House Democrats recently released new details about their $1.5 trillion infrastructure plan, the Moving Forward Act (MFA). The mere size of the bill, given the record level of debt and deficits, should alarm taxpayers. Behind the price tag, though, is a protectionist agenda reflected in the bill’s enforcement and expansion of Buy America mandates. Although proponents of these rules claim they boost domestic production and create American jobs, there is no evidence that they would improve the economy overall. These Buy America provisions actually harm taxpayers because they require most federally-funded transportation projects to use expensive materials when there are more affordable alternatives available.
The Buy America Act was originally established within Section 165 of the Surface Transportation Assistance Act of 1982, and the provision was intended to give preference for the use of domestically produced materials on any transportation projects funded at least in part by the federal government. The term “Buy America” now refers to similar statutes and regulations that apply to federally-funded transportation projects, including highways, public transportation, and intercity passenger rail.
As the Congressional Research Service (CRS) notes, Buy America “generally requires that steel, iron, and manufactured products made primarily of steel or iron” used in federally-funded highway or transit projects that cost more than $1 million must be produced in the United States. This rule is already costing taxpayers money because of how expensive American steel and iron are compared to foreign steel and iron.
What is alarming about the MFA is the expansion of the application of existing Buy America mandates. Section 1112 of the bill’s text adds “construction materials” to the materials covered by Buy America. As of now, the acquisition of iron and steel accounts for around 4.8 percent of the money spent on federally funded highway projects, which means that the requirement does not apply to 95.2 percent of the spending. However, if this term were to be added, the rule would apply to other materials, such as aggregates, cement, asphalt, etc. Applying the requirement to more infrastructure purchases would mean increased costs for taxpayers even more.
Fortunately, there are some limits to how much this provision can inflate costs. The Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA) accept waivers based on public interest or the availability of domestic products. The provision would not apply if the Secretary of Transportation finds:
(1) that their application would be inconsistent with the public interest;
(2) that such materials and products are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or
(3) that inclusion of domestic material will increase the cost of the overall project contract by more than 25 percent.
However, Section 1112 would restrict the waivers by requiring the Secretary to reevaluate any standing nationwide waivers every five years to decide whether those waivers remain necessary. Moreover, Section 2301 would also “close loopholes” that allow waived components and components exceeding 70 percent domestic content to receive credit for 100 percent domestic content. These new rules would decrease the number of waivers granted and incentivize higher domestic content—meaning higher costs for projects.
The claim that Buy America provisions benefit the economy has little to no evidence. The American steel industry is supposed to be one of the top industries that would benefit from Buy America, but its positive effect on the industry is scarce. According to CRS, the steel industry employment has declined from 260,000 jobs in 1990 to around 140,100 jobs in 2018, not because of foreign competition but because of higher productivity. If broader Buy America requirements were to increase annual demand for domestically manufactured steel by 1 million tons, it would only create around 1,000 jobs.
Not only is Buy America’s purported benefit highly exaggerated, but its opportunity cost is also far greater than its advocates care to admit. The same study estimates that although eliminating Buy America requirements would take away 57,000 U.S. manufacturing jobs, it would also result in more than 300,000 new jobs in the economy.
Bipartisan support regarding Buy America restrictions is growing. The Trump administration’s imposition of tariffs and the President’s executive order on buy American and hire American highlights his protectionist agenda. On the Democratic side, Rep. Conor Lamb (D-PA), who played a major role in legislating the MFA, agrees with the President:
“The millions of Americans who have lost their jobs, and the millions more young people looking for a start in life in the middle of this pandemic, deserve to see us come together in support of this infrastructure bill. Building infrastructure is our most powerful tool to create jobs and improve the playing field for all businesses… It now falls to our generation to rebuild and improve upon this system for the twenty-first century. This bill is an important down payment, and its focus on American jobs and American steel could not come at a better time.”
Meanwhile, Pennsylvania, the state that Lamb represents, has already experienced job loss and disruption of supply chains due to the tariffs on steel.
Lamb’s sentiment is typical among those who support protectionist policies, and they often suggest that buying American goods is not only economically beneficial but also virtuous. However, there is no reason to accept either claim. The empirical evidence does not show that Buy America rules benefit the U.S. economy, and there is nothing virtuous about shutting our country off to diverse global supply chains. What is certain is that Buy America rules would cost taxpayers, and it is time for Congress to have taxpayers’ interest as its priority and stop enforcing such requirements.
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