Overview

“Buy American” is a popular concept, both economically and politically. From the “Look for the Union Label” commercials in the 1970s, to former President Donald Trump’s “Make America Great Again” campaign message, to President Joe Biden’s “Build Back Better” economic platform, most Americans are on board.

Unfortunately, there are numerous challenges to implementing a Buy- American directive from a national policy standpoint. The issue began decades ago. As governments in China, South Korea, Taiwan, Hong Kong and Singapore began investing in the development of industrial facilities, U.S. companies started to farm out manufacturing because the labor was cheaper in those countries. Cheaper labor reduced prices, and Americans love a good bargain.

Lower prices, in a nutshell, is why the Buy-American precept will be a difficult sell in the U.S.

The Biden Plan

Five days after he was inaugurated into office, President Biden issued an executive order (EO) for federal agencies to establish ways to buy more products made in the United States. The EO expands previous government efforts toward this goal, including the Buy American (1933) and Buy America (1982) statutes, and a 2019 executive order issued by Trump.¹

Note that the Biden EO is specific to the federal procurement process, which represents about $600 billion in spending. The objective is to ensure that taxpayer dollars are primarily spent on goods made by American workers and with American-made components. The EO contained provisions such as increasing the domestic content requirement for materials to be considered American-made from the current 50% to 55% or more.²

Regulations supporting this order have not been developed yet, so it is not likely to have a direct or immediate impact on production. Proposed rules will likely have a notice and comment period before imposed, where manufacturers can provide feedback about any detriments, such as cost, expertise or regulatory concerns. Therefore, rules can take a year or more to be put in place, and at that point, it could take another year or more for manufacturers to adapt.³

Furthermore, because of the changes and costs necessary to meet new Buy-American regulations, this type of edict does not provide tremendous incentive to bring back offshore manufacturing capabilities. However, the EO is about as much as Biden can do on his own. He is expected to work on a more aggressive agenda with Congress to provide tax and credit incentive programs designed to support domestic manufacturing.

Energy Jobs

With his re-entry into the Paris Agreement, Biden’s Buy-American agenda is designed to address both domestic manufacturing and climate change as a combined initiative. In other words, new American manufacturing jobs can support cleaner, renewable sources for energy.

Today, Asia is the dominant solar manufacturing center of the world. It is also the main supplier of solar cells used in U.S. module production.4 Producing more solar parts domestically offers an alternative to carbon- based fuel sources, which is beneficial on several fronts:

• It increases the availability of solar, wind and hydro power options for when an electric power grid goes down during extreme weather events.
• The U.S. wouldn’t suffer from being cut off from suppliers in the wake of a regional epidemic, global pandemic or civil unrest in countries that supply/transport materials.
• The U.S. would not be hampered by trade wars, in which tariffs can drive up the cost of goods.
• Producing goods domestically helps eliminate greenhouse gas emissions caused by shipping solar parts and materials around the world.

While it is important for the government to incentivize and support production of energy resources, it is also critical to develop a market to support sales. After all, companies are not inclined to build brand new, state-of-the-art manufacturing facilities for a two- to three-year boom; they need to know the market is sustainable.

Since the federal government is the nation’s largest energy consumer, tax dollars can be used to install solar panels at federal facilities across the country, providing a substantial market for U.S. solar manufacturers. In turn, other U.S. companies (e.g., steel, glass, aluminum, polysilicon) would increase production to supply solar companies, further reducing reliance on other countries for raw materials. With solar panel contracts in hand, domestic manufacturing would not only provide jobs but increase production for export, enabling the U.S. to compete at the global level.⁵

“It sends a signal to the market that the federal government wants to buy a lot of solar panels, and they want them made in America.”⁶

Tech Supply Chain

Technology is one of the most hobbled industries due to the lack of U.S. manufacturing. The steady ascent of Asian competitors in the global semiconductor field steadily reduced America’s share of production from 37% in 1990 to 12% today.⁷

Recently, the most notable issue has been the pandemic-induced shortage of microchips used in popular consumer products, such as cellphones and automobiles. The U.S. government does not currently offer significant incentives and subsidies to attract new semiconductor manufacturing facilities to the degree that our global competitors do. Not only are we reliant on other countries to supply these parts, but we will continue to lag leadership in future technology advances, such as artificial intelligence, 5G/6G and quantum computing.

Tech industry leaders have sent a joint letter to Biden urging him to provide government funding for semiconductor manufacturing and research. In addition to shoring up losses due to the pandemic, the tech industry warns that U.S. national security is at risk. In addition to providing smarter and safer transportation, greater broadband access, cleaner energy and a more efficient energy grid, semiconductors are critical components for our military. What if we went to war with China and all of our Asian supply chains were cut off?

Buy American: Advantages

Despite the potential for generating higher-priced consumer goods, there are lots of positive reasons to buy American products:

• Support local businesses and national retailers
• Increase jobs in the U.S.
• Sales tax revenues go to build a stronger nation
• U.S. regulations stipulate higher standards for both employment and quality products
• Reduce U.S. dependence on other countries for key raw materials, components and fully assembled products such as building supplies, automobiles and electronics

Buy American: Disadvantages

Moving manufacturing jobs back to the U.S. may not even benefit people who get those jobs — if it means their cost of living would rise exponentially. For example, a worker on the floor of a microchip factory may earn $15 an hour, but then the cost of a smartphone could rise to $2,000.⁸

There are other economic risks to the Buy-American mandate. By restricting government contracts to U.S.-manufactured parts and labor, the price tag will likely climb higher — and be paid for with American tax dollars.

The practice also may motivate other countries to retaliate. They could invest in diversifying their own domestic capabilities, reducing demand among U.S. multinational corporations that derive much of their revenues overseas. For example, the U.S. could lose its competitive foothold in industries such as insurance and banking. In turn, jobs may be lost and tax revenues from foreign trade would be reduced.

“The Apple iPhone is a perfect example of a globally produced product for global consumers, with two-thirds of those consumers living outside the USA.”⁹

Final Thoughts

As we move forward, it’s important to recognize that the U.S. and the rest of the world can’t go back to the way things were. Our global economy is interconnected, with trillions of dollars and decades of resources invested in representative areas of expertise. However, that doesn’t mean we shouldn’t work to become more independent, particularly in areas of food, transportation, communication and national security.

A balanced approach to Buy American is probably already going on in your own household. Every day, we decide what to buy and where, knowing full well that many of our purchases are not made in the USA. And yet, we buy those items anyway, either because they cost less or offer higher quality. Even if you’re determined to Buy American, recognize that the microchip in a Ford truck was likely developed in Japan; that Jeep was probably built in Mexico.¹⁰

In this way, buying consumer goods is a lot like investing in companies. It’s a good idea to diversify your investments across different countries, as well as different industries and companies. This gives your assets broad exposure to global growth opportunity while at the same type protecting your portfolio from single-country risk. As with most things, the key is finding the right balance.

Consult with an experienced investment advisor for recommendations on an appropriate asset allocation strategy for your portfolio. While you can decide for yourself whether to buy an American-made television, global portfolio diversification is a bit more complex.

¹ Courtney Bublé. Government Executive. Feb. 24, 2021. “How Biden’s ‘Made in America’ Executive Order Could Impact Federal Contractors.” https://www.govexec.com/ management/2021/02/how-bidens-made-america-executive-order-could-impact-federal- contractors/172259/. Accessed March 1, 2021.
² Ibid.
³ Ibid.
⁴ Miranda Wilson. E&E News. March 1, 2021. “Biden’s ‘Buy America’ plan may hit a solar wall.” https://www.eenews.net/stories/1063726219. Accessed March 1, 2021.
⁵ Ibid.
⁶ Ibid.
⁷ Clare Duffy. CNN. Feb. 12, 2021. “Chipmakers urge Biden administration to invest in US manufacturing.” https://www.cnn.com/2021/02/12/tech/american-semiconductor- manufacturing-biden/index.html. Accessed March 1, 2021.
⁸ Mark J. Perry. Foundation for Economic Education. Sept. 18, 2018. “A ‘Made in America’ iPhone Would Cost $2,000, Studies Show.” https://fee.org/articles/a-made-in-america- iphone-would-cost-2-000-studies-show/. Accessed March 1, 2021.
⁹ Ibid.
¹⁰ Reuters. Jan. 8, 2021. “Chip shortage forces Ford, Toyota, Nissan, FCA to cut vehicle production.” https://www.reuters.com/article/idUSKBN29D1NF. Accessed March 1, 2021.

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