”