Joe Biden’s executive order raises concerns
Among the significant executive orders (EO) the 46th US president, Joe Biden, signed in his first week in office, “Buy American” was notable for its Trumpian overtones and for creating consternation among US businesses and allies. The EO seeks to tighten rules for federal government procurement programmes, limiting foreign contracts by federal agencies with the objective of encouraging economic activity and job creation in the United States. As a political signal it is a powerful one, though obvious questions arise about how it differs from Donald Trump’s “America First” creed and whether it will exclude allies from one of the world’s largest government procurement programmes ($600 billion a year). A closer look suggests that Buy American goes beyond America First in some respects and raises costs for the American taxpayer.
Government procurement is governed by the eight-decade-old Buy American Act (BAA) and its rules are set by the Federal Acquisition Regulation (FAR) Council. A day after Mr Biden took office, the FAR Council notified rules passed in the last days of the Trump presidency. These rules raise the local component content requirement in domestic products bought by the federal government from 50 to 55 per cent and a steep 95 per cent for iron and steel. They also raise the price preference from 6 per cent to 30 per cent for large businesses and 12 per cent to 30 per cent for small businesses. The EO does not invalidate these rules but stipulates that the component content calculations will be replaced by a complex metric measuring the value that is added to the product through US-based production or US job-supporting economic activity. Though this metric is yet to be specified — a deadline of July 25, 2021, has been set for this — corporations fear that compliance costs may rise further even as national minimum wages could almost double on Biden’s watch.
Changes in local-content rules may not affect large contracts; those worth over $182,000 are open to foreign suppliers, specifically to 20 members under the General Procurement Agency, a plurilateral agreement within the World Trade Organization framework (India has had “observer status” to this agreement since 2010 and China is negotiating accession). Crucially for India, the FAR rules exclude information technology. But this too could become a challenge because Mr Biden’s EO raises the bar for exclusions and waivers. A newly appointed Made in America director in the Office of Management and Budget will require detailed explanations — to be made available on a website — of why a product or service cannot be procured in the US.
In India, the EO has been likened to its government’s atmanirbhar or protectionist doctrine of economic policy. Certainly, the political signalling from the two are similar. But unlike India, which has excluded itself from major trade pacts such as the Regional Comprehensive Economic Partnership and raised tariff barriers sharply to incentivise domestic production, Mr Biden has been measured. Though he is yet to reverse Mr Trump’s tariffs on Chinese imports, he has signalled a more consensual style of global governance, including his administration’s intention to re-join the Obama-era Trans-Pacific Partnership Trade Agreement, which his predecessor had exited. But whether a Buy American order can make America great any more than atmanirbharta can transform Indian manufacturing remains an open question.