Why ‘Buy American’ is misguided and, alas, full of bipartisan appeal

In the seventh month of his presidency, Joe Biden from Scranton, Pa., ventured to the swing state of Pennsylvania to burnish his blue-collar credentials among blue-collar voters who have been deserting the Democratic Party. At a Mack Trucks assembly plant he announced an expansion of Buy American regulations, which pertain to about one-third of the $600 billion in goods and services the federal government was then purchasing annually. He would raise the minimum U.S. content for manufactured products from 55% to 60%, heading for 75% in 2029. Nothing says “muscular America” more than a big Mack rig.

Mack Trucks, owned by Sweden’s Volvo Group, used much European steel at the time because, the Cato Institute’s Scott Lincicome reported, the company was “unaware of an appropriate American-made substitute.” And probably still is.

In a 21-day period that included Biden’s visit, Mack’s Pennsylvania plant received nearly 900 tons of parts from 11 countries. This was less than four months after Biden had said, “Not a contract will go out that I control that will not go to a company that is an American company with American products all the way down the line.”

“Buy American,” like protectionism generally, can protect some blue-collar jobs — but at a steep price: A Peterson Institute for International Economics study concludes that it costs taxpayers $250,000 annually for each job saved in a protected industry. And lots of white-collar jobs are created for lawyers seeking waivers from the rules. And for accountants tabulating U.S. content in this and that, when, say, an auto component might cross international borders (U.S., Canadian, Mexican) five times before it is ready for installation in a vehicle.

In the usual braying-and-pouting choreography of the State of the Union evening, members of the president’s party leap ecstatically when he praises himself, and members of the other party respond sullenly, by not responding. This year, however, something unusual happened when President Biden vowed to “require all construction materials used in federal infrastructure projects to be made in America.” A bipartisan ovation greeted his promise to reduce the purchasing power of tax dollars spent on infrastructure projects by raising the cost of materials.

This will mean more borrowing, not fewer projects. Federal spending is not constrained by a mere shortage of revenue. So, Biden was promising to increase the deficit. And this policy, which elicited red-and-blue bonhomie in the State of the Union audience, also will give other nations an excuse to retaliate (often doing what they want to do anyway) by penalizing U.S. exporters of manufactured goods.

Biden was tactically slippery when he said, “Buy American has been the law of the land since 1933.” Yes, it first appeared on March 3, 1933, as the last gasp of Herbert Hoover’s bewildered presidency. There have, however, been dozens of iterations of this policy, pertaining to particular goods, services and government agencies.

The Washington Post’s David J. Lynch has detailed some of the ways Biden’s plans to increase domestic manufacturing (while fine-tuning the climate) collide with something obstinate: reality. Biden’s Transportation Department has denied a request by the nation’s ports to use federal infrastructure funds to purchase imported dock cranes, boat lifts and other equipment because, Lynch reports, “no domestic manufacturers exist for them.” Particularly, “all of the electric models that support the administration’s climate goals are made overseas.”

Buy American protection helps U.S. producers of rail cars (0.2% of total factory employment in 2018). But a 2019 Congressional Research Service report (citing a study funded by Canada) found that eliminating Buy American requirements would result in 57,000 fewer U.S. manufacturing jobs but an increase of more than 300,000 jobs from economic dynamism enhanced by efficiency.

The American Public Transportation Association, which represents transit agencies, warns that the Buy American mandates might produce “a doubling, tripling or even a quadrupling of costs for construction materials.” So, there will be a windfall for domestic producers. This is what industrial policy looks like: There will be winners and losers; government will pick both.

Washington lobbyists for both will prosper. Remember Solyndra, the Obama administration’s industrial policy pratfall? Before its bankruptcy, this renewable energy company gorged itself on $535 million in federal funds. And spent almost $1.8 million on lobbyists.

Progressives lament what they call America’s “market fundamentalism.” Sensible people say: Would that this were real. Populists will note that Buy American is popular. It is that, and it also is proof that polarization can be ameliorated by the bipartisan appeal of a bad idea.