On January 31, 2019, President Trump issued an Executive Order encouraging federal grantees to “Buy American” when purchasing iron, aluminum, steel and certain manufactured products for infrastructure projects funded by federal grants. Although the Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects only directs federal agencies to encourage grantees to “Buy American,” it also calls for federal agencies to assess whether federal grantees (including state and local governments) might be required to buy U.S.-made goods in the future.
“We want American roads, bridges, and railways, and everything else to be built with American iron, American steel, American concrete, and American hands.”
White House economist Peter Navarro, a key proponent of closing U.S. borders to international trade, published an op-ed on Fox News before the order was released, explaining and supporting the order. As the President and Peter Navarro made plain in the signing ceremony in the Oval Office, the new order is part of a broader White House initiative to boost U.S. manufacturing, a central theme in Trump’s reelection efforts.
The order highlights a gap in trade agreements, because federal grants are generally excepted from U.S. trade agreements that require open trade in procurement. See, e.g., WTO Government Procurement Agreement, U.S. Annex 7, General Notes, para. 2.
But even though federal grants are not themselves subject to the trade agreements, state grantees using federal funds for their own procurements may be covered by those agreements — and thus may not be able to discriminate against covered foreign vendors when they procure using federal grant funds. Two-thirds of the states, for example, are members of the World Trade Organization’s Government Procurement Agreement, and so have committed not to discriminate in certain purchases from other members of the GPA. The new Trump executive order defers to those prior commitments to open trade in procurement.
The new order calling on grantees to discriminate across borders contrasts sharply with prior White House guidance, through the Office of Management & Budget (OMB), 2 CFR 200.319(b), which requires many grantees to “conduct procurements in a manner that prohibits . . . state, local, or tribal geographical preferences in the evaluation of bids or proposals.” This prior OMB guidance barring grantees from domestic geographic preferences aims to encourage maximum competition in procurements using grant funds; the new order, calling for international discrimination, logically would probably hurt competition.
If grantees follow the President’s admonition and only “Buy American,” experience suggests that public projects under federal grants may take longer and cost more. Under Section 1605 of the American Recovery and Reinvestment Act of 2009 — which imposed a similar “Buy American” requirement — GAO found that grantees faced severe operational problems when they were forced to comply with similar “Buy American” requirements. For many of these same reasons, the National Association of State Purchasing Officers (NASPO) has opposed geographic preferences in procurement, because they can undermine competition and hurt best value.
In her posting on the new executive order, Jean Heilman Grier suggested that this order is a logical successor to Trump’s April 2017 executive order which called for federal agencies to “Buy American and Hire American.” While that earlier order encouraged federal agencies to Buy American whenever they can, this order extends that admonition to federal grantees.
Because of the latticework of policies and agreements which bar or discourage discriminatory procurement by state and local governments, it is unclear exactly what impact this new executive order may have on federal grantees’ purchasing. What is clear, however, is that even the most aggressive “Buy American” requirements in procurement are unlikely to have any serious impact on the nation’s trade deficit. At the federal level, a December 2018 GAO report showed that only roughly 1.5% of federal procurement ($7.8 billion of approximately $500 billion per year) were foreign products — compared to a national trade deficit of $566 billion in 2017. Foreign purchases probably total an even smaller share of state and local procurement, compared to federal purchases from abroad, because trade agreements force open a much smaller portion of state and local public markets. In sum, therefore, no matter how aggressively federal grantees implement the executive order, it is unlikely that the new order, though trumpeted for political reasons, will reduce the U.S. trade deficit in any significant way.
