If President Biden is at all serious about ‘building back better’ post-pandemic, then some import substitution will be required. And expanding Buy American rules will help build the supply chains here that have been shredded by a number of factors over the years, not the least being the unmatched competition of China.
Most people don’t realize, but the 1933 Buy American Act has only ever applied to federal procurement – meaning things the federal government buys for its own use. It never applied to federal assistance, like grants and loans, to third parties. The one exception was the Department of Transportation, which had its own ‘Buy America’ acts for each agency to give price preferences to goods based on where they were made.
But on Wednesday the Senate Homeland Security and Governmental Affairs Committee approved three “Buy America”-related bills to change that, extending domestic preferences to all forms of federal assistance. The bills are part of a package of China-focused legislation the Senate is expected to vote on this month.
During a markup of these bills on Wednesday, the Committee advanced amended versions of the “Build America, Buy America Act,” the “BuyAmerican.gov Act” and the “Make PPE in America Act,” along with several other pieces of legislation.
The amended “Build America, Buy America Act,” sponsored by Sen. Sherrod Brown (D-OH) and Sen. Rob Portman (R-OH) is designed to “ensure that certain Federal infrastructure programs” use only materials produced in the U.S.
Both Brown and Portman said that existing loopholes in Buy America rules allow some federally funded infrastructure projects to source iron, steel and other manufactured products from outside the U.S. This happened just recently, with over $8 billion in Department of Energy lending going out to utilities, with zero restrictions on where the utilities sourced their equipment.
CPA thinks that expanding Buy America rules to all federal assistance is a major positive. There’s still one giant catch.
The bills are to be implemented “in accordance with international trade agreements”, meaning the U.S. the WTO Government Procurement Agreement (GPA) still would allow some 60 countries to bid on government contracts.
Under existing Buy American rules, anyone who is party to the GPA can bid as if they were a domestic American company. This includes Hong Kong by the way, which is a backdoor into mainland China.
On the other hand, this keeps Biden’s “work with allies” mantra intact and should be used as leverage in dealing with Canada and Europe on other trade matters, such as changes to our existing default tariff schedule, also known as the Most Favored Nation tariffs.
The “Build America, Buy America Act” should provide more clarity to what’s going on at the ground level, should the President sign it. It calls for federal agencies to submit a report within 60 days of the bill’s passage to the Office of Management and Budget and to Congress listing each program the agency administers that provides federal dollars to infrastructure projects, the domestic procurement preferences that apply to those programs, and other requirements.
Agencies would also be required to identify federal initiatives that fund infrastructure projects for which domestic procurement preferences either do not apply or are subject to import waivers.
There is bipartisan support for tackling the China issue. And, increasingly, we are seeing that Congress is recognizing that it is not just China, but all of low-cost Asia, Mexico, and the American multinationals who have contributed to the hollowing out of domestic supply chains.
If the U.S. is to reindustrialize and reshore critical components of the supply chain – from the raw materials used in making EV car batteries, to microchips and solar panels – then near-zero tariff entry into the world’s most coveted consumer market surely will provide no incentives for companies to invest in expanding existing supply chains, let alone creating new ones.
Another item in the bill that CPA supports is calling for the Department of Transportation and the Department of Commerce to team up on Technical Assistance Partnerships. These partnerships are a proactive approach to reshoring. We don’t want to just throw our hands up in the air and give up if it’s not already made here. These partnerships aim to address that, as Biden mentioned on the campaign trail last year.
This week, members of the House Ways & Means Committee and the Senate Finance Committee met with USTR Katherine Tai to discuss the Biden trade agenda. From where we sit, there seems to be no immediate interest in a rollback of the Section 232, 201 and 301 tariffs. The mood on large, sweeping trade deals like the Transpacific Partnership do not have the support they once did.
“The TPP was written out on paper in 2015 but times have changed,” said Tai. “There was bipartisan support for the TPP, but there was bipartisan opposition to it, too. We are working on creating the tools to address a worker-centered trade policy that speaks to the modern challenges we face from all corners of the globe.”
Rep. Bill Pascrell (D-NJ) said U.S. corporations were also partially to blame, not just China. Labor arbitrage with Mexico is ongoing. Many of them talk a good talk about climate change, and source a bulk of their supply for their new green-tech product lines from China, the most C02 heavy economy in the world.
“Where’s the corporate responsibility,” he said. “They need to stand up and take some responsibility at least somewhat with us. What do we do when trade just ends up exporting jobs to other countries? We can’t talk about that here, because we are afraid,” he said. “Democrats and Republicans both, because as soon as you talk about jobs overseas, you’re really talking about corporate responsibility.”
