Businesses and workers hoping for a reprieve from
trade protectionism had a surprise this week as President
adopted his predecessor’s “Buy American” rules, only more so.
Rules that favor domestic companies in government procurement have been around since the New Deal. Mr. Trump issued three executive orders to toughen these requirements to promote U.S. manufacturing. Mr. Biden on Monday replaced those orders with his own supposedly tougher rules.
One rule would “increase the numerical threshold for domestic content requirements for end products and construction materials” and “increase the price preferences for domestic end products and domestic construction materials.” These thresholds vary by product, but increasing them will make government procurement more expensive and onerous.
About 97% of federal purchased goods are made by U.S. firms, but most include foreign-made components. U.S. auto makers source steel from Canada—often produced from U.S. scrap metal—engine components from Mexico, and computer chips from Taiwan. Mr. Biden wants to make federal contractors like Ford and
buy more domestic components. But manufacturers require specific inputs and metal grades that are often only made abroad. Since the feds make up a tiny share of most U.S. companies’ sales, it doesn’t make sense to overhaul supply chains to comply with Made in America rules.
Mr. Biden says domestic content rules must be based on “the value that is added to the product through U.S.-based production or U.S. job-supporting economic activity.” But much of the value from tech equipment and even modern trucks derives from U.S. intellectual property. Will the Biden Administration refuse to buy iPads made overseas?
The main difference between the Trump and Biden orders is bureaucracy. Federal agencies may issue exemptions to federal procurement rules when they decide it’s in “the public interest” such as when a product isn’t manufactured domestically or its price is “unreasonable.”
Despite Mr. Trump’s desire to limit waivers, government agencies granted them liberally to move ahead on public works and procurement, including for medical supply during the pandemic. Mr. Biden is creating a new office within the Office of Management and Budget to examine all waiver requests, which will be posted for public—i.e., political—review.
Federal agencies will now have to pass vetting by the White House, labor unions and Congress to buy N95 masks, smartphones and electric cars. Recall how the Trump Administration’s steel and aluminum tariffs led to a flurry of exemption requests from U.S. manufacturers. Labor groups and U.S. steel makers lobbied against exemptions, which invited counter-lobbying from Congress.
Mr. Biden’s order comes at a bad economic moment. Supply chains are disrupted due to worker shortages and transportation bottlenecks, causing prices to increase. Scrap steel prices are up 29% year-over-year and 60% since November. The Institute for Supply Management in December reported that the backlog of orders hit a two-and-a-half year high.
Supply problems will ease as the pandemic comes under control. But Mr. Biden’s new procurement bureaucracy will still raise the costs and delay public works that are supposed to be an Administration priority.
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Appeared in the January 27, 2021, print edition.