Congress passed the $787 billion “stimulus bill” this weekend and President Obama is scheduled to sign it tomorrow.  One item that made it into the final version of the bill, despite some opposition, is a “Buy American” provision that reads “None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.”

According to an article in the Los Angeles Times, there are some loop holes in the bill that would allow exceptions for existing trade agreements like NAFTA.  Nonetheless, I can’t help but place this provision in a broader context, namely the sharp decline in global trade activity and the rise of “near sourcing” supply chain strategies.

Last Wednesday, the US Commerce Department released international trade statistics for December. Compared to November, exports declined by $8.5 billion (about 6 percent) and imports dropped by $10.2 billion (about 5.5 percent).  Over the past five months, imports have declined 49 percent and exports have fallen 42 percent on an annualized basis.  Also, the trade deficit with China decreased from $23.1 billion in November to $19.9 billion in December.  Not surprising, the folks at the National Retail Federation and IHS Global Insight are forecasting an almost 12 percent decline in retail container volume during the first half of 2009.

U.S. International Trade in Goods and Services (Source: U.S. Commerce Department)

Obviously, the recession is the big culprit behind this sharp decline in global trade.  But even before the economy tanked, some companies were already revisiting their global supply chain strategies and networks due to record fuel prices (at least in the first half of 2008), rising labor costs in China and elsewhere, product quality and safety issues (e.g. lead in toys, melamine in food), a desire to reduce the carbon footprint of supply chains, increased complexity in moving goods across borders (e.g. “10+2″ regulations), and a push to reduce lead times and safety stocks.  In short, companies are taking a second look at the costs and benefits of having long, global supply chains (see related postings “Is it Possible to Accurately Calculate Total Landed Costs?” and “Global Trade Posts Negative Growth“).

This latest debate about “Buy American” reminds me of an issue that came up during the US presidential campaign, when President Obama stated that “NAFTA and its potential were oversold to the American people” and he promised to work with the leaders of Canada and Mexico “to fix NAFTA, so that it works for American workers” (see “Does NAFTA Need Fixing?“).  My view back in December was that tinkering with NAFTA during a recession is a mistake, and it seems that President Obama is also softening his stance.  Last week, for example, the president expressed concern that the “Buy American” provision could spark international trade wars.

Global trade will undoubtedly remain in the headlines in the weeks and months to come.  Are “trade wars” on the horizon, and if so, what impact will they have on your supply chains?  Will more companies adopt “near sourcing” strategies, even without legislative action, in response to the increased costs and complexities of managing long supply chains?  These are just some of the questions that I’m asking myself today, and so should you.