Trump vows U.S. will ‘Buy American,’ but the promise won’t be easy to keep
Donald Trump says “Buy American” is the first rule for his presidential administration.
WASHINGTON (MarketWatch) — Donald Trump on Thursday said he will follow two simple rules as new president: Buy American and hire American.
Easier said than done.
My Administration will follow two simple rules: https://t.co/ZWk0j4H8Qy
— Donald J. Trump (@realDonaldTrump) December 29, 2016
Favoring American firms is actually nothing new. The U.S. government has long preferred domestic companies when awarding government contracts under the Buy American Act that’s been in place for 83 years. The law was passed in 1933 in the waning days of the Hoover administration as the Great Depression ravaged the country.
The law is riddled with exemptions, however, and billions of dollars annually are spent by the federal government on foreign-made goods. They might be much cheaper, for example, or there might not be an American producer.
These loopholes are what Trump is likely to address as part of his effort to fulfill his campaign slogan to “Make America Great Again.”
Yet putting his rules into action, particularly the “buy American” part, is likely to prove complicated for the Trump White House. Foreign suppliers are granted access to many federal contracts through legal arrangements that will be hard to alter, and state and local governments are free to buy according to their own laws.
Start with the federal government.
The U.S. awards about $500 billion in contracts annually. More than half is exempt from Buy American rules owing to free-trade deals with Canada, the European Union, Japan and other nations. The U.S. has also agreed to a World Trade Organization provision that’s supposed to allow signatory countries to compete on equal terms for government contracts.
The president-elect could seek to revised those deals or take other drastic steps, but such a controversial approach would be time-consuming and potentially costly to American companies.
Many large U.S. firms such as General Electric GE, +0.03% , Caterpillar CAT, +0.15% and Microsoft MSFT, -0.14% for example, bid for billions of dollars worth of foreign government contracts. Large American companies could lose out, costing American jobs, if foreign governments retaliate against the U.S. by cutting them out of the bidding process.
Obama administration officials, for their part, sought the right to potentially ease some of the Buy American restrictions when they negotiated several free-trade deals, such as a seemingly now-dead pact with Asia-Pacific countries. Yet even they’ve acknowledged in the past that too many exemptions were granted and that the law ought to be more strictly enforced.
Sen. Chris Murphy, a Democrat from Connecticut, has led a long fight to batten down the hatches. Earlier this year he resumed his call for a new, 21st-century version of the Buy American law.
Murphy points out that the Defense Department alone has granted more than 300,000 waivers in the past 10 years that have potentially cost American producers $177 billion in sales.
In fiscal 2015 alone, the Pentagon spent $11.3 billion, or 4.1% of its procurement budget, on foreign purchases, an agency report showed. Four-fifths of those sales took place under waivers from the Buy American Act.
“Our Buy American laws are riddled with legal loopholes that allow the U.S. government to routinely bypass American manufacturers legally,” Murphy wrote in an editorial earlier this year.
Not all these loopholes are unjustified, however. One example: Amtrak. The government-supported train operator was granted a waiver in 2015 to buy critical foreign-made equipment for its speedy Acela line of trains because of a dearth of American suppliers that could promptly provide the necessary parts.
Moreover, while Alstom ALO, -0.10% ALSMY, +0.38% of France won the contract to build new Acela trains, most of the work will be done by American workers in New York state. The Buy American law allows foreign companies to bid for federal contracts if most of the work is done in the U.S.
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In any case, there’s been some movement in Congress as Trump sounds the same siren as Murphy.
A recent congressional bill for military spending included a provision requiring the Pentagon to buy more footwear for military personnel that are made by New Balance in plants in Maine. New Balance is the only large manufacturer of sneakers in the United States.
Even if Trump is able to tighten federal law, states and localities can follow their own rules. While many also include Buy American-style provisions, states and local governments often try to save money by accepting cheaper foreign bids.
School districts, for example, often buy cheaper foreign canned fruits and vegetables for student lunches.
There’s the rub. The existing Buy American law allows federal government to bypass domestic producers if certain goods aren’t made in the U.S., they fail to meet accepted levels of quality or if the cost of domestic products is viewed as “unreasonable.” These are Mack-truck size loopholes.
Consider California’s effort to build a high-speed rail system subsidized in part by the federal government. The state recently sought an exemption to buy foreign equipment on the grounds that it cost too much money and would take to long for an American manufacturer to meet its needs.
Critics say that allowing such an exemption is exactly what’s wrong with the current law. The U.S. will never develop its own manufacturing capacity for high-speed rail, for instance, without stricter adherence to Buy American rules.