By Marc Palen
Protectionist legislation has become increasingly popular in the wake of the global Great Recession. Now Texas, the ostensible Red State defender of the American free market, is hoping to hop on the protectionist bandwagon. A bipartisan bill was recently proposed requiring state agencies to grant preference to goods manufactured, produced or grown in the United States, with the utmost priority given to goods made in Texas.
In May, House Bill 535 — the “Buy Texan, Buy American” bill — passed unanimously through the Texas House (145-0), and by a sizable 23-7 vote in the Senate. But the legislation hit a snag: Gov. Rick Perry’s veto.
In response, the governor’s office claims that the bill is redundant, as Texas agencies are already required to give preference to Texas-grown goods: “While I support and encourage our agencies to buy goods from Texas businesses,” Perry states, “this bill simply does not change current law.”
But the Republican governor’s statement is not entirely true. Under current state legislation, priority is not expressly given to domestically manufactured goods.
As a result of his nixing the “Buy American” bill, Perry has correspondingly come under attack. Texas AFL-CIO President Becky Moeller is now questioning Perry’s patriotism, asking why Perry cares more about foreign interests than those of America. “Gov. Perry by his veto has undercut the creation and preservation of manufacturing jobs in Texas and the U.S.” Moeller announced. “This governor won’t stand up for American jobs or Texas workers.”
Protectionism can be effective, assuming that it happens in economic isolation.
The problem is that the economy of Texas does not exist in a bubble. Rather, it operates within an integrated — and fragile — global economy. Seemingly local protectionist legislation such as this can therefore have global consequences. After all, what if the other 49 U.S. states responded with similar localized preferential schemes? Even worse, what happens if the top nations that Texas export manufacturers currently depend upon retaliated with protectionist legislation of their own?
This is not a purely hypothetical scenario. Trade wars have a long history, stretching back well into the 19th century, an era where high protectionism was the preferred political economic choice throughout much of the globe. Trade wars were subsequently made infamous in the early 1930s, when a sharp turn to global protectionism made the Great Depression even greater.
With skyrocketing unemployment, protectionism is once again in fashion, and not just in Texas. Over the past couple of years alone, a variety of tariff spats have broken out between the United States and China, and a heated Sino–EU solar trade war has just begun. World Trade Organization Director General Pascal Lamy warns that “the threat of protectionism may be greater now than at any time since the start of the crisis.”
Nor do protectionist policies invariably halt outsourcing, despite the contention of Texas’s AFL-CIO president. The Los Angeles Times, for instance, has just reported on a massive European Union tariff increase on American-made women’s denim trousers, jumping from 12 percent to 38 percent, enacted in retaliation against continued U.S. protectionism against the EU. This new EU protectionist legislation is forcing U.S. jeans makers to consider moving their production to Europe. Brazil has similarly been forcing tech industries like Apple and Asia’s Foxconn to relocate jobs to Brazil through the promise of subsidies and by threatening to maintain high tariffs on imports.
Thus, while “Buy Texan, Buy American” legislation might appeal to our patriotic heartstrings, we need to take a step back and think of the larger repercussions.
There is no guarantee that the bill would either spur Texas manufacturing or halt outsourcing. If it instead were to spark protectionist retaliation from Texas’s export markets, ironically we might experience the very results that the Texas legislation seeks to avoid: increased statewide unemployment and outsourcing.
Rather than nationalistically draping themselves in red, white and blue, proponents of the “Buy Texan” legislation therefore must also take into account its possible negative global ramifications. If they do, Perry’s veto might start looking like the right move.
This article was originally published at the Austin American-Statesman