After President Trump made issuing a Buy American executive order one of his last actions in office, President Biden issued a similar order to increase domestic content requirements and increase the price preferences given to domestic suppliers. These Trump/Biden executive orders are problematic for several reasons.
They are costly to taxpayers. According to calculations by Gary Hufbauer and Euijin Jung, Buy American policies cost taxpayers $94 billion in 2017. That’s an average of $745 per household in Buy American taxes. According to a 2017 analysis: “By scrapping Buy America(n), the government could undertake more projects or…return the savings to the private sector in the form of tax cuts. Returning the savings in this way would…allow a greater level of employment at any given average real wage rate.” Specifically, the analysis found that scrapping Buy American rules would generate a net increase of more that 306,000 jobs.
They are harmful to exporters. When the United States imposes Buy American mandates on government purchases, other countries are likely to impose “don’t buy American” restrictions on goods and services supplied by competitive U.S. exporters. It is no coincidence that the increases in Buy American rhetoric and other protectionist policies in recent years have coincided with efforts by foreign governments to target competitive U.S. tech companies with discriminatory taxes and other measures.
They reduce the number of federal projects that the government can afford.Princeton University economist Janet Currie explains: “If the ‘buy American’ clause raises the price of public works, then fewer of them will be undertaken, which will undercut the mandate.”
They undermine efforts to work with allies. The Biden administration has said it will work with allies to pursue mutually beneficial goals, including confronting China’s bad practices. Biden’s Buy American order will target some of our closest allies, including even Canada and Mexico.
They are bad for the environment. During the campaign, President Biden pledged to “Provide every American city with 100,000 or more residents with high-quality, zero-emissions public transportation options.” His Buy American order undermines this goal. For example, a National Bureau of Economic Research report found that buses cost twice as much in the United States as in Korea and Japan. The analysis concluded: “If [public transport agencies] could import buses, they would have access to a greater menu of differentiated products at lower prices. This would lead to a higher quality of service provision (e.g., better service frequency and coverage) which could induce urbanites to substitute from private vehicles to buses.” Another study found that metro cars cost $700,000 more per car than in foreign cities, for a variety of reasons including Buy American requirements. Biden’s executive order would increase the price tag for green projects like zero-emission electric buses, rail transportation, and other green initiatives. The new executive order even endorses using the protectionist Jones Act to impedeoffshore wind projects.
Ultimately, Buy American policies fail to achieve their stated goals. Any benefits the policies might generate for domestic companies that supply the federal government are offset because spending more on inflated-cost projects leaves less money to be spent elsewhere, and spending less on affordable foreign supplies leaves our trading partners with fewer dollars to spend on U.S. exports.
Biden’s order is purportedly designed to “grow good-paying, union jobs,” which comprise roughly 10.8 percent of the American workforce, but that leaves out the 89.2 percent of Americans in non-union jobs. A better policy would be for the Biden administration to require that all government purchasing in the future should be based on a concept familiar to any U.S. family or business: get the best value for every dollar spent.
To read the original blog post from the National Taxpayers Union Foundation, please click here
Bryan Riley is Director of NTU’s Free Trade Initiative. Bryan’s background includes years of research on the impact trade has on people in the United States. He has led grassroots campaigns in support of initiatives like the North American Free Trade Agreement (NAFTA) and in opposition to special-interest efforts to get the government to pick winners and losers in the U.S. economy.