Sen. Josh Hawley (R-Mo.) has introduced new legislation that seeks to ease the current supply chain crisis and support domestic manufacturing — popular themes in Washington these days. The core of the legislation is a requirement that designated goods sold in the United States have the majority of their components sourced from the United States. In trade policy lingo, this is referred to as a local content requirement.
While Hawley’s proposal may have appeal in the current political climate, it undercuts decades of U.S. work to fight the local content policies of other countries that harm U.S. global competitiveness.
When foreign governments impose local content requirements, it hurts the ability of U.S. companies to compete in those markets.
Simply put, when foreign governments impose local content requirements, it hurts the ability of U.S. companies to compete in those markets. Local content requirements can force U.S. companies to use substandard inputs, rather than the inputs that meet the quality and price requirements that work best for their business. It also hurts the ability of U.S. firms to export inputs into foreign markets, hamstringing their global growth potential.
For example, a U.S. auto manufacturer exporting to Japan wants to have the freedom to choose where its aluminum frame comes from. It is a much better outcome for both the U.S. auto industry and the U.S. aluminum industry if U.S. car companies can use U.S. aluminum rather than being forced to use Japanese aluminum in order to be able to sell cars in the Japanese market.
Read the full article from The Hill.
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