As part of his Build Back Better campaign commitment, President Joe Biden has signed an executive order to tighten the restrictions on where the federal government and its contractors can buy goods and services. Historically, there have been two main laws governing the geographic location of federal procurement: the Buy American Act of 1933 and the Trade Agreements Act of 1979. The former provides a price preference for U.S. products, while the latter prohibits procuring products and services from non-designated foreign countries, unless a specific exception has been made. Most U.S. free trade agreements also include provisions on government procurement practices.
Under Biden’s new order, these rules would be significantly narrowed to ensure the government procures a greater share of goods and services produced in the United States.
There is usually no free lunch. It’s one thing to focus on providing U.S. companies with assistance so they can more effectively qualify for U.S. government contracts. And indeed, the president’s order rightly charges the National Institute of Standards and Technology’s Manufacturing Extension Partnership to do more to help small manufacturers obtain federal contracts. All to the good.
But the main focus of the order is not to help; it’s to command. Forcing the federal government and contractors to buy more U.S.-made products will either increase prices (and raise taxes) or reduce procurement levels. If the administration is to go down that path, it needs to be sure that cost is worth it.
Other nations are not likely to take this sitting down. They will almost surely step up their own “Buy X” provisions to favor their own domestic suppliers, which will reduce U.S. export opportunities. And this tension will make it harder for the Biden administration to assemble a “coalition of the willing” to stand up against Chinese power trade. The broad protectionist approach of treating all foreign countries the same and insisting that the federal government and its contractors “buy American” makes little sense.
It’s easy to go all free-market in righteous opposition. Indeed, many free trade experts disdain anything other than open federal procurement markets, because anything less is “protectionism,” and we can’t have that.
But both the Biden administration and the free traders are wrong. There are strategic industries that are more important and that federal procurement should preference. And there are countries where government procurement is nowhere near as open as it is in the United States. The idea that federal procurement policy should not take these factors into account makes no sense. There can be and should be a middle ground between Build Back Better protectionism and free trade openness. This requires using procurement policy as a strategic trade and industrial policy tool.
First, the Biden administration rules should differentiate between commodity products and strategic, technology-based products. What difference does it make if the Department of Interior buys pencils made in another country? That is not a strategic or advanced industry. But it does make a difference if the federal government imports machines tools. Federal policy should encourage the growth of advanced technology industries that, in turn, support a broader defense and commercial industry ecosystem.
Second, the new rules should be strategic about which countries to trade with and which to box out. For example, certain countries — such as Barbados, Canada, Egypt, Mexico, or Turkey — qualify in some way for exemptions from current domestic procurement preference programs, yet have been named in the U.S. Trade Representative’s Special 301 Report as countries that do not adequately enforce intellectual property rights or otherwise deny market access to U.S. products. Likewise, Switzerland has been named by the Department of Treasury as a currency manipulator, but it enjoys U.S. domestic procurement exemptions. Clearly, the message is that if various U.S. agencies put a country on a “name and shame” list, it is nothing but that; no real consequences come with the designation, such as losing access to the U.S. government procurement market.
In addition, a number of countries are part of the World Trade Organization’s Government Procurement Agreement, whereby countries table lists of national (and sub-national) government procurement activity that they open to international competition, and which prohibits countries from placing restrictions on government procurement of these covered products.
So why are some countries that have not joined the GPA, such as Mexico, eligible for U.S. government procurement? In addition, a number of countries appear to have joined the GPA in name only, still discriminating against foreign goods. For example, according to the Congressional Research Service, while the United States opens as much as 80 percent of federal contracts to foreign suppliers, “South Korea and Japan, may do the same for 13% and 30%, respectively.” Nations that have not joined the GPA or only claim to be open to having their governments buy from firms in the United States should be taken off the preference list until they join or reduce gross disparities.
President Biden’s approach to government procurement should be much more sophisticated than, and not just a carbon copy of, President Donald Trump’s approach. Specifically, President Biden should leverage this as a strategic opportunity to deepen relationships with like-minded countries, opening up government procurement access only to allied nations who genuinely adhere to free-trade principles. For instance, the European Union is currently developing an International Procurement Instrument to ensure that other nations’ enterprises can only compete for E.U. government procurement opportunities so long as those nations’ government procurement markets are reciprocally open to E.U. companies. The Biden administration should adopt a similar approach, and more to the point build up an allied approach to reciprocal government procurement, especially when it comes to advanced-technology products.
In sum, rather than use government procurement as a blunt tool of protectionism, the Biden administration should use it as a sharp tool of effective trade and industrial policy.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation, the leading think tank for science and technology policy.
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