Late on Tuesday, President Trump signed his so-called “Buy American, Hire American” executive order. While the “Hire American” part of his order purports to change rules for the H1B visa program, the “Buy American” segment directs the federal government to use more American-made products in its projects, thus increasing manufacturing jobs here.
But it’s not clear how successful the buy American part of his order can be and whether it will actually result in any more jobs.
There are already provisions in U.S. law requiring government projects to use American products. Buy American rules were first instated in 1933 through the Buy American Act, which restricted the materials used to build federal products to those that are made domestically. A similar rule was included in the Surface Transportation Assistance Act of 1982, which mandated that all roads and bridges built through federal contracts use 100 percent American-made steel.
But even these requirements have their own carveouts. If a federal agency looking to procure raw materials gets a lower offer from a foreign producer, it can still use the foreign-made products if buying the American-made ones would make the cost “unreasonable.” In some cases, a 6 percent price difference can be considered unreasonable.
Foreign products can also be used if buying domestic ones would be “impracticable” or “inconsistent with the public interest,” as determined by agency heads, or the domestic products are deemed to be unavailable.
Meanwhile, the Trade Agreements Act of 1979 allowed products that are made in countries with which the U.S. has a trade agreement to be treated like a domestic products in some government procurement. There are nearly 60 countries that fall under this criteria.
These are the waivers that Trump is taking aim at in his executive order. Calling them “abusive” and claiming they “undermine ‘Buy American’ laws meant to promote taxpayer money going to American companies,” he specifically targeted “waivers and exceptions” for review. He also called for every agency to assess these requirements and look at “cracking down on weak monitoring, enforcement, and compliance.”
It’s unclear at this point what the result of a review of waivers will be, though. Trump included no details on how these decades-old exemptions would be changed.
Some waivers could be reduced by agencies refusing to grant as many of them. But for more wide-reaching changes, Congress will have to get involved. And getting Congress to go along with Trump on domestic steel will probably be difficult. After he required materials to build the Keystone XL and TransCanada oil pipelines to be sourced from American producers, and Sen. Al Franken (D-MN) introduced an amendment requiring American steel to be used to build the Keystone pipeline, Republicans voted it down in a 53 to 46 vote.
The steel industry is skeptical anything of much importance will happen. “Politicians all talk the same, but at the end of the day it just doesn’t work,” Bill Hickey, president of Lapham-Hickey Steel, told Reuters.
There will also be some groups invested in making sure things stay the way they are. American construction companies rely on being able to buy cheap steel. But if steel imports end up tamped down, it could disrupt their supply chains. Some products, such as tin plate and semi-finished products, aren’t made here at all, while it would be nearly impossible to verify that steel that comes from melted down scraps was all originally from American companies. Meanwhile, Chinese sourced steel straight out of the mill is often 70 percent cheaper, although shipping costs add to the price.
As an example of how prices could rise, look at a different action Trump took last month. He announced that federal agencies would get tougher in enforcing anti-dumping laws by adding tariffs to steel imports. After that, the cost of construction materials rose 4 percent, including a 19 percent rise in steel mill products.
In Tuesday’s order, Trump also called for a review of trade deals and the U.S. involvement in a World Trade Organization agreement to keep government procurement processes open. Requiring all federal contracts to use domestic products could violate that WTO agreement.
He can’t change these things on his own, however. To wriggle out of these trade agreements, he’ll have to completely revamp them — which will likely require Congress’s involvement. Meanwhile, he’s already failed to follow through on his promise to renegotiate the NAFTA free trade agreement “on day one” and is now signaling that he will only make small changes to it.