Protectionism Is Already Harming American Workers And Cities

Both Vermont Senator Bernie Sanders and New York reality television personality Donald Trump have based their presidential campaigns in part on the issue of trade. Both of them oppose free trade policies like the North American Free Trade Agreement and the pending Tran Pacific Partnership, arguing that free trade has resulted in American jobs going overseas, leaving American workers worse-off. To remedy this situation, Trump has proposed declaring China a currency manipulator and imposing duties on Chinese-made goods, while elsewhere he’s advocated a 35 percent import tax on items made in Mexico and a 20 percent tax on all other imported goods. Sanders has also advocated imposing tarrifs on countries that manipulate their currencies to subsidize exports.

To counter both candidates’ narratives of heartless corporations offshoring American jobs or unscrupulous foreigners “stealing” jobs that belong to American workers, economists and commentators from across the political spectrum have compiled impressive arrays of statistics proving that free trade actually benefits everyone. But they didn’t have to do so much. There are already examples, right now, of protectionist legislation that explodes the myths of the Trump and Sanders crowds.

Since 1978, the “Buy America” provision of the Surface Transportation Assistance Act has forced transit agencies and passenger railroads like Amtrak and commuter rail services to have around 60 percent of the equipment and structural components manufactured in the United States if they want federal funding for their projects, unless they apply for and receive a waiver.

Has this provision protected American workers? Does the United States now have a thriving rail equipment industry capable of competing with European, Japanese and Chinese companies, bearing out Alexander Hamilton’s “infant industry” argument?

No.

According to Metro Magazine, the Buy America provision makes “significant supply-chain disruptions” likely because the American market share for bus and train components will decline and manufacturers will pull out in order to focus on meeting requirements for larger Indian and Chinese orders. The policy also hinders innovation, as requirements for American content would discourage technology transfer.

“Those who want to place greater mandates or structured procurement incentives on the marketplace may, in the long run, create fewer, not more jobs,” wrote Metro’s Cliff Henke. “The market distortions these proposals would cause will likely raise the prices or create delays for goods, services and projects delivered — which usually also means higher costs — or lower performance quality. Even if they are short-lived, these effects threaten to shrink job creation because fewer cars, buses and systems can be procured with the available funding and potentially undermine the political case for greater public transportation investment if the new rules undermine quality and performance.”

Delays and price increases have already become a way of life for transit agencies attempting to fulfill the Buy America requirements. It has become common for a foreign-owned company manufacturing rolling stock to commit to building a factory in the United States in order to fulfill the provisions. State and city politicians, eager to be seen to be Doing Something, then enact subsidies and help with site acquisition and permitting.

South Korea’s Hyundai Rotem, for example, built a new factory in Philadelphia in 2006, after winning a contract to build electric multiple units for SEPTA. Much flag waving and stories about blue collar jobs resulted, but it soon became apparent that nationalism can’t make up for skills.

The original SEPTA order took seven years to fulfill and an order by Boston’s MBTA resulted in cars of such poor quality the T had to have them rebuilt at great expense in Rhode Island. For a recent order for new subway cars, the T rejected a Hyundai Rotem bid in favor of one from a Chinese company.

Hyundai Rotem is hardly the only company to offer nothing but delays and poor quality in its dealings with American transit agencies. France’s Alstom was hired in 2010 by PATCO to rebuild its railcars at a cost of $194 million at its Hornell, NY facility and as of 2014 the rebuilt cars had failed every single test put to them.

Each delay and cost overrun – which hurts transit riders, who are usually the people protectionist politicians claim to be helping, by increasing cancellations due to over-reliance on aged equipment and forcing the agency to spend more money, preventing it from investing in maintenance and driving fare increases – makes the agency gun-shy about dealing with the same company, so the next order goes to another company and the cycle repeats. The MBTA, for example, has light rail vehicles by Boeing, Bombardier, Kinki Sharyo and Ansaldo Breda. For its next order, it’s contracted with a Spanish company, CAF.

The delays and high costs associated with Buy America have helped to make American transit costs the world’s highest. The Congressional Research Service found that new bus prices were double in the United States versus Japan and South Korea. According to Alon Levy, locomotives purchased by Amtrak cost 30 percent more than the European equivalent, increasing costs by $100 million.

“In other words, it’s a scam,” Levy wrote. “Blocking parallel imports ensures only a select number of vendors can bid, driving up prices. Usually there’s a small sop to American labor, well-publicized in the media with photo-ops of people in hard hats – e.g. the 250 jobs heralded for the [Amtrak] order – but the bulk of the extra money goes elsewhere. It creates makework for consultants and lobbyists. It increases vendor profits, since fewer companies, typically the largest and most global ones, can bid.”

And that’s just rolling stock. Since Buy America applies to all aspects of transit work, including construction, the policy also inflates the costs of building tracks, stations, elevators and escalators.

It is evident that protectionism is already harming American workers and American cities. A Trump or Sanders regime would harm them still more and benefit the lobbyists, Wall Street insiders and patronage politics both men claim to be running against.