The Biden administration is keeping the previous administration’s tariffs and expanding some of its programs, such as “Buy American,” in the hope of winning blue-collar workers away from Republicans in the 2022 elections.
The July 26th to August 1st, 2021 roundup of major trade developments, with L.C.
The White House last week put a major focus on its Buy American initiative to beef up domestic content in government purchases. The Biden team made it known as soon as they took office that Buy American would be a priority concern of their worker-oriented and manufacturing-centered trade and economic policies. The White House signaled this week that it intends to later unveil additional changes to its domestic-content rules, going beyond those just announced.
Last week’s actions, according to a White House fact sheet, represent “the most robust changes to the implementation of the Buy American Act in almost 70 years. [The] proposal would increase US content in the products the federal government buys and support the domestic production of products critical to our national and economic security.”
About face
The White House previously acted to curb the use of waivers of US content rules.
Most of the Biden administration’s agenda is self-contradictory; its “Buy American” plans are no different. They clash with the promotion of “green energy” (China dominates solar panel manufacture), siphon funds away from the social programs the administration is also planning, and interfere with the administration’s stated goal of enhancing cooperation with allies. Government-funded renewable energy projects, for example, will cost much more and therefore won’t be as ambitious as they could be if they used cheaper solar cells and wind towers made abroad.
The administration also relates its Buy American initiative to its effort to secure supply-chain resilience. It argues that encouraging domestic production by reducing foreign competition, especially through price preferences for certain items, means there will be more domestic production of critical goods. As a White House blog post put it, the proposed changes will “help address the shortages of critical products – like semiconductors or medicines.” But some argue that cutting competition and forcing up prices will be harmful to supply chain resilience in the long run.
Nonetheless, the protectionist proclivity won out and it has become clear that the new administration’s trade policy will closely resemble its predecessor’s, with a serious Buy American push at its core, along with a favorable attitude toward unilateral tariffs.
Selling protectionism to the wrong company
On July 28th, President Biden delivered remarks “On the Importance of American Manufacturing” at a Mack Truck plant in Pennsylvania. Ironically, exports are important to Mack Trucks. The administration’s Buy American policy is not going to sit well with its foreign customers.
As the president said in his Made In America Week proclamation, “when we spend taxpayer dollars, we should buy American products and support American jobs.” That’s not true. The government should be saving the taxpayer money by buying the least expensive adequate product, manufactured here or abroad, instead of currying brownie points with inefficient domestic special interests and their work forces. There’s no reason American businesses and workers can’t compete internationally with products in which they excel – provided the Biden administration stops sabotaging American excellence with expensive energy, regulations, and taxes.
The Biden changes to required domestic content
The proposed changes ratchet up the required domestic content for government goods procurement beyond the levels set under President Trump. His administration raised the domestic content requirement for government purchases from the previous 50% to 55% for most goods and 95% for iron and steel.
Protectionism is turning the US iron and steel industry into a basket case like it has already done to domestic shipbuilding and the US merchant marine. The proposed Biden changes would raise the 55% floor to 60% immediately, then to 65% by 2024 and 75% by 2029. This week brought indications that the Biden administration may also be looking for ways to retain Section 232 restrictions on steel and aluminum imports.
There would be exemptions if domestic supplies can’t meet the government’s need, but the rules also aim to close alleged loopholes that have allowed some purchases to skirt the requirements. (Translation: rules will be “tightened” to add value to exceptions doled out as political favors).
The proposed change would apply “an enhanced price preference for a domestic product that is considered a critical product or made up of critical components.” The price preference – which means the government would accept the bid for the US-made product even if its price greatly exceeds that of an import – would create a stable source of demand for US production. Of course, the Biden administration cares so much about national security that inflation-adjusted defense spending has been reduced to make way for grandiose new entitlement programs. But why buy less expensive products from close allies when more expensive US products could buy votes from favored constituencies?
Services not yet included
Government procurement of services – a large category of government spending – isn’t included in the Buy American Act, but the Federal Acquisition Regulatory Council (FAR, which manages government procurement) is soliciting public comments on whether services should be covered by Buy American requirements.
The FAR Council is also asking public input on whether the US should seek to change the “substantial transformation” test for determining if a product qualifies for duty-free treatment under a free trade agreement or the WTO Government Procurement Agreement. Tightening the test would make it harder for products to qualify for duty-free treatment under the GPA or an FTA. Generally, though, existing waivers for free trade agreement and government procurement agreement (GPA) partners and members are expected to remain in place.
Remarks by Commerce Secretary Gina Raimondo to Bloomberg News confirmed what she as well as President Biden and US Trade Representative Katherine Tai have previously indicated: that they have no objection to the tariffs in principle and in fact welcome the protection they claim they provide to domestic metals producers and their workers.
Raimondo told Bloomberg that to get a level playing field, “we sometimes have to use tariffs. Sometimes tariffs can be very effective…. helping American workers in the steel industry that… are back to work.” She suggested that the real threat to the US steel industry is from China, yet she defended the tariffs on all trading partners including the Europeans with whom the US is supposedly negotiating an end to them.
The damage of the steel tariffs is well documented
Contrary to Secretary Raimondo, more US workers have been hurt by the Section 232 tariffs than helped, since the estimated 12 million who work in manufacturing that uses steel dwarfs those involved in basic steel production. These downstream manufacturers and their workers – as well as consumers — have been harmed by the tariffs.
Moreover, even when the tariffs were first imposed, the US imported very little steel from China (China accounts for about 0.08% of US steel imports), largely because Chinese steel was already subject to massive unfair trade duties. True, the US steel sector was impacted by China’s flooding of other steel markets, which lowered the global price, but the tariffs on other US trading partners didn’t rectify that situation. And more recently, due to government stimulus and pandemic recovery, the global steel price has been booming, making protection for the sector even more misplaced.
Beyond these concerns, the tariffs greatly increased tension with trading partners, including at the WTO where close allies filed complaints against the US and increased the likelihood that other countries will block US exports using the Article XXI national security exception, all of which further weakens the WTO. Retreating to protectionism through tariffs and government procurement agreements is something only declinist nations do.
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