Challenges Await to Biden Administration’s Made-in-America Push

The Biden administration has expanded on the “Buy American” trend pushed by the Trump Administration by signing the “Made in America” executive order, which, among other things, called for:

• increasing the cost saving threshold required for federal contracts to purchase from non-US suppliers
• stricter enforcement of existing Buy American policies, including closing loopholes that allowed companies to offshore manufacturing while continue to qualify for domestic preferences, for example by having 51% of a product’s materials sourced domestically

The goal of these policies is to ensure that taxpayer-funded federal spending is used to invest in domestic manufacturing, create US jobs, and strengthen national security. However, these policies are likely to face challenges – particularly in the short term – such as:

• Supply chain issues: Many companies that may be interested in procuring federal government contracts will not be sufficiently incentivized to move away from their existing supply chains. Constructing new domestic plants can cost hundreds of millions of dollars and take several years to build. Additionally, while these contracts can be lucrative, government procurement accounts for a tiny share of the US economy, and thus their ability to impact the manufacturing decisions of US companies is limited.
• Cost issues: Giving domestic manufacturers preference can at times cause government contracts to be more expensive than if foreign producers were considered, costing US taxpayers money. It is unknown what kind of impact the Biden administration’s executive order may have, but some estimates of similar policies by the Trump administration claimed that some of these contracts cost from 6%-50% more.
• Limited impact: Approximately 97% of federal procurement contract dollars already go to US firms, so even a dedicated push to increase that share is unlikely to have much of an effect on domestic manufacturers.
• Trade agreement conflicts: There are concerns that aspects of the Made in America executive order could violate existing international trade agreements. In response, a top European Union trade officials stated that the organization would be assessing the impact of the US policy to determine whether it may violate World Trade Organization rules on public procurement contracts.
• Potential retaliation:  Increased pressure on prioritizing domestic manufacturers for federal contracts risks upsetting foreign governments, who could retaliate by implementing similar policies that could harm US exports. 

The impact of the Made in Executive order has the potential to become far more substantial should the Biden administration be able to sign into law vast infrastructure and/or energy bills, which would vastly increase the amount of federal spending impacted by the new regulations.

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