Published on Africa Can End Poverty

Implications of the "buy American" clause for trade policy in African countries

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President Obama on February 17 signed the $787 billion Stimulus package into law. The package is aimed at stimulating production in the US as well as job creation. However, it includes the following clause: 

(a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.
(b) Subsection (a) shall not apply in any case or category of cases in which the head of the Federal department or agency involved finds that—(1) applying subsection (a) would be inconsistent with the public interest;(2) iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or(3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.
(c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b), the head of the department or agency shall publish in the Federal Register a detailed written justification as to why the provision is being waived.
(d) This section shall be applied in a manner consistent with United States obligations under international agreements.

Many economists have voiced their concern regarding this clause, labeling it as protectionism. Two concerns with respect to African countries. The first is the implications for trade relations with African countries. Global trade has dwindled since the 4th quarter of 2008 and this "buy American" condition will serve to weaken global trade even further, with African countries suffering the most.  For example, the United States is one of South Africa’s biggest export destinations, especially for manufactured goods including products of iron and steel.  What are the implications of this clause to African countries that export manufactured goods to the US? Another downward revision of growth numbers could be warranted. 

The second area of concern is the resultant disillusionment among Policy makers. Have economic pundits not advised Policy Makers – for decades – that trade liberalization was the key to unlocking their countries’ economic growth potential? Is this clause not undoing the principles upon which trade liberalization is founded? Our African countries have, among other things, huge unemployment problems. The policy lessons that seem to be emanating from this move by the US Government is that protectionism is justified after all if you have problems such as unemployment and poverty, and aim to stimulate economic growth – problems that Africa has been trying to overcome for a long time….Is it not possible that even those that have made strides in liberalizing, like South Africa, could then apply their brakes on further liberalization. 


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