Photographer: Jeff Kowalsky/Bloomberg

Why Trump's 'Buy America' Order Might Not Sell: QuickTake Q&A

During the U.S. presidential campaign, Donald Trump promised to enforce “Buy America” rules as a way to bring back jobs from overseas and revive U.S. manufacturing. That fairly simple idea soon will meet the complexities of a global supply chain. Trump signed an executive order during an April 18 trip to Snap-on Inc., a tool company in Kenosha, Wisconsin, that directs U.S. government agencies to review their compliance with laws requiring them to choose domestic materials for everything from roads to weapons systems.

1. What’s wrong with current enforcement?

Buy American requirements are meant to reduce the number of foreign goods purchased under federal contracts. Many agencies invoke rights to bypass the rules, especially when foreign goods cost less or U.S. materials aren’t available. Trump’s order gives agencies 150 days to review their enforcement of the rules and gives the U.S. Commerce Department 220 days to recommend ways to beef up the regulations. It also calls for a review of a policy that allows foreign products from countries in the World Trade Organization or with whom the U.S. has trade deals to be treated as domestic items. The policy, essentially undermining Buy America rules, affects more than a hundred countries

2. What’s the law on Buy America?

There are three. A 1933 Buy American law requires manufactured goods on federal contracts to be made in the U.S. A separate Buy America section appears in the Surface Transportation Assistance Act of 1982 and applies to transportation-related projects. Iron and steel, for example, must be “melted and poured” in the U.S. to qualify as American-made. A third law, the Water Resources Reform and Development Act of 2014, meanwhile requires that iron and steel used in water and waste-water projects under the Environmental Protection Agency be made in America. 

3. How effective are the laws?

Not very. One big reason is that agencies often issue so-called public-interest waivers when they can’t procure U.S.-made goods that meet quality and quantity specifications. During the administration of Barack Obama, the stimulus package’s Buy America requirement was often waived for that reason. The 1933 law, the most sweeping of the three, is also largely overridden once Washington enters into trade deals that grant foreign companies access to the U.S. procurement process. Goods from more than 120 countries belonging to the WTO or that have free-trade agreements with the U.S. now qualify if more than half the content comes from a qualifying country. China, by the way, isn’t one of those countries.

4. How often do agencies issue waivers or exceptions?

It’s hard to know because there is no single tally, which is a reason Trump’s order calls for agencies to report on their practices.

5. Can Trump bar foreign materials from federal projects?

That’s unclear. The president’s order says, for example, that the bidding process now will account for unfair trade practices, such as by banning goods that are being sold below the cost of production or that a foreign government had subsidized. Doing so, however, risks violating WTO rules and numerous free-trade agreements. It also would risk retaliation by an countries involved. The White House downplays these concerns as a “red herring” because most countries have laws that favor domestic suppliers on government-funded work. A March 2017 Government Accountability Office report found that foreign governments let American companies bid on contracts far less than the U.S. allows international firms to bid.

6. Didn’t Trump apply Buy America to the Keystone Pipeline?

He repeatedly said he would make that a condition of his approval of the project, but he dropped the idea because the pipeline’s owner, TransCanada Corp., had already purchased foreign-made steel for the 1,200-mile (1,900-kilometer) project.

7. How does this order affect the steel industry in particular?

Many steel processors import slabs -- thick plates of raw steel -- that they heat to transform them into finished products. Because the slabs are never actually melted or poured, the finished products wouldn’t be considered American-made. But because there are only a limited number of U.S. steelmakers, construction costs could rise. Companies that can meet the requirement, which the White House says it will vigorously enforce, are pleased.

8. Will this produce more U.S. jobs and revive manufacturing?

There are two schools of thought. One says it will do both because contractors will have to buy domestically made goods, which will boost demand and create jobs. The opposing argument says it will only delay much-needed public-works projects and drive up costs while U.S. manufacturers gear up to meet the new demand. Critics also say the policy will reduce competition by shutting out foreign companies, which could drive up prices too. Also, retaliatory tariffs could hurt U.S. companies and destroy jobs.

9. How popular are Buy America provisions?

Quite. Almost 70 percent of participants in a national survey said it was most important or very important to require all taxpayer-funded construction and manufacturing to use American made goods whenever possible, according to a White House background memo. Lawmakers in both parties have expressed support. But just like fixing health care and cutting a better trade deal with China, the details can be complicated.

10. How does the order affect employment?

Trump also is calling for a crackdown on what he says are abuses of government guest-worker programs, especially the H-1B temporary-visa program that high-tech companies frequently use to fill skilled-labor positions. This QuickTake Q&A and this QuickTake explainer provide more background and detail on the H-1B issue.

The Reference Shelf

  • The U.S. Government Accountability Office published this March 2017 report on government procurement.
  • Bloomberg News reports that China’s steel output has surged and that iron ore prices are in a bear market.
  • Stricter enforcement of Buy America rules could make it harder for Trump to make good on his promise for a $1 trillion infrastructure face-lift, explained by top advisers here.
  • Builders already are seeing higher prices for steel, copper, wallboard and lumber, says the Associated General Contractors of America.
  • This Congressional Research Service report explains the 1933 Buy American Act.
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE