July 21, 2023 Biden’s “Build America, Buy America” Comes at a Cost

Regardless of political affiliations, the “Build America, Buy America” Act has many virtues. But, will it actually work?

By Paul Atkinson, CEO, Optical Network Business, STL

Despite the inherent divisiveness of American politics, we all want the US economy to thrive for the benefit of domestic businesses, workers, and the American household. This is, at least in part, why policies such as the Biden Administration’s “Build America, Buy America” Act (BABA) are often incredibly alluring to so many voters; regardless of our political affiliations, a win for America on the global industrial and economic stage is a win for the American people.

To be clear, there’s nothing wrong with this allure, and in fact, the policy intentions behind BABA are perfectly virtuous on the surface. However, if we really do want America to win, particularly amidst rising geopolitical tensions, ongoing economic pressures, and uncertainty, then we’ll need to take a hard look at the policy and ask ourselves an honest question – will it actually work?

History has a strange way of repeating itself

As it currently stands, BABA is a key domestic sourcing provision of the broader $1.2 trillion Infrastructure Investment and Jobs Act enacted by Congress and signed into law by President Biden in  2021. The provision’s overall aim is to prioritize the use of American-made products and materials for federal infrastructure projects, including lumber, plastic and polymer-based products, glass, and fiber-optic cables, to name a few.

More specifically, BABA requires manufactured goods contributing to federal infrastructure projects be comprised of at least 55% American-made materials, which can be a short or tall order depending heavily on the individual project and materials in question. This may not be the policy’s primary drawback but it’s worth mentioning BABA attempts to establish and enforce a simple, hardline requirement to the vastly complex and interdisciplinary worlds of construction and manufacturing, creating all kinds of logistical and cost-related challenges for businesses.

Importantly, however, the challenges created by BABA aren’t exclusive to manufacturing companies, and in fact have the potential to spill over into the U.S. economy. And the reason we can come to this conclusion is because we’ve already seen the results of similar policies and domestic sourcing initiatives throughout American history.

Even in the relatively recent case of “Buy American” trade and infrastructure provisions dating back to 2017, we have seen the various negative impacts of placing tariffs on foreign goods, as well as promoting blanket requirements meant to bolster domestic manufacturing. For example, we now know that raising the price of foreign materials like steel, as tariffs inherently do, can actually result in the loss of US jobs, as companies producing products with steel in the past have had to lay off workers to offset rising costs.

Additionally, policies such as BABA can impact the cost of domestic goods as much as they do the cost of foreign imports. In fact, a Peterson Institute evaluation of Trump-era “Buy American” provisions revealed that domestic sourcing requirements resulted in up to 10% higher prices for consumers. And when you consider this potential outcome in the context of the American economy’s current and ongoing battle with inflation, it becomes clear that for all of BABA’s virtues, there’s a considerable chance it could end up doing more harm than good.

Finding a balance

Understanding the above potential risks to the US economy, in addition to others such as a strain on US exports and extended timeframes for critical infrastructure projects, it may be wise to reevaluate the BABA policy and identify some areas of compromise and opportunities for improvement.

More specifically, we should consider whether it may be possible to strike a balance between the need to bolster domestic manufacturing and protect the U.S. economy and workforce. One possible way to achieve this, at least in the near term, is to extend waivers and material exceptions to certain requirements listed in the provision; not necessarily across the board, but whenever such a solution can be supported by reason and evaluated in the context of ensuring both progress toward improved domestic sourcing and the mitigation of relevant economic risks.

Of course, we should acknowledge that there truly is no simple solution, and even the above suggestion will come with its own challenges. Primarily, to uphold these two objectives harmoniously, we will need to find the sweet spot between indiscriminate enforcement of the BABA policy and the outright abandonment of domestic sourcing requirements.

In other words, while the use of US products and materials should be a factor on which companies and their contributions are evaluated, so too should their good faith efforts to make progress at a pace that takes not only domestic sourcing but also the interest of the American economy and workforce into account.

About the Author:
Paul Atkinson is an industry expert with more than 30 years of experience across multiple industries. Prior to STL, he was the Managing Director and Group CEO at IXOM. He has deep expertise in the optical space and was associated with the Prysmian Group for over 20 years as the CEO of affiliates and regions across the world.

https://stl.tech

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