'Buy America' Laws: Feel-Good Politics, Little Real-World Impact

A custom storage unit being made for a packaging company at the Giese Manufacturing Co. in Dubuque, Iowa Photograph by Daniel Acker/Bloomberg

Last week Maryland Governor Martin O’Malley signed a so-called Buy America law, the first state this year to do so. At least 21 states and the federal government already have laws requiring that American-made goods and companies get first dibs when bidding for government contracts.

In Minnesota, for example, police departments must give preference to U.S. businesses when buying uniforms for officers. Illinois school districts in the market for plastic lunchroom cups must favor companies that use byproducts of Illinois corn in the manufacturing process. In Louisiana, the state’s Buy America law specifically rejects goods from Communist countries. Maryland’s new law deals specifically with public-works projects, including highways, school construction, and sewer systems; the state already has a Buy America law covering official uniforms and steel.

It’s hard to tell how effective these laws have been. Proponents argue that they keep trillions of dollars that local governments spend in the pockets of U.S. companies and workers. But most states and the federal government offer exceptions to the rules: If the U.S. company’s bid isn’t competitive, officials can get a waiver allowing a purchase from a foreign manufacturer instead. Another problem is that all the evidence in support of the laws (pdf) is anecdotal. Because the laws vary across states and public reporting of contracting data can be spotty, there’s no way to compare whether states that have Buy America laws on the books actually buy more from American companies than states that don’t. Third, many foreign countries aren’t subject to Buy America laws because of free-trade agreements. Since 1996, when the U.S. signed the Government Procurement Agreement at the World Trade Organization, a group that includes 27 European Union countries, Korea, and Taiwan has been afforded reciprocity that gives its members the same treatment as U.S. companies when bidding for contracts—even in states that have Buy America laws. Maryland’s new law says explicitly that the state must honor its international trade treaty obligations.

The laws present a problem only when U.S. companies want to export to places that aren’t subject to the GPA. In China, for example, U.S. companies have found themselves barred from lucrative government infrastructure contracts because of China’s own domestic procurement laws. China sees no reason to change them if it has trouble getting access to markets in the U.S.

Politically, most voters like the idea of U.S. businesses getting a first pass, so Buy America laws are an easy sell. But that goodwill stretches only so far: If Bangladesh produces textiles at rock-bottom prices, it’s hardly logical to spend taxpayer dollars buying far more expensive uniforms simply because they’re made in the U.S. Many states even have laws in place demanding that contracts go to the lowest competent bidder. Which is why, in practice, Buy America laws have so many loopholes. If they had more bite, they’d lose their appeal pretty quickly.

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