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Rethinking Trade - Season 1 Episode 15: What’s the Real Story With All the “Buy American” Hype?

Since the 1930’s, “Buy American” rules have required that the U.S. government purchase goods – from cars and computers to planes and paper – that are made in the United States. But these rules that recycle our tax dollars to support jobs and promote domestic innovation have been severely undermined by our trade policies in the last few decades.

Today, “Buy American” really means that companies and products from 60 countries must be given the same access to the almost $600 billion spent annually in U.S. government contracts as U.S. firms and products. Effectively, we now outsource our tax dollars to support jobs in other countries.

On this episode, we unpack these policies and examine both Donald Trump and Joe Biden’s recent Buy American policy proposals.

Transcribed by Kaley Joss

Ryan:

Welcome back to Rethinking Trade, where we don't just talk about trade policy, we fight to change it. I'm Ryan, and I'm joined once again by our in-house trade expert Lori Wallach.

Lori, a lot of people may have seen that Trump just issued an executive order on ‘Buy American’ rules. And last month Joe Biden announced his own Buy American plan. Before we dig into both of these, why don’t you just give us a brief overview of what Buy American rules are in general.

Lori: 

So, since Franklin Delano Roosevelt was president, the U.S. has had, as part of its federal law, a preference that when the federal government procures things, from cars and trucks for government fleets, to office furniture and desks and phones to paper, whatever it is, that the purchases are made of goods that are made in America. The idea is two-fold: first is to recycle tax dollars back into the economy, creating jobs and supporting communities in the United States. So, it’s a virtuous circle, where you have a job, you pay your taxes and those taxes come back into your community to buy things that are made in the community for people who paid those taxes.

The second thing is its an industrial policy tool for innovation-- because the government, by making long-term contracts in certain areas and setting certain criteria, can basically help a private market get created. A classic example is fuel-efficiency standards for automobiles. We all think of CAFE when we hear that, the corporate average fuel economy standards, that reference what the average is when you buy a car. But there are also federal requirements that a fleet of cars produced by a maker must have a certain average fuel efficiency standards. But initially, before that became required of all cars sold in the US, the US government fleet had to meet those rules.

So for a number of years, to create a demand, to create a market, to have the companies put the money and research into designing those more fuel efficient, economical cars, the government started setting standards that they had to meet for government purchases. So, if GM or Ford or Chrysler wanted to get a government contract, which of course is very lucrative because the government buys a lot of cars, then they had to have their cars be more fuel efficient and better for the environment. And after a number of years of the government fleet having that requirement and the investment being made, it was made federal law that all cars had to meet those standards. That kind of conditionality is done for various purposes. 

Another thing under that category is called prevailing wage laws, which apply also. Buy American is procurement of goods and services, Buy America is government money for construction, road building, schools and water systems. For Buy America, the contracts have to have prevailing wages, which means basically wages at the prevailing union wage in an area, so you can’t have subcontracts that are trying to cheat good, middle-class union jobs. So those kinds of policies, to reinvest, to innovate and to ensure conduct is rewarded, the conduct we want by government contracts, is what Buy America and Buy American laws are about. Again, Buy American from the thirties, and Buy America since the 1980s.

Ryan: 

So, what’s this executive order all about? We’ve talked about this on the podcast before, but there are already these rules as you’ve just explained. So why do we need an executive order to recognize these rules? Or maybe you can explain what this is and what is it actually doing?

Lori: 

So, there are two things that have been going on. First of all, the Buy American and Buy America rules have waivers. And one of the waivers is a ‘public interest’ or ‘national interest’ waiver, and effectively what that means is price.  And it’s not defined. The rule is not ‘if you can find something that is 25% cheaper, go for the foreign good and bypass the Buy American requirement’. Instead, it’s just open ended. So, a lot of agencies have started to waive Buy American broadly. If they find something that’s even 5% cheaper from another country, they just waive Buy America standards saying that it’s in the ‘national interest’ to do so, without thinking about, for instance what the COVID crisis has made so apparent: we need some production domestically. We need diverse sources of imports, and we need some domestic production so we have a reliable supply of essential goods. We cannot have a situation where we allow an entire sector, like we have in the manufacturing of antibiotics, or we have in a lot of PPE manufacturing, we can’t have that all hollowed out. 

So, by having these waivers we have gutted Buy American. But the biggest waiver is within trade agreements. And there’s a really sad and ugly story behind this. Big multinational manufacturing corporations wanted to outsource production of their cars, or for General Electric of their turbines and generators and lighting systems, of Boeing their airplanes, they still wanted to be able to get government Buy American-required contracts. But if they were doing their work in Mexico or China or wherever, obviously they wouldn’t qualify. So they got the genius idea of trying to ram into trade agreements yet another un-trade-related item, and that is just a made-up rule that any country that has a US trade agreement is considered American for buy-American purposes. So this waiver that’s now in place excuses Buy American rules, so that US government agencies get, basically, to waive Buy American privileges for 60 other countries. So “Buy American” now is Buy American or Japan or Korea or Mexico or Canada or all of Central America or a boatload of other countries- all of our free trade partners. And that waiver has meant practically that Buy American is now basically gutted.

Ryan: 

So, just to be clear, the New NAFTA also contains these waivers, correct?

Lori: 

It does. And this is the hypocrisy in all of this. That waiver system is something that, by statute, any US president can cancel, unilaterally. So for three and a half years, Donald Trump has had the ability, simply by executive order- one of the few things he really could have done legitimately by executive order- to just end that trade agreement waiver. It is a statutory delegation of authority for the President to be able to, basically, just issue what the list of waiver countries are. And it’s something that can be changed at any time. And as well, in the World Trade Organization (WTO), you can get out of those procurement rules that are in the agreement itself, without any penalty. 

Trump did a very early, first year in office, 2017 “Buy American Hire American'' executive order. And instead of fixing this huge exception that eats the rule, that executive order said that we have to have compliance with our international agreements. So basically it was a hoodwink, where I guess Trump hoped no one would realize what he was saying was “Hi! It’s Buy America Hire America, except we won’t!”, because he was saying to follow the current rules, that don’t actually let us buy American.

Now, this most recent order repeats some of that language, but for the first time it has a new thing. And my theory is that it has this new thing because it’s something that actually the Biden presidential campaign did. Which is, before Trump did this latest executive order, about a month ago, the Biden administration issued an order on what they were going to do on trade and domestic supply chains. And the most interesting thing in there in a way was is that they had in there a clause in this policy plan that says ‘we are going to change our trade agreements to make Buy American real,’ instead of saying ‘we’re going to change Buy American, to prioritize trade agreements.’ That is a pretty stunning shift for Biden, because that’s not necessarily a position Biden has had, but is definitely where the country is heading. The COVID crisis has made everyone realize, even people who have been big supporters of these trade agreements, realize we need to have some domestic manufacturing. We need to diversify our imports, but we also need to make some of this stuff for emergencies, like PPE and essential medicines. So that, I am guessing, is why this new Trump Buy American has a clause that orders our top trade official, the US Trade Representative, to renegotiate our trade agreements to allow domestic purchase, only of a variety of essential medicine supplies: PPE, medicines, supplies, etc. It’s sort of a catch-up, so that now both of the contenders in the US presidential race are taking a position that is much more similar to what the public position is. Polling shows repeatedly that people want, at like 80% of the public want Buy American rules strongly enforced, and want to reinvest their tax dollars into having the government buy American-made goods, so now both the Democratic and the Republic contender are suggesting we fix the trade agreement rules so we really do have Buy American. 

Now, whether or not that happens I suspect is going to take a lot of activism, because there are a lot of multinational corporations that have enjoyed having it both ways- they produce in Mexico, China, Vietnam and then they find a way to be able to still be able to get a government contract. Perversely, I actually think some the horror of the COVID-19 crisis could provide an opportunity for more people in this country to demand these kinds of changes with our procurement policy, to reinvest in building some production capacity for essential goods, for medicines, for PPE, for basic communications and electronics equipment, the things that we vitally need just to be healthy and secure, because up until now, unless you lost a job to outsourcing, or you were in a community that was devastated by outsourcing, and there are many of them across the country, but there are also a lot of people who haven't been directly touched, you may not have personally experienced how dangerous and devastating this model of hyperglobalization, under which we have been living, is for all of us. And that system is not from God, it’s one set of policies, one set of corporate rigged rules that incentivize those behaviors, 

So, there’s more of an interest in changing the rules to change the outcomes, because now everyone is facing the experience of “Oh my lord, my family isn’t safe because I can’t get a damn mask!” Or, “what do you mean we simply can’t make ventilators? We created the technology, the patents on the technology are here, what do you mean people could die because they can’t breathe?” Or, “my kid’s going to get infected because they can’t get the pump for the bottle for Purell, because it’s only made in China now, and that injection molding with the metal spring is not possible here?” 

People have lived with the results in a way that I think could build the demand to actually have not just our Buy American policies change, but the trade agreements change. So that yes, we can get the benefits of trade, of which there are many of them, but so we can basically remove the overreach into domestic policy space, in areas like: Why the hell are trade agreements dictating domestic procurement policies? States, through their state legislators, should decide how state dollars are spent when the state procures, not a trade agreement! The federal government, through Congress, should decide what the priorities are. I mean, hell, just think of it as climate policy. We are going to need to create a whole new set of demand for different kinds of technology for climate, or we’re going to kill ourselves and the planet. So how are we going to actually use policy tools to create those incentives if we’re not allowed, through government purchasing, to direct funds for that kind of innovation? So I think through the COVID-19 crisis and the climate crisis, there’s more awareness. So I think, if people get informed and get activated, we can actually see these changes come to fruition. 

Ryan:

Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org to educate yourself and find out how you can get involved in the work we are doing to fight for fairer and more equitable trade policies.

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