Trade Cases

Leibowitz on Trade: The Dilemma of “Buy America”

Written by Lewis Leibowitz

As many countries and trading blocs like the EU focus on keeping production “at home” to prevent shortages in emergencies, America is joining in. “Buy America” as a slogan and a policy has been around for many years in many forms. But the allure of Buy America runs into practical problems; and that dilemma has been around for just as long as the allure.

The first “Buy American” act was signed into law by Herbert Hoover the day before he left office on March 3, 1933. That year was the last time a president took office on March 4. (The then-recently-ratified Twentieth Amendment took effect in 1933, and changed the dates for inauguration to Jan. 20 and the dates for Congress to convene to Jan. 3, where they remain to this day.) The old Congress was still in session after the 1932 elections and that Congress passed the Buy American Act, an effort to steer federal government procurement and jobs to domestic firms and workers at the lowest point of the Great Depression.

The Buy American Act gave a leg up to American contractors with the federal government, but not a huge one—for most procurements open to competitive bidding, American firms received a 6% premium compared to foreign bidders (small business gets a 12% premium).

In the 1980s, the Surface Transportation Act created a “Buy America Act,” which gave a bigger leg up to steel producers in transit projects. All iron and steel products must have steel “melted and poured” in the United States. That has created many issues with defining an “iron or steel” product. The Oakland Bay Bridge, for example, which was rebuilt in the 1990s, did not meet that definition. Sections of the new bridge were made in China and floated across the Pacific.

The surface transportation act was expanded to cover many government procurements in the Obama-era American Recovery and Reinvestment Act, which was passed in 2009. And President Trump signed a number of Buy America executive orders, which also purported to create requirements to buy American products for federal projects, regardless of cost.

The Biden administration joined the parade of proponents of “Buy America” within a few days of the Inauguration on Jan. 20, 2021.

“Buy America” laws and policies reflect a kind of ambivalence on the part of Americans. Americans want to help U.S. companies and workers, but they don’t want to pay too much. Note the 6% “break” domestic companies receive under the original “Buy American Act” signed by President Hoover. Perhaps because of this, these laws have not done much to steer manufacturing to the U.S. from overseas.

Manufacturing employment has been falling for decades. But that decline has been offset by new jobs in service and technology sectors. Moreover, no policy maker wants to have his or her fingerprints on profligate spending that means fewer projects will be completed for the same money, and less will be done for the American people.

In short, the idea of buying from your neighbors sounds good, but there is often a yawning gap between those ideas and concrete policies to implement them. The concept of Buy America sounds great—why should we send taxpayer money overseas when our industries “can compete with anyone on a level playing field?”

But when it comes to procurement budgets, quality, on-time delivery and completion schedules, putting a heavy thumb on the scale can be counterproductive. That is why many government projects have “Buy America waivers” allowing purchasing from foreign sources when these practical problems crop up. Agency heads that are running the projects have extensive authority to waive the requirements.

That brings us to the new initiative by President Biden. He has promised to limit these agency waivers going forward. In his first week as president, he issued an Executive Order that aims to limit Buy America waivers by requiring agencies to vet waiver requests for federal projects through the a new “Made in America Office” within the Office of Management and Budget in the White House. Agency heads would have to convince that Office that the waivers are truly necessary. Another new feature is the posting of all waiver requests on a new website, a form of “naming and shaming.”

The Made in America Office was just announced. Celeste Drake, a former AFL-CIO policy official and most recently with the Directors Guild of America, was just appointed director last Tuesday. Within 45 days, she is supposed to set up an administrative apparatus to handle Buy America waivers. As has been true before, the apparatus may not evaluate every waiver request. The Office has the power to “waive” review (there’s that word again). Moreover, the website publicly displaying waiver requests and how they are handled will only include requests “to the extent permitted by law and consistent with national security and executive branch confidentiality interests.” There is no guarantee that the public will learn much from this process, although Ms. Drake will want to show that she means business.

The public must wait and see how much change will really happen as a result of the new Made in America Office. When government embarks on new policies, the practical, legal and efficiency challenges always crop up. I don’t expect this time will be much different.

When all is said and done, the amount of jobs created may not be impressive. Currently, the amount of foreign end products purchased in federal procurements is a little over 4% of all government purchases of goods (foreign purchases of about $20 billion in 2018, the most recent year I’ve seen, compared to over $500 billion of products bought by government). The additional dollars spent in America on government procurement might not be worth all the procedural headaches. We’ll have to wait and see.

Local procurement has a lot of advantages in concept—look at medical equipment and vaccines, for example—but it has its headaches too. We should all be pushing for full employment of our workforce and avoiding shortages of key products and services. But government does not always come through with great ideas to do this. For example, when the Great Depression hit, spawning the Buy American Act, it produced a virtual elimination of legal immigration in an effort to keep wages up. Didn’t work.

While federal purchases of goods and services is certainly on the rise at the moment, it is nowhere near a majority of the goods and services bought and sold in this country (more like 2%). There is no “Buy American” law for the private sector. Whether there should be is a hotly debated topic right now, and is likely to get hotter. How would that work?

Lewis Leibowitz

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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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