President Trump has used Executive Orders to extend the reach of how “Buy American” legislation is implemented by federal agencies in their procurement evaluations. Presidential candidate Joe Biden has pledged to “use taxpayer dollars to buy American and spark American innovation”. Recent polling shows Americans believe Buy American policies support job creation.
While support for “Made in the USA” products appears politically trendy right now, the concept of maximizing taxpayer spend on goods and services with high U.S. content is far from new. In fact, it extends all the way back to our founding. Here’s a primer on the evolution of Buy American policies.
1770s: Birth of America, Birth of Buy American
By the late 1760s, American colonists start a “non-consumption movement” against British goods in the attempt to force Britain to repeal its taxes. In Boston, merchants vote to block English trade, a move that culminates in the famous Boston Tea Party and the dumping of 45 tons of British tea into the harbor. The First Continental Congress of 1774 threatens a boycott of British goods. Patriotic colonists are expected to purchase goods made in America. Daughters of Liberty hold spinning and weaving parties to whip up American textiles. At his first inauguration, George Washington wears a brown suit of broadcloth from Hartford, Connecticut in a show of American-made symbolism.
1930s: The First Buy American Act
Newspaper magnate William Randolph Hearst decorates his mastheads with American flags to launch a popular Buy American campaign to bring the United States out of the Great Depression. Hearst’s own views and politics were tinged with racism. His anti-immigrant sentiment and reporting was likely a contributing factor to the Japanese-American internment that occurred during World War II.
On his last day in office, President Herbert Hoover signs the foundational Buy American Act of 1933. Above a certain dollar threshold, the federal government’s direct purchases must prefer domestic goods, defined as 100 percent manufactured in the United States with at least 50 percent domestic content. The requirement does not apply to third parties like private sector contractors who win funding through government procurement awards. The Act is promoted to safeguard American jobs for major infrastructure projects, including the Hoover Dam.
1970s – 1980s: Manufacturing in Decline
The Buy America Act of 1982, a provision of The Surface Transportation Assistance Act, is introduced in reaction to capital flight in the 1970s and the beginning of steady decline in manufacturing employment. The requirements are extended to purchases made by third party agencies, as well as those made directly by the federal government. The act applies to the construction of highways, railways, and rapid transit systems.
The definition of “American-made” becomes more complex: all steel and iron components of end products must be mined, melted and manufactured in the United States, with an exception for “minimal use” if the materials constitute a low value or low percentage of the overall contract value.
1990s: Defense Purchases and the Berry Amendment
The Berry Amendment to the Fifth Supplemental Department of Defense Appropriations Act of 1941 gives preference in defense procurement to a range of products including clothing, food, and fabrics grown, produced or manufactured in the United States. It imposes stricter domestic content requirements on such purchases than the Buy American Act and is made permanent in 1994.
2000s: Trump Executive Orders
In the 2000s, the Obama administration approves Buy American requirements in the 2009 American Recovery and Reinvestment Act. All public projects backed by the Act’s funding were required to use domestically-produced iron, steel and manufactured goods unless the cost of doing so increased the overall project cost by 25 percent.
During his presidency, Trump has made extensive use of Executive Orders to shape federal agency implementation of Buy American requirements. He signs the Executive Order on Buy American and Hire American on April 18, 2017 “to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases.” The Order reaffirms that all aspects of steel and iron production must occur in the United States.
The Buy America Act does not apply to the acquisition of goods that are not commercially available in the United States in sufficient quality or quantity, or when it would be “inconsistent with the public interest.” Buy America preferences may also be waived if inconsistent with commitments made to U.S. trading partners under the WTO Government Procurement Agreement or U.S. free trade agreements.
Trump’s 2017 Executive Order directs federal agencies to scrutinize their compliance with Buy America requirements and to minimize their use of such waivers to purchase foreign goods and services. In addition, the Order mandates that, “to the extent permitted by law, before granting a public interest waiver, the relevant agency shall take appropriate account of whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods.”
Trump signs an Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects on January 31, 2019. The Order extends the previous order, targeting infrastructure projects that receive federal financial assistance awards, greatly widening the scope of affected programs and projects.
On July 15, 2019, Trump signs an Executive Order on Maximizing Use of American-Made Goods, Products, and Materials. The Order reinterprets the so-called “component test” to increase the thresholds for U.S.-origin components. Iron and steel end products must contain 95 percent or greater U.S. origin “parts or materials”. Other products must contain 55 percent or more U.S. parts or materials.
Most recently, President Trump issued an Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States on August 6, 2020 in response to the COVID-19 pandemic. With the goal of reducing dependence on foreign supply chains and strengthening domestic ones, the order declares U.S. policy to accelerate domestic production of essential medicines; ensure long-term demand for the medicines produced; create and maximize domestic production for Critical Inputs and Finished Drug Products; and combat the trafficking of such medical equipment and products.
Criticism of Buy America Requirements
A 2018 study by the Government Accounting Office (GAO) found that of the $196 billion in federal obligations in fiscal year 2017 to purchase end products, just $7.8 billion or 4 percent were foreign end products purchased using exceptions to Buy America requirements. 47.1 percent of that amount went to end products used outside the United States and just 7 percent of the amount was purchased using waivers associated with free trade agreement obligations.
Beyond the waivers for purchasing foreign goods, critics argue that instead of being a boon to U.S. contractors, domestic content requirements create additional and costly regulatory burdens for U.S. companies competing for federal contracts. Buy America requirements may reduce procurement choices for federal agencies like the Department of Defense while potentially increasing costs to U.S. taxpayers. The jobs argument behind Buy America has also been scrutinized. In one economic analysis by trade economist Tori Smith, Smith argues that the steel purchasing requirements in Buy American legislation have done little to stem employment losses in the U.S. steel industry, in steady decline since 1980.
Neither is the United States out of line when it comes to imports as a percentage of overall public procurement. The average is 4.4 percent, which is the U.S. rate of purchases. Put in further context, imports as a percentage of U.S. GDP is generally lower than its peers in the OECD, at just 17 percent. The United States may have more to lose economically by reducing opportunities for foreign suppliers in the U.S. procurement market. In 2018, the global procurement market was worth an estimated $11 trillion. In a boomerang effect, U.S. companies could lose the ability to bid on foreign government projects if other countries expand their own Buy European or Buy China requirements.
Where Trump and Biden Meet
Presidential candidate Joe Biden has put forward his own version of Buy American as part of his platform to “ensure the future is made in all of America by all of America’s workers.” Biden promises to use taxpayer dollars to buy American and spark American innovation.
In the debate over which candidate can out-“buy-American” the other, only one thing is clear: the United States is not the only country looking for ways to help its domestic economy recover from COVID-19. But buyer beware: domestic purchase requirements can have adverse effects on the companies they are intended to help while putting additional strain on federal agency budgets. The more countries that impose them, the greater the chance that gains from global government procurement trade policies will be reduced.
Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.