U.S. Economy Can’t Truly Recover If Policies Turn Protectionist

What a shame. The $800 billion+ stimulus bill being crafted in Congress isn’t that impressive. Sure, there are some very good ideas that made their way into the legislation that will create jobs and improve the efficiency of our economy (infrastructure spending on roads, bridges, and the power grid, for example) but it seems for every good idea there is a bad idea to match it. Thank goodness they took funding for STD prevention out of the bill. There is nothing wrong with supporting the measure, but it certainly does not belong in an economic stimulus bill.

The part that is perhaps getting the most attention is one that would require that all infrastructure projects be completed using 100% American made materials. Somebody even proposed an idea that requires U.S. companies to fire foreign workers first, before letting go of any U.S. workers. These kinds of protectionist policies are absolutely horrible ideas.

It is a shame that our elected officials seem to write laws without ever consulting those who are educated in the area they are trying to legislate. Any economist or CEO will tell you that such policies will backfire. Congress seems to think that requiring Caterpillar to use U.S. steel in their industrial equipment will stem job loss in the U.S. because more steel workers will be needed to produce the steel. Sounds logical if you halt the analysis there.

In reality, though, Caterpillar will have to raise the prices of their equipment under such a scenario because domestic steel is more expensive. All of the sudden, Cat’s prices are above those of their competitors and their customers will start buying from other companies instead to save money. As Cat’s sales drop, they need to fire more workers, hardly the original intent of the policy .

The problem is we are in a global economy and the U.S. is no longer the fastest growing, most financially strong nation in the world. If U.S. companies ignore their foreign customers and competitors, our future will be bleak.

Someone will probably soon suggest that we protect jobs at home by requiring the Big Three automakers use materials made exclusively in the U.S. If that happened, U.S. car prices would be higher than their foreign competition, U.S. consumers would have fewer reasons to buy U.S. cars (in the long run, supporting your country by making a poor financial decision hurts the U.S. more than it helps it) and the Big Three would sell fewer cars, not more of them.

I think most people agree that a properly structured stimulus bill could be helpful for our economy, but couple the pork projects that would do little to boost jobs and growth with protectionist policies and any good measures in the bill could very well be quickly offset by bone-headed decisions elsewhere. From what we know so far, it doesn’t look like this upcoming bill will be anywhere near as good as it could have been, which is truly a shame.