'Buy America' clauses could hurt, not help.

• Author: Stone, Ben
• Position: Government policy notes

The "Buy America" provisions included in the House version of the 2004 Defense Authorization Act--and the mostly negative reaction by large and small industries alike--have shed light on a serious issue lurking below the radar screen of the mainstream media: How can the nation ensure the continued existence of a healthy defense industrial base to meet its security needs now and in the future?

"Despite the downturn in the U.S. economy, the defense industrial base in general is healthy, innovative and responsive," Suzanne D. Patrick, deputy undersecretary of defense for industrial policy, told the U.S. House Committee on Small Business earlier this summer. "Defense is a robust contributor to economic growth."

Although the defense industry on the whole is healthy--like any industry--it has sectors that are doing better than others. Operation Iraqi Freedom exposed several vulnerabilities. The refusal by several traditional allies to support U.S. actions in Iraq highlighted the risks of relying upon a global defense industry.

The reality, however, is that the defense business today is a global enterprise. The U.S. defense industrial base sells not only to the U.S. military services, but also to other services around the world. Foreign sales add strength to U.S. industry and help promote standardization and interoperability among our allies.

U.S. industry sells much mote to foreign customers than the U.S. buys from foreign industry. It supplies most of the tactical vehicles to the British military, and the aerospace sector is the lone bright spot in the U.S. trade balance with the rest of the world.

Some items required by U.S. military services are not produced in the United States, because industry does not find it profitable to participate in areas where capital investments are too high, environmental standards are too tough or the purchases are infrequent.

However, the "Buy America" provisions in the House bill significantly change the Defense Department's industrial base policy. Under the "Buy America" provisions, the Defense Department would have to buy U.S.-made products even if it had to pay more for them, and companies would be required to comply with a substantial data-gathering exercise.

The cost of defense programs would skyrocket, plant floors across the industry would need to be retrofitted at a huge cost, and there would be less competition, less innovation and fewer new technologies.

Adopting this wholly protectionist approach...