Supply chains of private companies

‘Buy American’ sounds good in theory. Biden will find it’s painfully slow in practice.

The government’s ability to control the supply chains of private companies is limited, despite the administration’s pledge to aggressively enforce "Buy American" mandates.

By DOUG PALMER

President Joe Biden wants to require federal agencies to buy more American products to help rebuild America’s factory base. He’s about to find out how hard it will be to deliver on his goal.

Like former President Donald Trump, Biden has pledged to rely heavily on taxpayer-funded projects to revitalize the American manufacturing sector, especially for the trillions of dollars in spending promised under the “Build Back Better” agenda. But his moves to tighten up “Buy American” government mandates may not be much help in meeting his administration’s overall goal of creating 5 million more jobs in “manufacturing and innovation” by the end of 2024.

His problem comes from two key factors: The vast majority of government expenditures are already for products made in America.

In addition, U.S. factory employment stood at 12.2 million workers when Biden took office — and has not exceeded 17 million since early 2001 — so bolstering employment by 40 percent in manufacturing, let alone any sector, is aggressive.

Many economists, including those at the Peterson Institute for International Economics, argue Buy American policies don’t add jobs to the economy and actually limit growth. That’s because they redirect resources away from the private sector toward government spending. The Peterson Institute also estimated the annual cost to taxpayers for every job protected by Buy American provisions is over $250,000 because of the higher prices paid for goods.

Progressives, such as Sen. Tammy Baldwin (D-Wis.), disagree and say it only makes sense that government agencies should give a preference to American-made goods.

“I strongly believe when we are expending U.S. taxpayer dollars, we should not be sending those overseas to support foreign companies and foreign workers, companies that don't pay any U.S. taxes,” Baldwin said. “We should be investing in the American workforce and American-made products.”

The dire shortages of personal protective equipment and other medical items in the early days of the pandemic year also highlighted the need to use the power of the federal pocketbook to encourage more production of those goods in the United States, she said.

“I saw one Wisconsin police department bidding against the same county’s sheriff's department bidding against the rural hospital down the road, all trying to get a hold of necessary PPE and testing swabs and reagents,” Baldwin said. “I saw the chaos that exists when we don't have strong policies or that we can manufacture what we need.”

A big focus of an executive order that Biden signed on Jan. 25 was to crack down on the number of exemptions that federal agencies provide suppliers from the requirement to buy American goods, which he described as corporate “loopholes” rather than a cost-saving measure.

“If an agency wants to issue a waiver to say, 'We’re not going to buy an American product as part of this project; we’re going to buy a foreign product,’ they have to come to the White House and explain it to us,” Biden said.

He took a big step this week toward implementing that tougher approach by appointing Celeste Drake, a trade policy specialist who honed her skills working for the AFL-CIO labor federation, to a new post he created: Made in America director. The position will be part of the White House’s Office of Management and Budget.

Union groups praised the choice. AFL-CIO President Richard Trumka called her “a brilliant, critical thinker on trade and global issues” and the “perfect person” for the job. Drake, a veteran of many congressional trade battles against the business sector, will be empowered to closely scrutinize whether any proposed waivers should be approved.

But there may not be much slack in the system. The U.S. Chamber of Commerce and other business groups estimate that American-made products already accounted for nearly 97 percent by value of $2.35 trillion worth of government spending from 2015 to 2020.

In addition, less than 1 percent of the more 85 million contracts signed during that period went to foreign firms, and nearly all of those were Department of Defense contracts that went to U.S. affiliates of British or other European firms, the business groups said in a letter last year to Trump administration officials.

Congress first passed the Buy American Act of 1933 when the United States was in the depths of the Great Depression. Over the years, Congress has also imposed what it dubbed “Buy America” domestic purchasing requirements on federal funding to state and local governments for transportation and water projects. Those include projects funded by the Federal Highway Administration, Federal Railroad Administration, Federal Aviation Administration, Federal Transit Administration and certain offices within the Environmental Protection Agency.

Shortly before leaving office, the Trump administration toughened the domestic content requirement for an item to be considered “American-made.” The threshold is now 55 percent for manufactured goods and 95 percent for iron and steel, up from 50 percent previously for all items.

To give U.S. manufacturers even more of an edge, Trump also increased how much more government agencies could pay for domestic products over foreign-made ones.

Theoretically, the Biden administration could roll back what the Trump administration did, but “I think they're viewing that as the floor rather than the ceiling,” said Scott Paul, president of the Alliance for American Manufacturing, a steelworkers union and manufacturing group coalition that is a strong proponent of Buy American requirements.

Tightening the domestic content provisions would give autos with high U.S. content a big advantage as Biden seeks to replace the government’s current fleet of roughly 645,000 cars and trucks with electric vehicles as part of his infrastructure package.

Most of the trillions of dollars in spending on roads, bridges and “soft” infrastructure like child care will need to be authorized by Congress. While Buy American has deep-seated patriotic goals of supporting more jobs, lawmakers’ ability to control the supply chains of private companies is limited.

The business community also argues that federal government purchases by themselves are not big enough to persuade manufacturers to reshore supply chains.

U.S. generic drug manufacturers, for example, say other incentives such as long-term price and volume contracts, grants for construction and tax credits or deductions would do more to encourage investors to pour billions of dollars into building new plants and equipment.

Other experts such as Rosemary Coates, executive director of the Reshoring Institute, a manufacturing policy think tank, believe Buy American policies can have a strong influence on companies’ decisions to move manufacturing to the U.S., especially combined with private sector initiatives. She pointed to Walmart’s pledge to invest an additional $350 billion over the next 10 years “on items made, grown or assembled in the U.S.”

The retailing giant estimates its program will support more than 750,000 new American jobs. It’s focused on six priority categories: plastics, textiles, small electrical appliances, food processing, pharmaceutical and medical supplies, and “goods not for resale,” which refers to items such as store fixtures, equipment, construction materials and janitorial supplies.

“That’s a really important initiative. Walmart and the U.S. government both are going to drive a lot more development in manufacturing, I think, in the future,” Coates said.