Buy American

It is campaign season, which means that once again it’s Buy American time. The idea that Americans should buy things produced in their own country is a popular one, at least in public opinion polls. Ironically, that enthusiasm is not always borne out in the actual buying habits of the public, who generally focus on price and quality, where domestic products may or may not have an advantage. And, of course, in a number of areas, there are no longer viable American choices. If you’re buying women’s shoes, you will discover that more than 95 percent of footwear is imported. (It’s only slightly less for men.) When it comes to apparel, check your labels. Most clothing is produced outside the country, although it might be with American yarn, thanks to preferences constructed in trade agreements.

The policy debate, however, has historically focused not on consumer buying patterns but on federal procurement. The Buy American Act of 1933 set up a basic preference for the government to buy U.S. products unless the price difference was excessively high. Other amendments over the years have reaffirmed this principle with respect to specific products, often those intended for military use. The Act has largely worked. Only about 4 percent of U.S. government procurement is foreign, and nearly half of that is for use overseas, where one would expect local purchases. Of course, that very effectiveness means expansion of the Act will only lead to marginal increases in purchases. Also, federal procurement, large though it is, is only a small part of the U.S. economy, so an expanded domestic procurement policy is not going to have an overall significant impact.

That does not mean the policy is without controversy. It has long been a sore point for Canada, which has a lot of competitive products, and it is regularly near the top of the European Union’s list of negotiating priorities every time the United States discusses a trade agreement with them.

Lately, the Buy American debate has begun to spill over into a new area, reshoring—that is, bringing U.S. companies back home. In other words, we don’t just want to Buy American, we want to Make American as well. President Trump has made this a feature of his administration and has regularly bragged, falsely, about his bringing U.S. companies back on shore. Former vice president Biden has also made this a feature of his campaign, in some ways copying Trump’s proposals, although without all the bluster.  

While the procurement issue is marginal, reshoring, if it takes off, will be significant and ultimately a drag on U.S. competitiveness. While it has the same superficial attraction as Buy American, it risks forcing companies to make themselves less efficient.

The world of global supply chains we live in, or at least lived in pre-Covid-19, did not arise by accident. Companies figured out that it was more efficient to break the production process into its component parts and locate each piece where it could be produced most competitively. Declining transportation costs made all that movement of semi-finished products economical. Good supply chain managers figured out how to put together a production process globally with the lowest cost, best quality, and best delivery schedules. In the wake of the pandemic, they now have to factor in resiliency and redundancy as well. If the government tells them to reshore, it is telling them to make a decision that is less economically optimal. Reconstructing a supply chain is time-consuming and expensive. New suppliers have to be identified, tested, and certified, which takes time, particularly if the product is government-regulated. The cost will almost certainly be higher than the current cost. In addition, bringing supply chains back home will make it more difficult to sell to the foreign markets we are leaving. With 95 percent of the world’s consumers offshore, the key to U.S. economic growth is more trade, not withdrawal.

In some cases, it makes sense to have large-scale domestic production. Most of the examples involve national security, where we are concerned that foreign products are either compromised (telecommunications) or supply is unreliable (rare earths). In the wake of the Covid-19 pandemic, this concern has expanded to the medical sector, both equipment and pharmaceuticals. That may make sense, but we should be careful about too elastic a definition of national security. I recall several years ago when the Chinese bought Smithfield, we had elected officials arguing, essentially, that bacon was a national security concern that needed to be protected. Despite what some trade skeptics in the administration might say, every import is not a national security threat.

A better approach is, first, restrain the impulse to define national security too broadly, and, second, for goods that do impact our security, to return to the concept of trusted partners— companies we can count on for reliable, consistent sources of supply that are in friendly countries whose governments will not arbitrarily cut us off. That will address our security concerns and also allow our businesses to compete more effectively.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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