"Buy American" plan could cost U.S. jobs: study

WASHINGTON Tue Feb 3, 2009 9:38pm GMT

A construction worker balances on a steel beam at 8th Avenue and 42nd Street in New York in this April 21, 2008 file photo. REUTERS/Shannon Stapleton

A construction worker balances on a steel beam at 8th Avenue and 42nd Street in New York in this April 21, 2008 file photo.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - "Buy American" provisions under consideration in Congress as part of a huge economic stimulus bill could create only 1,000 new steel industry jobs and might cost as many as 65,000 across a number of sectors, a new study said on Tuesday.

"The negative job impact of foreign retaliation against Buy American provisions could easily outweigh the positive effect of the measures on jobs in the U.S. iron and steel sector and other industries," Gary Hufbauer and Jeffrey Schott, senior fellows at the Peterson Institute for International Economics, said in the report.

The study came as the Senate was debating a nearly $900 billion economic stimulus plan that allows only U.S.-made iron, steel and manufactured goods to be used in public works project funded by the bill.

That built on a measure passed last week by the House as part of its $825 billion stimulus plan that would require the use of U.S.-made iron and steel in public works projects and which raised concerns among U.S. trading partners the United States was moving toward increased protectionism.

The governments of both the European Union and Canada sent letters to Congress on Monday urging the provision be dropped.

White House spokesman Robert Gibbs told reporters on Tuesday the Obama administration was still reviewing its position on the Buy American provision, hours after House Democratic Leader Steny Hoyer said he thought foreign concerns about the measure were "justified."

U.S. officials have responded to Canada's concerns but given no guarantees it would be excluded from the provisions if enacted, Canadian Trade Minister Stockwell Day said in Ottawa.

"We're going to keep the pressure up," Day said.

CONFLICTING STUDIES

A study done earlier this year for the Alliance for American Manufacturing, whose members include the United Steelworkers union, U.S. Steel and other metal manufacturers such as Allegheny Technologies, estimated that requiring 100 percent U.S. content in infrastructure projects would create 77,000 new jobs.

The most important finding was "you create 33 percent more manufacturing when you have domestic sourcing," Scott Paul, the group's executive director, told Reuters.

In contrast, the Peterson Institute study estimated requiring only U.S.-made iron and steel in stimulus public works projects would create demand for an additional 500,000 metric tons of steel, translating into an increase in U.S. steel industry employment of "roughly 1,000 jobs."

The more expansive Buy American provision in the Senate package could create roughly 9,000 jobs, compared to the total U.S. work force of around 140 million, the report said.

The United States could lose jobs if countries strike back by cutting off purchases of U.S. products for their public works projects, Hufbauer and Schott said.

They estimated total U.S. direct and indirect exports for foreign public works projects at around $104 billion.

About 6,500 U.S. jobs could be lost if countries shut off 1 percent of that market to U.S. exporters and about 65,000 U.S. jobs could be lost in the "extreme case" that 10 percent was shut off, the report said.

Paul and other supporters of the "Buy American" provision argued the measure is consistent with longstanding public works preferences for U.S. manufacturers and that critics are exaggerating its negative impact.

"The surprising thing would be if this bill did not use a domestic sourcing requirement," Paul said.

Other business groups that are working hard to kill the provision said it sets a bad example for the rest of the world at a time when countries need to cooperate to get global economy back on track.

"The problem we have is the rest of the world is watching us here. If we revert to the kind of economic isolationism that is represented by these kind of provisions, we're afraid the rest of the world will retaliate," said John Castellani, president of the Business Roundtable.

(Additional reporting by Susan Cornwell in Washington and Louise Egan in Ottawa; Editing by Eric Beech)