Pandering to Protectionism: Both Sides Are Guilty

July 12, 2012 11:15 AM

Just when the outsourcing debate seemed to reach bottom, it fell into the basement. Pandering started with Obama's attack ads on Bain Capital, and by extension, Romney in his career as a maestro of private equity. The Washington Post contributed to the silliness with a long article dissecting Bain's record in creating and eliminating jobs, as if the goal of individual firms in a market economy was to maximize employment. On this metric, the Washington Post should have examined its own record of staff reductions on the printing presses and in the newsroom. But Obama's team lost no time in weaving the Post's story into a new wave of attack ads.

Republican strategists evidently decided that pandering draws more votes than sensible economics. They decided not to talk about insourcing—the huge number of US jobs created when foreign firms invest in America (Airbus is just the most recent example) and when US firms export sophisticated services, intermediate components and capital goods worldwide. Instead, the strategists distilled a questionable outsourcing list from programs in the 2009 stimulus bill, and labeled Obama "outsourcer-in-chief."

The real problem with the stimulus bill was not a handful of projects with an outsourcing flavor but the misconceived Buy America provisions which prevented outsourcing, no matter the cost. Not only did this provision waste taxpayer money and delay construction, but it also inspired a wave of copycat "local content requirements" (LCRs) around the world. Quite probably LCRs abroad have eliminated a far larger number of potential US jobs than those protected by Buy America. The fact that Congress regularly inserts a Buy America provision in new spending bills only adds to the foreign appetite for LCR measures.

Economic illiteracy in political campaigns is nothing new. But this episode is worrisome. Both parties are now on record that it is somehow "un-American" to outsource jobs. By implication, protection by tax or trade policies, however foolish, is described as the way to go. Obama wants to extend the punitive US corporate tax code worldwide; Romney promises to declare China a currency manipulator on day one. Both ideas are nonsense. They might never be implemented here in Washington. But they are sure to fuel protectionist measures abroad, to the great disadvantage of US exporters and US jobs.

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Gary Clyde Hufbauer Senior Research Staff

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