Manufacturers in Canada are very angry.  This loss of business comes on top of sales losses due to the recession and the strengthening Canadian dollar. The “buy American” problem may be back page news here but it front page news in Canada. Expect retaliation from the Canadian government.  This will probably be in the form of penalty tariffs on a wide range of US exports to Canada. This is exactly what Mexico did when the stimulus plan banned Mexican trucks from US border highways.

Some municipalities have abandoned approved stimulus project because they can not get the equipment they need for the project. Some contractors are declining to bid on projects because they do not want to battle with Washington bureaucrats about what they are allowed to buy for the project.

The “buy American” provision was included at the insistence of unions who convinced Congress and President Obama that the economy would be better off with a few more jobs for their members than with the larger number of jobs than would come from more project work at lower project costs.

Congress and the President should reread Adam Smith on the gains from trade.  The reason we buy pumps from Canada, A/C units from Japan and elevators from Germany is that these countries can make this products comparatively less expensively than they can be made in the US. It is the same reason we buy bananas from Costa Rica and sell them construction equipment. Both parties gain from free trade. Only a few selfish people gain at the expense of everyone else from protecting industries from trade. Protectionism or fair trade always ends ugly.  Look at the auto, rubber and steel industries.

Note how the “buy American“ provision was written. All jumbled together is language that states that materials must be made in the US, that the provision is superseded by US trade treaties and that waivers from the provision are possible upon application to the federal government based on a vague set of rules on excessive costs.  There is something for everyone here.

Congress can claim that they are respecting trade treaties and preventing excessive costs.  But that is not how it is working. This is Chicago style government.  Imported materials are prohibited without permission.  Whether you get permission depends on who you are and what you are willing to pay for it.

Eventually, an existing NAFTA commission will order the US to eliminate the provision.  Expect Obama and the Congress to ignore the order. The “buy American” provision can only be eliminated by repealing the stimulus plan.  It is encouraging that recent opinion polls show a huge majority now favor doing this. The stimulus part of the stimulus plan has done its job.  What’s left is simply a power grab by the federal government. It is time for repeal.