Closing loopholes in Buy American Act could create up to 100,000 U.S. jobs

By closing loopholes in the Buy American Act, the 21st Century Buy American Act will increase demand for U.S. manufactured goods and create at least 60,000 to 100,000 U.S. jobs. The Buy American Act requires “substantially all” direct purchases by the federal government (of more than $3,000) “be attributable to American-made components.” However, there are a number of exclusions or loopholes in the Buy American Act. The single largest is an exception for “goods that are to be used outside of the country,” and the 21st Century Buy American Act includes provisions to close it. In addition, current regulations interpreting the Buy American Act state that “at least 50 percent of the cost must be attributable to American content,” which can reduce net demand for American made content.

Between 2010 and 2015, the “goods used outside of the country exception” was used to purchase $42.3 billion in goods that were manufactured outside of the United States, an average of $8.5 billion per year.1 The 21st Century Buy American Act would require most or all of those goods to be U.S. made, increasing demand for U.S. manufactured goods by up to $8.5 billion per year.2 Although labor markets have improved in the United States since the recession, there remains substantial slack and 2.6 million jobs were still needed to catch up with growth in the potential labor force in September 2015. I assume, based on recent research by my colleague Josh Bivens (Table 5) that wages earned by new manufacturing workers will support a macroeconomic multiplier of 1.6 in the domestic economy over the next year.3 I also assume, based on total GDP and employment levels in 2014 that a 1 percent increase in GDP adds 1.3 million jobs to the economy. Thus, the $8.5 billion increase in spending on domestic manufactured goods (with 100 percent domestic content) would increase GDP by $13.6 billion (0.08 percent), creating up to 100,000 new jobs in the domestic economy.

These are rough estimates based on well-known macroeconomic relationships. If labor markets continue to improve then the macroeconomic multiplier will shrink, but S. 2127 would continue to support tens of thousands of jobs in manufacturing and other industries supported by demand for manufactured products.

These estimates are conservative because they do not include the impact of an additional element of the 21st Century Buy American Act, which would also increase the domestic content of all purchases covered by the Buy American Act to 60 percent. This much needed rule change would ensure that at least 60,000 domestic jobs would be created by the 21st Century Buy American Act over the next year by closing the “goods used outside of the country exception.” In addition, this rule change would also increase the demand for American-made manufacturing content for all manufactured goods purchased under the Buy American Act (which averaged over $160 billion per year between 2010 and 20154).

The 21st Century Buy American Act is smart manufacturing policy and a good first step towards rebuilding American manufacturing. Its passage would set the stage for bi-partisan cooperation on fundamental reforms such as eliminating currency manipulation, which could create 2.3 million to 5.8 million U.S. jobs, including up to 2.3 million jobs in manufacturing. Both are critically needed to restart the recovery of manufacturing employment, which has added no net jobs since January 2015.

 


1. Analysis of Federal Procurement Data System, personal communication from the office of Senator Chris Murphy, October 22, 2015.

2. S. 2167 contains exceptions for “national security reasons,” and for purchases that would be “more than 50 percent more expensive” for the Federal Agency making the purchase, which I assume would apply to only a small proportion of the subject purchases.

3. This is the multiplier Bivens uses for infrastructure spending, which is similar to manufacturing in its impact on the domestic economy. Both support relatively high wage jobs in manufacturing (for both types of spending) and in construction (for infrastructure). High wages in turn support high levels of repending in the domestic economy, which generates large macroeconomic multipliers.

4. Personal communication from the office of Senator Chris Murphy, October 22, 2015.


  • SHELBY

    All I can say is ROCKFORD, IL once was the tool and die center of the world and we have lost more than 3,000 manufactures. Now they are looking towards Aero Space job’s, really a mess! And we have a mayor more interested in trying to get China investors for his latest project, thankfully they (China) has told him no twice! He has done nothing to boost employment

  • This article seems wrong to say that the single largest exclusion or loophole to the Buy American Act is in the procurement of goods to be used abroad. Rather I expect a quantitative analysis of government procurement would reveal the biggest exemption is via foreign-made goods (imports) being treated as equal to US-made goods due to those imports coming from countries that have signed FTAs with the USA or to their being signatories to the WTO Agreement on Government Procurement.

    Of course introduction of the 21st Century Buy American Act seems a positive step towards restoring the domestic manufacturing that is essential to reviving prosperity for our citizens. But I am concerned that, as I will explain below, the bill as it is now written is mostly symbolic and may not substantially improve the domestic content of our government procurement that has been undermined by our larger trade policy. And of course even if Congress were to restore an effective “Buy American” policy for government procurement, without fixing our trade policy now resulting in huge merchandise trade deficits and off-shoring of much of our manufacturing, the much larger private sector consumption of excessive imports will continue and our nation’s historic economic decline will also continue.

    Why do I say this bill is mostly symbolic and may not substantially increase domestic content in government procurement? Because the Buy American Act of 1933 (and thereby its potential revisions by the 21st Century Buy American Act) seems to be largely superseded by the 1979 Trade Agreements Act and by the participation of the USA in the WTO Agreement on Government Procurement, which became US law through the Uruguay Round Agreements Act. Those laws governing our foreign trade require the President (and his appointees such as the USTR) to waive substantial portions of the Buy American Act in order that products of foreign countries be considered equal to products of the USA if those countries are signatories to the WTO Agreement on Government Procurement (GPA) or trade agreements (FTAs) entered into by the USA.

    For example, Article III of the WTO GPA says:

    [EXCERPT]:

    With respect to all laws, regulations, procedures and practices regarding government procurement covered by this Agreement, each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable than:

    (a) that accorded to domestic products, services and suppliers; and

    (b) that accorded to products, services and suppliers of any other Party.

    [END EXCERPT]

    Most of our FTAs contain similar language.

    I have compiled a list of 55 countries whose goods are entitled to waivers of the Buy American Act based on their being signatories to either the WTO GPA or an FTA with the USA. As of December 4, the USTR website also notes there are 10 more countries now in the process of acceding to the WTO GPA, including 3 with which we do not have an FTA waiver of “Buy American in our government procurement: China, Jordan and Moldova. [We do have FTAs with Jordan and Moldova now, but I cannot find any waiver of government procurement requiring domestic content.] That process would increase our “Buy American waiver” list to 58 countries, with China likely to become a huge source of additional imports under our government procurement.

    And so in order for this bill to be genuinely effective at restoring a “Buy American” policy in our government procurement, rather than being merely symbolic, it should be amended to require revision of the Trade Agreements Act of 1979 and the Uruguay Round Agreements Act, and the Federal Acquisition Regulations System as it pertains to those laws. These laws and regulations should all be amended to make the 21st Century Buy American Act and the Buy American Act of 1933 supreme over any FTA or treaty or any other international agreement. Until then, the 21st Century Buy American Act seems mostly symbolic and likely to be ineffective.

    Will Wilkin
    Deputy Director
    Balanced Trade Associates
    http://www.balancedtrade.us

  • pete lattette

    What a terrific idea. Strange that no one in Congress ever thought it out.

    We do understand that many in Congress do not want Americans to have good paying manufacturing Jobs, because it costs the Corporations too much in labor costs. The only problem is that a lack of good paying jobs causes a lack of Federal Taxes which causes more Borrowing from CHINA.

    The path that we have been on. shipping good jobs overseas is the major cause that our economy sucks for all except the Rich and the CEOs.

    Will Congress do what is needed to help America?

    I doubt it very much, but their larder from the Corporations, the Rich and the CEOs will continue to roll in to bankroll their next election bid.

    Say good bye to America!

  • frisbeeredcat

    This proves that “Capitalism is not beholden to Nationalism.” This bill and especially its predecessor were so full of loopholes to be almost laughable, if it wasn’t so sad. They are an example of Congress trying to look as though they care about the working class American with a misleading title “Buy American Act” and then fill it with ways to do exactly the opposite. Congress cares for and helps their cronies. Those who reap the benefits are those who manufacture with dirt cheap labor, and then sell to the consumer as if they were Made in America products, with higher American wages. The consumer doesn’t know. Then the profit difference is stuffed into the CEO’s pockets with a little kick to Congress for a “Sweetheart Bill.” Plus Congress gets wind of any insider secrets legally as they have exempted themselves from being prosecuted for insider trading. What a Country, huh? Congress can’t lose. The only losers are the American workers who are screwed out of good jobs, forced to work for lower wages, work longer hours plus the added stress of not knowing how long your job will last. Benefits? You don’t get those anymore because it costs the employer too much and they cannot be competitive. C’mon Congress! Write a bill that truly provides good jobs for the American Worker with protections from foreign content and manufactured solely in this country.