In Defense of ‘Buy America’ Preferences.

By Steven Capozzola
Mar 19 2012 |

By Steven Capozzola

Buy America has been longstanding U.S. policy for nearly 80 years.  Starting with the Buy American Act of 1933, the federal government has had laws on the books to ensure that hard-earned tax dollars are reinvested in the American economy and that they prioritize job creation here in America and not abroad. To support our national security capabilities, Buy America laws were expanded in the 1940s to apply to defense spending. In the early 1980s, President Ronald Reagan signed into law an expansion of Buy America policy for highway and transit projects that are funded by federal grants. Unfortunately, Buy America laws have been diluted in recent years through flagrant use of waivers, a lack of transparency, and loopholes.

On the state level, a patchwork of domestic preferences means that some state procurement supports American workers while others freely send hard-earned tax dollars to Beijing and Bangalore instead of reinvesting them in our economy. The economics of Buy America policy are common sense.  When U.S. tax dollars are spent on American-made components, they help to support good-paying U.S jobs.  When tax dollars are spent on imported goods, the money simply disappears—with no benefit to the U.S. economy.

Research conducted in 2009 found that when domestic content is maximized, manufacturing employment gains from infrastructure investment increase by up to 33 percent (PERI, 2009).  At a time when the U.S. manufacturing sector has lost more than 5 million jobs since 2000, Buy America preferences should be a common-sense first step for policymakers seeking to rejuvenate the productive, wealth-creating sector of our economy.

Some well-funded outsourcers are attempting to cast doubt on the merits of Buy America by spreading myths that it is inefficient, burdensome, and will create a trade war. With some understanding of the issues, these myths are easily discredited.

Critics argue that the use of Buy America policy could spark retaliation by our trading partners.  However, most industrialized countries already utilize their own domestic procurement requirements.  For example, Canada has its own “Buy Canada” laws; the European Union has its own “Buy EU” laws. Providing a preference for domestic content is fully within the rights of the United States. To remove any uncertainty, Buy America language typically includes an explicit clause stating that the provision shall be carried out in a manner consistent with our trade obligations.

Products from numerous countries with which the United States shares reciprocal trade agreements may be used under Buy America, providing a powerful incentive for countries with closed procurement systems, to adopt reforms that promote fair, reciprocal trade.  In fact, the United States and Canada recently negotiated a deal to expand access to each other’s procurement markets. Domestic sourcing requirements are used by many of our trading partners, including China.  Ironically, China promised to open its procurement market nearly 10 years ago – by signing onto the Government Procurement Agreement (GPA) – but has yet to do so.

The United States government is a leading signatory to the WTO’s “Government Procurement Agreement” (GPA), which provides participating nations with reciprocal access to procurement contracts. Even with a Buy America preference in place, the reciprocity afforded by the GPA – with some exceptions – ensures that foreign firms can compete for state and federal contracts in the U.S. on an equal footing. 

Another misconception is that the use of a Buy America preference will raise the cost of public works projects.  But this overlooks a key point: Buy America laws also contain waivers to protect the taxpayer against “unreasonable cost.”  For example, on the federal level a 25 percent threshold is used for highway and transit projects.  This means that if the cost of a U.S.-made input would exceed the cost of a comparable imported product by more than the specified 25 percent threshold, the contracting agency is permitted to issue a waiver and use the imported product instead. U.S. firms stand ready to provide a wide array of key infrastructure components, everything from cement and steel girders to pipes and rail.  Because so many U.S. manufacturers are vying for infrastructure projects, their competition ensures that winning bids are competitively priced.

The cost of a “cheaper” good sometimes means lower quality.  And, when foreign components are used as the lowest-priced option, they sometimes present unforeseen problems.  Chinese steel is heavily subsidized, often in violation of international trade law, and the end-use product has had a history of poor quality and delayed delivery.  A good example is the San Francisco-Oakland Bay Bridge, the completion of which has been delayed due to flawed steel sections imported from China.  Steel girders from China may have been cheaper at the time of bid, but in the long run have led to cost overruns and delays.

By contrast, American workers produce the highest quality products known to the world in high-tech factories.  The problems encountered in building the Bay Bridge could have been avoided by instead using quality American-made steel.  As the National Steel Bridge Alliance (NSBA) has pointed out, U.S. firms stood ready to supply the steel for the bridge.

Manufacturing has served as the backbone of the U.S. economy for more than a century, spurring job creation and innovation. American manufacturers are responsible for 70 percent of the research and development performed by industry in the United States; roughly 90 percent of all patents filed come from the manufacturing sector; and American manufacturers are the leading buyers of new technology in the United States. American manufacturing directly employs 11.9 million Americans and supports millions of additional jobs in other sectors. American manufacturing has a higher multiplier effect than other sectors, supporting four to five jobs indirectly. And manufacturing jobs also pay better wages – 22 percent higher on average – than other sectors and are more likely offer better training.

As national polling shows, Americans not only support America’s manufacturers and their workers, but they also favor Buy America preferences when their tax dollars are spent.  They understand what’s at stake: Good-paying jobs and the strength of the U.S. economy.  Buy America preferences should be utilized to the fullest extent possible and in a manner consistent with our trade obligations.

Read more about Buy America preferences.