By promising to tighten ‘buy American’ requirements, Biden is guaranteeing taxpayers less bang for their buck.
By promising to tighten ‘buy American’ requirements, Biden is guaranteeing taxpayers less bang for their buck.
I n his State of the Union address last night, President Biden promised to make “buy American” requirements stricter for federal procurement on infrastructure:
And when we do these projects, we’re going to Buy American.
Buy American has been the law of the land since 1933. But for too long, past administrations have found ways to get around it.
Not anymore.
Tonight, I’m also announcing new standards to require all construction materials used in federal infrastructure projects to be made in America.
American-made lumber, glass, drywall, fiber optic cables.
And on my watch, American roads, American bridges, and American highways will be made with American products.
There’s a reason past administrations have tried to get around these requirements: They make projects more costly and wind up reducing American jobs.
The year 1933, in the middle of the Great Depression, was not exactly a golden age in American economic policy-making. Domestic-content requirements are bureaucratic nightmares to comply with, and every dollar spent on compliance is a dollar not spent on building stuff.
The Buy American Act of 1933 makes a distinction between “non-manufactured end products” and “manufactured end products,” and it says that to satisfy the domestic-content requirements, manufactured end products must be made “substantially all” from domestic materials. The problem, as the Congressional Research Service (CRS) points out: “There is no statutory definition of ‘manufactured’ or ‘substantially all.’” Agencies used to say “substantially all” meant 50 percent of the cost of its components; the Trump administration raised it to 55 percent; the Biden administration raised it to 60 percent.
“Components” is also tricky to define. The cost of “subcomponents,” or parts that go into making components, is not considered for procuring end products. The CRS gives an example of an electric-powered, height-adjustable desk. The metal, wood, and plastic parts were all sourced domestically, but during the assembly process performed in the United States, the electric motor to adjust the height was added, and it was made in China. Is that motor a component or a subcomponent? That’s a matter of interpretation:
If the motor is treated as a component by itself (because the domestic assembly process of the entire desk was deemed to be too simple to qualify as manufacturing — i.e., the motor was not substantially transformed), it would be considered foreign. . . . However, if the entire finished base is treated as a component, it would be considered domestic (because the domestic assembly process qualified as manufacturing and the U.S.-made components of the base account for more than 60% of its overall cost, causing the motor to become a subcomponent to the component-level base).
Hair-splitting compliance like that is how “buy American” actually ends up costing American jobs. A 2017 Heritage Foundation study by economist Tori Smith found that if Congress repealed every “buy American” requirement, employment would increase by 300,000 jobs. “Removing domestic content requirements would let businesses spend less money on supplies and compliance, allowing the private sector to increase employment,” she wrote.
Biden even named in his speech the special interests he plans to benefit at the expense of the taxpayer. The lumber industry is constantly upset about imports from Canada, and the U.S. Lumber Coalition cheered the Department of Commerce for increasing protectionism last year. The Hardwood Federation applauded the Inflation Reduction Act for including grant programs for “wood innovation,” and wood is considered a low-carbon building material that will get more funding under the climate provisions of the law.
Democrats worked a tax break for “dynamic glass” products into the Inflation Reduction Act. Dynamic glass tints automatically to keep sunlight in or out, which Democrats see as part of their fight against climate change. It came after lobbying and campaign donations from the glass industry to Democratic lawmakers last year.
The Fiber Optic Association believes that the 2021 infrastructure law “will probably double fiber optic work in the near future.” That’s because the Department of Commerce chose to implement the law’s broadband provisions almost entirely using fiber-optic cable, rather than a mix of technologies. When the law was being debated, Democrats pushed for all-fiber implementation, while Republicans argued for technological neutrality, including wireless technologies.
Whether any of these policy decisions was wise is a separate question. The fact is, Democrats chose to benefit these industries with tax money. Doing so also contradicts another stated goal of the Biden administration, which is increasing competition in the economy. As a CRS report on the domestic-purchasing requirements in the infrastructure law points out, “Barring import competition for a broader range of procurement funded by federal grants also has the potential to increase the market power of domestic producers in industries that are already highly concentrated, possibly leading to higher project costs.”
Last night, Biden looked the American people in the eye and promised to spend their money poorly, and he was applauded for it. Domestic-content requirements are hardly new, and in many respects, he is merely continuing Trump administration policy. But by promising to double down on past mistakes and exacerbate them, Biden is ensuring taxpayers get less for their money — and special-interest groups that lobby for government protection get more for theirs.