Category: U.S. Government

Tariff Exemption: Defense Items

In largely unnoticed developments, both the U.S. Department of Defense and the Senate Armed Services Committee have signaled that, consistent with current law, items purchased by the Department of Defense (called the “Department of War” by the Trump administration) should be exempt from tariffs. Although the Senate legislative provision was ultimately eliminated from the National Defense Authorization Act (see House Rules Committee final text of the NDAA), the tariff exemption remains in the Defense Federal Acquisition Regulation Supplement (DFARS). If rigorously exercised, the exemption could vastly simplify tariff issues for both the Defense Department and its contractors.

Editor’s note: This post has been updated to reflect approval of the National Defense Authorization Act by both the House and the Senate.

The Trump Tariffs

President Trump’s Reciprocal Tariffs — and the Procurement Exception

The Trump administration’s tariffs have been controversial worldwide. One open issue for the U.S. procurement community has been whether those tariffs would be applied to items purchased from abroad by the U.S. government — in essence, whether the government would have to pay higher prices due to its own tariffs.

An earlier posting explained the various federal procurement exceptions from tariffs built into U.S. law. Those exceptions have sometimes been difficult and uncertain to administer, however, which left open the risk that the Trump administration tariffs would drain resources from federal government procurement. The initiatives outlined below make it less likely that — at least with regard to Defense Department purchases — the Trump tariffs will apply to federal purchases.

Procedures for Defense Department Tariff Exemption

The procedures for duty-free entry of Defense Department supplies are explained in a July 2025 Defense Contract Management Agency (DCMA) presentation to the Defense Acquisition University (DAU), which included the following process chart:

The process is spelled out in the Defense Federal Acquisition Regulation Supplement (DFARS) clause DFARS 252.225-7013, in DFARS Subpart 225.9, and in DFARS Procedures, Guidance and Implementation (PGI) Subpart 225.9. The process, as the diagram above reflects, results in a certification from the Department of War that the supplies are entitled to duty-free entry under Section XXII, Chapter 98, Subchapter VIII, Item 9808.00.30 of the Harmonized Tariff Schedule of the United States, which covers “Materials certified to the Commissioner of Customs by the authorized procuring agencies to be emergency war material purchased abroad.” Customs rulings under Item 9808.00.30 are here.

Defense Department Memo Confirming Exemption

In an August 25, 2025 Defense Department-wide memorandum, John Tenaglia, the Principal Director, Defense Pricing, Contracting, and Acquisition Policy, emphasized that existing Defense Federal Acquisition Regulation Supplement 225.901 (DFARS 225.901) exempts many Defense Department purchases of foreign supplies. “In accordance with DFARS 225.901,” noted the memorandum, “unless the supplies are entitled to duty-free treatment under a special category in the Harmonized Tariff Schedule,” or the contractor has already paid the duty, per DFARS 225.901 the Defense Department will issue duty-free entry certificates for:

  • End products and components from “qualifying” countries (which have reciprocal defense procurement agreements with the U.S. Department of Defense), and
  • End products (but not components) that are “eligible products,” i.e., come from nations that have free trade agreements with the United States (such as the WTO Government Procurement Agreement), and
  • “Other foreign supplies for which the contractor estimates that duty will exceed $300 per shipment into the customs territory of the United States.”
Trump Administration Tariffs. Source: Atlantic Council

As was discussed above, normally the procedures for applying duty-free treatment to Defense Department procurements are set forth in DoD guidance, PGI Subpart 225.9. The August 2025 memorandum went further, and said that “contracting officers shall include or modify contracts” to include DFARS 252.225-7013 – Duty Free Entry (as prescribed in DFARS 225.1101(4)) for any “contracts or orders that anticipate delivery of end products, components, or materials imported into the customs territory of the United States.” The referenced clause, DFARS 252.225-7013, says that the exception is to extend to subcontracts, as well.

To “maximize the Department’s budget to meet warfighter needs,” the Defense Department memorandum said, contracting officers are to note in soliciting and contract materials “that any subsequent contract action will include the duty-free entry clause,” and that the “contractor should use the clause to assure that appropriate shipping documentation is used to prevent incurring duties.”

The Defense Department memorandum thus leveraged existing exceptions to make it clear that Defense Department supplies from abroad should be exempt from tariffs.

Editor’s note: As is discussed below, the policy memorandum on the Defense Department tariff exemption appears to have been removed from the DoD website; a copy, however, is archived here, and the memorandum is still indexed among acquisition policies.

In practical terms, these exceptions should cover a very large percentage of foreign end products and components purchased by the Defense Department. Reciprocal defense procurement agreements and the WTO Government Procurement Agreement will cover a broad range of supplies from abroad. For those products not covered by agreements, with baseline tariffs internationally of 10 percent (see map), it is likely that many remaining Defense Department procurements will meet the trigger of $300 in duties for exempting “other” foreign supplies. And because Defense Department procurements make up by far the largest share of U.S. federal procurement (see below), this Defense Department exception is likely to play a prominent role in U.S. government procurement.

Chart: U.S. Government Accountability Office

Senate’s Proposed NDAA Section 874: A Re-Exemption

Section 874 of the Senate version of the National Defense Authorization Act (NDAA) for FY 2026, S. 2296, would have reinforced the tariff exemptions for defense supplies. While it did not become law in the final version of the NDAA, Section 874 made clear the Senate’s ‘ support for the exemptions. Echoing the existing exemption under DFARS 225.901, the proposed NDAA Section 874 would have required the Defense Department to “issue a duty-free entry certificate” for covered supplies “imported pursuant to a procurement contract entered into by the Department of Defense.” The supplies would have to be (1) an end product or component imported from a country with which the United States has a memorandum of understanding for reciprocal procurement of defense items (commonly referred to as “reciprocal defense procurement agreements“), or (2) an “eligible product” under section 308 of the Trade Agreements Act of 1979 (19 U.S.C. 2518), i.e., an item covered by the WTO Government Procurement Agreement or other free trade agreements with the United States (list). Unlike the existing regulation, DFARS 225.901, Section 874 of the Senate NDAA would not have exempted other “foreign supplies for which the contractor estimates that duty will exceed $300 per shipment.”

Section 874’s exception would not have applied if the item was already duty-free under the Harmonized Tariff Schedule, or if the contractor had already paid U.S. duties on the product or component.

The Defense Department would be required to submit a report to Congress by January 30, 2026 on the impact of the Trump administration tariffs on the Defense Department, its contractors and its broader supply chain.

In the committee report which accompanied the Senate bill, the Senate Armed Services Committee (SASC) explained the concerns that underlay Section 874. The Committee “emphasize[d] that defense-related acquisitions from qualified sources under Reciprocal Defense Procurement  Agreements should remain exempt from any tariffs or trade restrictions,” and “urge[d] the Department of Defense and relevant interagency stakeholdersto preserve existing exemptions and ensure that future trade actions do not hinder defense procurement or compromise national security priorities.”

The Senate NDAA bill differed from the House of Representatives’ version of the bill, HR 3838, which passed the House on September 10, 2025, and which did not contain a similar provision. (The Senate bill was again offered as an amendment in the nature of a substitute by SASC Chairman Roger Wicker and Ranking Member Jack Reed on September 4, 2025; that version also included Section 874.)

Finalized National Defense Authorization Act and the Tariff Exception

In an important development, the conference report to the National Defense Authorization Act for Fiscal Year 2026 (the final version of the bill which reflected compromises between the House and Senate) removed Section 874 of the Senate version of the legislation, a provision which the Trump administration had opposed because the Senate provision had endorsed the U.S. Defense Department’s exception from the Trump administration tariffs. (The Joint Explanatory Statement which accompanied the conference report noted Section 874’s removal, at page 193.) The conference report has been approved by both houses of Congress.

The Joint Explanatory Statement which accompanied the compromise legislation also called for a report on the impact of tariffs and trade agreements. The Statement said:

The Senate bill contained a provision (sec. 874) that would require the Secretary of Defense to issue duty-free entry certificates in certain circumstances and require supply chain tracking.

The House bill contained no similar provision. The agreement does not include the Senate provision.

We note that it will be increasingly important for the Department of Defense to track the impact of economic fluctuations, including tariffs, supply chain disruptions, and inflation, on all major prime contracts entered into by the Department. Therefore, we direct the Secretary of Defense to provide a briefing to the congressional defense committees, not later than March 1, 2026, on the impact of significant economic fluctuations on Defense programs. Such briefing shall include:

(1) An assessment of cost increases to both the Department and contractors as a result of tariffs imposed since February 1, 2025, under the International Emergency Economic Powers Act (50 U.S.C. 1701) and section 232 of the Trade Expansion Act of 1962 (19 U.S.C 1862);

(2) An assessment of the effects of such tariffs on supply chains and lead times for major defense platforms; and

(3) A summary of agreements entered into under section 4851 of title 10, United States Code, and an assessment of the application of those [reciprocal defense procurement] agreements to the defense supply chain.

Importantly, the underlying regulations and guidance discussed above, used to exempt many Defense Department purchases from tariffs, remain in place. But the implementing Defense Department memorandum, though it is still indexed among Defense Department procurement policies, appears to have disappeared from the Defense Department’s website.

Revolutionary FAR Overhaul and Tariffs

Revolutionary FAR Overhaul: Third Round – FAR Parts 18 (Emergency Acquisitions), 39 (ICT Acquisitions) and 43 (Contract Modifications)

A longer-term question is whether the DFARS provisions which exempt Defense Department supplies from tariffs will be affected by the Trump administration’s “revolutionary” overhaul of the Federal Acquisition Regulation (FAR). The first step in the overhaul, now concluded, has been to issue proposed deviations from the FAR, part by part. The next step is to be a formal rulemaking to overhaul the FAR.

In that first step of the Revolutionary FAR Overhaul (RFO), the administration issued a revised version of FAR Part 25, which governs foreign acquisitions across all federal agencies. The overhauled FAR Subpart 25.9 would continue to recognize existing tariff exceptions, including the limited tariff exceptions afforded under the  Harmonized Tariff Schedule of the United States (HTSUS). The RFO does not address the Defense Department’s exemption (see above), which falls under the Defense Department’s supplement to the FAR. Thus the RFO (so far) would leave the Defense Department, but not civilian agencies, with a clear exemption from tariffs.

Extending the Tariff Exception to Civilian Agencies

Another open question is whether a tariff exception should be extended to civilian agencies as well. A tariff exception for civilian agencies is especially important because President Trump’s Executive Order 14240, Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement, centralizes the acquisition of common goods and services at the U.S. General Services Administration (GSA) — a civilian agency. If GSA is to serve as a lead purchaser for the Defense Department, a blanket governmentwide tariff exemption would be more efficient; otherwise, GSA (and other civilian agencies sponsoring governmentwide acquisition contracts) may need to distinguish between defense and civilian orders in managing tariffs, and civilian agencies may face much higher costs because of tariffs.

Extending the blanket tariffs exemption to GSA would also open the door to possible tariffs exemptions for state and local governments, through cooperative purchasing. For decades, GSA has taken the lead in opening its Multiple Award Schedule (MAS) contracts to state and local governments (and others) through cooperative purchasing. Because state and local governments procure using billions of dollars annually in federal grant funds, if those state and local governments enjoyed the same tariff exemption for cooperative purchases through the GSA contracts — at least for federally funded procurements — both the federal government and its state and local grantees could save substantially.

Conclusion

Existing regulations afford important tariff exceptions to Defense Department purchases from abroad. Those exceptions are intended to ensure that the Defense Department’s mission is not hampered by tariffs. A logical next question would be whether items purchased by civilian agencies — which are covered by free trade agreements, but not by reciprocal defense procurement agreements — would also be given a blanket exemption from the Trump administration tariffs. Another open question is whether state and local governments, if they purchased “cooperatively” through a federal contract, would also be able to take advantage of these tariff exceptions.

Related Resources

Webinar — Kolin and the New Protectionism: EU/US

Bid Protest Reform — GW Law Webinar and Article

Congress is taking up various proposals for bid protest reform, the focus of a GW Law September 9, 2025 webinar (registration) and the article below from the Government Contractor.

GW Law Webinar: U.S. Bid Protests — Progress and Reform

The article, Bid Protests in the U.S. Procurement System: Assessing Proposed Reforms — Part I, reviewed some of the key reform proposals for the September 9 webinar:

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Public Procurement Law Review Special Edition: International Trade

Luke Butler

The Public Procurement Law Review (Sweet & Maxwell / UK), edited by Professor Luke Butler and his colleagues at the University of Nottingham, has published a special issue focused on international trade and procurement.

Four of the pieces from the special issue, discussed below, are available on the Social Sciences Research Network (ssrn.com) and below.

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Robert Anderson

In their introductory editorial, “Procurement Trade Agreements and Their Discontents,” Robert Anderson (Honorary Professor at the University of Nottingham School of Law, and Senior Fellow, Competition and Innovation Lab, The George Washington University, and former team lead at the WTO on the Government Procurement Agreement) and Christopher Yukins (GW Law) put the accompanying articles into context. They noted that the GPA, as the premier trade agreement, “is currently under an unprecedented degree of scrutiny on the part of one of its founding Parties, . . . the United States,” which calls for a “spirited defence . . . of the GPA and other trade agreements embodying government procurement commitments and their contribution to international governance and prosperity.”

Jean Heilman Grier

In her piece, “Expansion of International Procurement Commitments: WTO Procurement Agreement Versus Free Trade Agreements,” Jean Heilman Grier (Djaghe, LLC) (the author of The International Procurement System, a leading volume on the United States and international public procurement trade), argued that the large numbers of nations that have committed to open their government government markets to foreign suppliers “reflects the important role that government procurement plays in international trade.” She noted that while “the GPA will continue to add new members—albeit slowly, [free trade agreements (FTAs)] will provide the principal expansion of international procurement commitments, as they encompass both GPA parties and those outside the plurilateral agreement.” Although the GPA’s membership “may be outpaced by FTAs” which she described in detail, Jean Grier wrote that the GPA “will continue to serve as the international gold standard for government procurement provisions and the foundation for procurement rules across the globe.” She cautioned, though, that the “potential spoiler is the United States with President Trump’s America First trade policy undermining existing agreements and threatening withdrawal from the GPA and even the WTO.”

Derek McKee

In their piece on bid protests and the trade agreements, “The GPA’s Domestic Review Procedures Through the Lens of North American Sub-Central Implementation: Flexibility or Incoherence?,” Derek McKee (Faculté de droit, Université de Montréal) and Daniel Schoeni (University of Dayton) noted that although the GPA “requires parties to give foreign suppliers access to independent and impartial fora where they can challenge public procurement decisions,” many U.S. states and Canadian provinces — though both countries are members of the GPA “have domestic review procedures that comply with some, but not all,” of the GPA’s requirements. They place part of the blame on ambiguities in Article XVIII of the GPA, and provide examples of North American sub-central review systems that embody these ambiguities.

Daniel Schoeni

The final piece, “An Empirical Study of Bid Protests by Disappointed Tenderers in US States,” by Daniel Schoeni (University of Dayton), was an extension of Professor Schoeni’s doctoral research at the University of Nottingham. In it, he reported on data he gathered on bid protests (challenges) in the states, and noted that bid protests are “at least as common at the state level as at the federal level.” Knowing that — that protests are a commonly available remedy for uncompetitive discrimination at the state level — could, Professor Schoeni noted, “foster confidence among foreign suppliers and thus encourage greater participation from abroad.”

Christopher Yukins

Editor’s note: The pieces shared here were first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ, in 34 Pub. Proc. Law Rev., No. 4 (2025), and are reproduced by agreement with the publishers. For further details, please see the publishers’ website.

House Government Operations Subcommittee: Bid Protest Reform

On July 22, 2025, the U.S. House of Representatives’ Committee on Oversight and Government Reform, Subcommittee on Government Operations, held a hearing on “Bid Protest Reform: Understanding the Problem” (Congress.gov record of hearing).

The hearing was led by the Subcommittee’s chairman, Rep. Pete Sessions (TX), and ranking member Rep. Kweisi Mfume (MD). Rep. Eleanor Holmes Norton (DC) also offered opening remarks. The hearing (subcommittee record) was called to allow members of Congress to hear from experts about potential bid protest reforms.

Kenneth Patton, U.S. Government Accountability Office

Kenneth Patton, Managing Associate General Counsel at the Government Accountability Office (GAO) and a member of GW Law’s Government Procurement Law Program advisory board, was the lead witness. He presented GAO’s response to Section 885 of last year’s National Defense Authorization Act, which asked for input on proposed changes, such as charging costs to losing protesters. Ken Patton explained why GAO (and the Defense Department) believe radical changes to the protest system are not needed — that the bid protest system is fundamentally sound, after a century of development. (See ABA submission on Section 885.)

Professor Christopher Yukins (GW Law) and Zachary Prince (GW Law JD 2013 (with honors), partner at the law firm of Haynes & Boone and an adjunct professor at the Law School) agreed. In his testimony, Zach Prince urged members of Congress instead to expand agency debriefings to losing bidders, to reduce bid protests and expand transparency, and Chris Yukins did the same in his testimony. See, e.g., Nathaniel Castellano & Peter Camp, Postscript III: Enhanced Debriefings: A Simple Strategy for a More Manageable Protest Process, 35 Nash & Cibinic Rep. ¶ 46 (2021). (By coincidence, GW Law the same day hosted part of its global webinar series with the Open Contracting Partnership in Asia, on transparency in contracting.)

Editor’s note: On August 14, 2025, Chris Yukins submitted his responses to follow-up questions from Chairman Pete Sessions, on potential pathways to bid protest reform.

After the hearing Chris Yukins and Zach Prince met with House staffers to discuss next steps, including a webinar that GW Law will be holding on September 9 on developments in bid protests — click above to register.

Related Webinar

GW Law Webinar: U.S. Bid Protests — Progress and Reform

Revolutionary FAR Overhaul: Third Round – FAR Parts 18 (Emergency Acquisitions), 39 (ICT Acquisitions) and 43 (Contract Modifications)

Introduction

The Trump administration on June 12, 2025 issued the third tranche of changes under the “Revolutionary Federal Acquisition Regulation (FAR) Overhaul,” which revamp FAR Part 18 (Emergency Acquisitions), Part 39 (Information and Communication Technology) and Part 43 (Contract Modifications) by proposed class deviations.

As with the first and second rounds of changes, this third group of changes is relatively modest. Those changes are detailed below, and reflected in the attached “redlines” which show how the class deviations would change the existing regulations (see redline for Part 18, redline for Part 39 and redline for Part 43).

The latest round of changes leaves a number of problems unresolved. As was discussed in an earlier post, the implementing class deviations – which are really just individual agencies adopting  centrally dictated deviations — are being issued without the normally required notice and comment. Second, if the “overhauled” provisions do face legal challenge, it will be difficult for a tribunal to assess the soundness of the deviations because relatively few reasons are being published to support the deviations, other than the asserted desire to eliminate all regulations not required by statute. Third, although they are often uniform, the class deviations are being issued on an ad hoc basis, agency by agency, part by part, all on different dates  – which will make implementation and enforcement remarkably difficult and complex. (As of June 16, 2025, notably no unit of the Department of Defense – which conducts the largest share of federal procurements — had issued any class deviations under the overhaul.)

FAR Part 18 – Emergency Acquisitions

FAR Part 18 was developed in the wake of Hurricane Katrina, as a “single reference to the acquisition flexibilities already available in the FAR to facilitate and expedite acquisitions of supplies and services during all types of emergencies.” 71 Fed. Reg. 38247 (2006). As the attached redlined document suggests, it appears that the class deviation to FAR Part 18 will simply move that reference list of emergency authorities from the FAR to an accompanying “practitioner’s guide” – though that guide is not yet available (see GSA class deviation; link to https://acquisition.gov/emergencyprocurement does not work).

Part of the problem here stems from the “line-outs” being produced by the FAR Council, for these and other changes. Comparing the attached unofficial redline to the official “line-out” document published by the FAR Council shows that the official “line-out” does not reflect all of the changes; the official “line-out” appears to concede this. Id. (“This document is not a crosswalk to the new proposed FAR Part 18.”)

It is also worth highlighting the “smart accelerators” published as part of the training to be used with the new rules. These “smart accelerators” offer suggestions on how to speed procurements (both emergency and not). The “smart accelerators” suggest, for example, that procurement officials save time by focusing their “documentation to clearly capture the decisions – not deliberations.” In other words, procurement officials are being urged to reduce the record of their deliberations in order to save time. While these approaches may make procurements work faster, it may prove difficult to defend procurement decisions (in a bid protest, for example) if those decisions are not sufficiently documented.

FAR Part 39 — Information and Communication Technology

The accompanying redline reflects the proposed changes to FAR Part 39, which addresses procurements of information and communication technology (ICT). These class deviations will delete or move references to Office of Management and Budget circulars and modular contracting. The FAR overhaul will make it discretionary (rather than mandatory) for agencies to mandate minimum experience or educational requirements in solicitations. The FAR overhaul also deletes provisions regarding special prohibitions (such as against Kaspersky Laboratory products) which are dealt with elsewhere in the FAR. The overhaul generally aims to update the acquisition guidance from the Clinger Cohen Act of 1996, to improve and accelerate the procurement of ICT.

As with emergency acquisitions (see above), it’s worth highlighting the training materials which accompany the proposed FAR Part 39. The training materials may create conflicts with current law. The training materials call, for instance, for “[d]ialogue and interactive discussion” to speed procurement, but current FAR 15.102(f) (which has not yet been revised) says that when “an oral presentation includes information that the parties intend to include in the contract as material terms or conditions, the information shall be put in writing. Incorporation by reference of oral statements is not permitted.” As this example shows, it will be important to coordinate the training with existing legal requirements.

FAR Part 43 – Contract Modifications

There are no major changes to FAR Part 43, regarding contract modifications. The FAR Council’s summary of this class deviation acknowledges that, under this model class deviation, the FAR Part’s “[o]verhaul[ed] content remains the same – just more concise with renumbering of subparts.” The accompanying redline confirms that the overhaul makes very modest changes to FAR Part 43, going mainly to minor administrative details. The accompanying unofficial redline also confirms, as the FAR Council explains, that the “overhaul” actually extends the scope of FAR Part 43, by making modifications to task and delivery orders subject to the Part’s general requirements for contract modifications.

Conclusion

This third round of changes seems to confirm patterns in the “Revolutionary FAR Overhaul.” While the changes (at least so far) have been relatively modest, they have not been fully explained; indeed, the unofficial “redlines” which accompany this posting confirm that the changes proposed by the overhaul are more extensive than those reflected in the official “line-outs” published by the FAR Council. The proposed changes, as before, still bypass the public notice and comment normally required by law. Finally, the FAR Council’s accompanying training materials, though quite good pedagogically, suggest ways to accelerate procurement that in practice may conflict with the law.

Resources — Prior Rounds

The Revolutionary FAR Overhaul: A First Step
Revolutionary FAR Overhaul: Second Round (FAR Part 10 – Market Research)

The Revolutionary FAR Overhaul: A First Step

The Trump administration has published the first tranche of reforms to the Federal Acquisition Regulation (FAR), part of the “Revolutionary FAR Overhaul” called for by Executive Order and direction from the Office of Management and Budget (OMB). The first tranche of completed rewrites go to FAR Part 1 (which describes how the FAR system is run), Part 34 (major systems acquisitions), and Part 52 (contract clauses). These first proposed changes are true to the direction from President Trump and OMB – they streamline the FAR — but they are, at least for now, relatively modest.

For updates see the GW Law “tracker“

Background

The FAR is the product of 250 years of regulatory development in the United States. As Jim Nagle explained in his landmark history of the U.S. government procurement system, the earliest U.S. law on procurement in 1775 drew on lessons from Europe and was used to support the Continental Army. The U.S. procurement system evolved over time (see C. Yukins, The U.S. Federal Procurement System: An Introduction) but the federal government’s procurement rules were not unified for over two centuries, until the FAR came into effect on April 1, 1984.

Click here for a very interesting webcast on this initiative with Ralph Nash, Jim Nagle, Vern Edwards and Don Mansfield

The FAR and its agency-specific supplements have become an extraordinary “operating manual” for the federal procurement community. While the FAR is dense (it is several thousand pages long), it reflects the accumulated learning of over two centuries of public procurement, almost certainly the longest unbroken commitment in modern times to the rule of law and a well-ordered procurement system. The FAR serves as the backbone to what many believe is the world’s most sophisticated procurement system, and dismembering the FAR could have serious implications for our nation’s security and well-being.

At the same time, however, President Trump was elected on a strongly anti-regulatory platform. In his first days in office he called for the elimination of ten old regulations for every new one (EO 14192), and on April 15, 2025 he issued Executive Order 14275, Restoring Common Sense to Federal Procurement, which mandated a comprehensive overhaul of the FAR.

The executive order said that, within 180 days (i.e., by mid-October), the Federal Acquisition Regulation Council (FAR Council), working with the Administrator of the Office of Federal Procurement Policy, heads of agencies, and senior procurement officials, “shall take appropriate actions to amend the FAR to ensure that it contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.”

In a May 6, 2025 press release regarding the FAR overhaul process, the General Services Administration said, besides eliminating non-statutory and duplicative regulations and replacing burdensome requirements with straightforward buyer guides, the overhaul effort will “[r]emove DEI [Diversity, Equity and Inclusion] and wokeness.”

Sunset Requirement

Where the FAR overhaul process leaves provisions in place, under the Executive Order the OFFP Administrator and the FAR Council are to consider whether to set those regulations (or any new FAR provisions not required by statute) to “sunset” (expire) automatically within four years, unless renewed by the FAR Council.

Consistent with the Executive Order, the proposed rewrite would create a global requirement, under a new FAR 1.109, that all “FAR sections that are not required by statute must expire 4 years after the effective date of the sections,” unless approved by the FAR Council. The guiding OMB memorandum, discussed below, emphasized that “all FAR requirements not directed by statute that remain in the FAR [after the overhaul] will expire four years after the effective date of the rule unless renewed by the FAR Council.”

This appears to mean that, if provisions of the FAR remain in place once the overhaul is done, those provisions of the FAR will automatically implode after four years unless the FAR Council saves them. Because the rulemaking resulting in a revised FAR may last until 2026-2027, the FAR could collapse in the early 2030s. For the reasons outlined above, this could prove enormously disruptive to the federal procurement system.

OMB’s Plan To Overhaul the FAR

Pursuant to President Trump’s Executive Order, on May 2, 2025 OMB Director Russell Vought issued a memorandum calling for a “revolutionary” overhaul of the FAR.

The OMB memorandum emphasized that the “FAR will be refocused on its statutory roots.”  Most regulations not based on statute, the memorandum said, “will be replaced with OFPP-endorsed buying guides that highlight proven innovative buying techniques for different phases of the acquisition lifecycle as well solutions and manageable procurement pathways for different types of common goods and services recognized by category management.” This embrace of new buying techniques echoes President Trump’s executive order on defense acquisition, and the procurement reforms proposed by Senate Armed Services Committee Chairman Roger Wicker.

The OMB memorandum explained that the “streamlined FAR and buying guides . . . will collectively be referred to as the Strategic Acquisition Guidance (SAG).” The Guidance is to “increasingly leverage technology over time,” to “provide a common-sense authoritative foundation for nimble response and delivery of mission capability.”

The OMB memorandum noted (and the overhaul website now confirms) that the public will be allowed to submit “informal” comments on the proposed changes; though those public comments will be considered, there will be no response from the FAR Council.

According to the OMB memorandum, after “the FAR Council has posted model deviation guidance for all FAR parts, it will turn to formal rulemaking” to overhaul the FAR. The rulemaking (discussed below) “will be informed by the model deviation text, public input on the text . . . , operational experience with agency deviations, recommendations from agency points of contact . . ., testing of the buying guides, and other appropriate inputs.”

How the Revolution Is Unfolding

The FAR overhaul team has now published the first tranche of reforms. The “Revolutionary FAR Overhaul” (or “RFO”) team is led by the Office of Federal Procurement Policy (OFPP) and the Federal Acquisition Regulatory Council (FAR Council). The team has published proposed revisions to FAR Parts 1, 34 and 52. For each overhauled FAR part, and in accordance with the OMB memorandum, the team has presented:

  • proposed revised FAR text;
  • a “lineout” showing deletions from the current FAR; and,
  • model FAR deviations (individual (a deviation applicable to only one contract) or class (deviations which affect more than one contract)) that agencies can use to issue their own deviations to fill the regulatory gap until a rewritten FAR can be formally approved by the FAR Council after public review and comment.

Per the guiding OMB memorandum, agencies are expected to publish deviations within 30 days of publication of the proposed revisions by the overhaul team. By using stopgap FAR deviations and undertaking a full notice and comment process, the FAR overhaul team has reduced the risk of lawsuits challenging abrupt changes to the FAR without the full public process and review called for by 41 U.S.C. § 1707.

Proposed Rewrites: The First Step

The proposed new language for FAR Parts 1, 34 and 52 is relatively spare, which may be due to time constraints – per the Executive Order, as noted, the overhaul process must be completed within 180 days.

The rewrite team is not addressing the FAR parts in strictly numerical order, but has instead first published changes to scattered parts of the FAR. Beyond first streamlining FAR Part 1, which governs the regulators’ own work, it is not clear why the rewrite team leapt ahead to FAR Parts 34 and 52. Doing so, however, has offered important clues to how they might approach other parts of the FAR.

FAR Part 1 – The FAR System

The most thoroughgoing proposed changes are to FAR Part 1, which governs how the FAR is produced, administered and read. The accompanying “lineout” document (though it is not completely accurate) is one way to identify proposed changes to FAR Part 1, which include the following:

  • Vision Erased: The overhaul would delete the statement of the FAR’s vision which was quoted in the President’s executive order, “for the Federal Acquisition System . . . to deliver on a timely basis the best value product or service to the customer, while maintaining the public’s trust and fulfilling public policy objectives.” This focus on best value (as opposed to low price) and the emphases on integrity and integrating policy objectives (such as socioeconomic requirements) into procurement have long been hallmarks of the U.S. procurement system. As with other deleted provisions, this statement may be moved to a “buying guide” – the rewrite team did not provide explanations for any of the proposed changes, or indicate what the next steps may be regarding deleted provisions.
  • Risk Management Retained: Notably, though many of the guiding principles set forth in current FAR 1.101-2 would be gutted, the revised section would still call for focus on risk management, not risk avoidance. Globally, other leaders in procurement (such as the OECD (2023)) have also stressed that modern procurement is, at its core, an exercise in risk management.
  • FAR Rulemaking Process Erased: The proposed rewrite would delete current FAR Subpart 1.2, which describes the role of the FAR Council and other stakeholders in maintaining the FAR, and FAR Subpart 1.5, which governs public participation in rulemaking under the FAR. It is not clear why these provisions were deleted, or whether these important topics (see Sandeep Kathuria’s analysis of the loss of public comments) would be addressed elsewhere, for example in non-binding guidance.

An Example of Legal Questions Raised by the Overhaul

As noted, the overhaul would delete the statement of the FAR’s vision, FAR 1.102 — which was endorsed in the President’s executive order directing the overhaul — “for the Federal Acquisition System . . . to deliver on a timely basis the best value product or service to the customer, while maintaining the public’s trust and fulfilling public policy objectives.” Because there are no accompanying statements of explanation from the overhaul team, it is not clear whether:

  • The rewrite team has exceeded its authority, because President Trump, by executive order, has ultimate say over all issues of law in the Executive Branch?
  • The rewrite team has considered the case law which rests on this FAR language, such as AvKare, Inc. v. United States (COFC 2016) (a general point that Ralph Nash and Jim Nagle raised in their webcast (above))?
  • The rewrite team has the authority under Kisor v. Wilkie (U.S. Supreme Court 2019) to change course dramatically on a longstanding regulation (issued in January 1995)? Kisor (which discussed limits on agencies’ interpretations of their own regulations) was amplified by Loper Bright Enterprises  (U.S. Supreme Court 2024) (where the Court said that agencies are not automatically entitled to deference in implementing statutes through regulations); Loper Bright in turn was embraced by President Trump’s recent executive order on unlawful regulation.  
  • If, as OMB strongly recommends, within 30 days other agencies uniformly adopt their own class deviations that match the “model” GSA class deviation erasing this provision, are the other agencies’ class deviations legally authorized by FAR 1.402, which allows only for “deviations . . . when necessary to meet the specific needs and requirements of each agency“? (Emphasis added.) (The proposed overhauled provision, new FAR 1.304, would by amending the regulation arguably expand agencies’ authorities to issue class deviations — which again triggers the question of authority.) 
  • The abrupt regulatory change may launch litigation which could delay the final rulemaking (due to begin in October 2025), and whether that in turn will delay the four-year “sunset” provision which is timed to implode the FAR in the early 2030s (see above)?
  • This substantive change in rules to be effective must go through the notice-and-comment required by 41 USC 1707?
  • Per a GSA press release of May 6, 2025 (see above), this change (1) is to erase non-statutory and duplicative regulations, (2) will be resolved by replacement with a buyer guide, and/or (3) is to “[r]emove DEI and wokeness“? Judicial review of the change could take very different pathways, depending on the purpose of the change.

FAR Part 34 – Major Systems Acquisition

The Trump administration overhaul also would delete FAR Subpart 34.1, which calls for full and open competition in major systems acquisitions. It is not clear why; again, no explanation was provided.

The subpart may have been deleted because current FAR 34.000 states that the subpart was based upon OMB Circular A-109 (see 1979 GAO report), and that OMB Circular was rescinded years ago (see OMB explanation). In fact, however, FAR Subpart 34.1 has a statutory basis as well, because it was updated to conform to the competition requirements of the Competition in Contracting Act of 1984, see 50 Fed. Reg. 1726, 1744 (1985).

Alternatively, Subpart 34.1 may have been deleted because the FAR overhaul team felt that its requirements were redundant to the full-and-open competition requirements in FAR Subpart 6.1.

Regardless of why it was deleted, the unexplained elimination of FAR Subpart 34.1 might be read by some to open the door to noncompetitive procurements of major systems – a potential challenge to the integrity of the procurement system which the FAR overhaul team may address when, in the forthcoming formal rulemaking, they explain why the subpart was deleted.

FAR Part 52 – Contract Clauses

The potential rewrite of FAR Part 52 raised serious concerns across the federal procurement community because the standard contract clauses in Part 52 reflect decades – sometimes centuries — of careful balancing of contractual risks between the government and its contractors. The standard clauses are especially vulnerable because the Trump administration is bent on removing regulations which are not based on statute, and many long-established clauses (such as the Default clause, which can be traced back to procurement imbroglios of the early 1800s) lack any statutory basis. But a wholesale elimination of FAR Part 52 and its hundreds of standard clauses would mean throwing away centuries of learning, and potentially upending thousands of contracts (and subcontracts, which often rest upon the same clauses).

The proposed overhaul of FAR Part 52 appears to be much more modest. The overhaul team has identified only two clauses which would be amended as a collateral consequence of the reforms to FAR Part 34, discussed above. The overhaul team has not, however, proposed class deviations which agencies might use to implement these changed clauses.

This leaves at least three possibilities:

  • Because the overhaul materials are not clearly drafted, one reading is that all of the rest of FAR Part 52 is to be removed to a “Buying Guide.” This would be enormously disruptive, for the reasons outlined above.
  • Alternatively – and more likely – the overhaul of FAR Part 52’s standard clauses may continue to unfold as other parts of the FAR (and their accompanying clauses) are revised.
  • Finally – and least likely – it is possible that no other standard clauses will be touched by the FAR overhaul.

Conclusion

The Trump administration’s “revolutionary overhaul” of the FAR has begun. Perhaps because of the short time allowed for this complex process, the first handful of proposed changes seem modest, at least on their face. The first proposed changes have clarified the process that the FAR overhaul team will be following, in accordance with President Trump’s executive order and OMB’s direction. The initial overhaul process is to be completed by mid-October, and formal rulemaking to make the changes permanent (with public notice and comment) probably will follow for some time after that. In the meantime, the federal procurement community (see Daniel Ramish’s analysis) is likely to follow these changes closely because of the profound structural importance of the FAR, the centerpiece to the United States’ highly advanced procurement system.

Further Updates on the Initiative

Revolutionary FAR Overhaul: Second Round (FAR Part 10 – Market Research)

President Trump and Buy American — The Overlooked Report

Introduction

In the midst of the uproar which surrounded “Liberation Day” and a wave of Trump administration tariffs, on April 3, 2025 the White House quietly released an executive summary of a (non-public) comprehensive report to the President on trade policy, including on “Buy American” policies in procurement. The White House report received little attention in the press, perhaps because it was so technical.

To put the White House report in context, the discussion below first reviews the historical background to the current protectionism in U.S. procurement policy. While “Buy American” policies seem “common sense” to the Trump administration (as they were to the Biden administration), protectionism in procurement marks a sharp departure from postwar U.S. trade policy.

The discussion then turns to the WTO Government Procurement Agreement (GPA). Although the White House report raises concerns about the GPA, for the practical reasons reviewed below it appears — at least at this point — unlikely that the United States will withdraw abruptly from the GPA without at least first attempting to renegotiate its terms.

The White House report also expressed concerns about reciprocal defense procurement agreements (free trade agreements for the defense sector). The White House report cited potential damage to the U.S. industrial base in defense markets opened by these agreements. Because transactions in those defense markets often carry “offset” requirements — a requirement to subcontract with companies in the purchasing country, for example, or a forced technology transfer to the purchasing country — the Trump administration may review reciprocal defense procurement agreements with an eye to limiting arrangements that could undermine the U.S. industrial base.

For updates on Administration actions which affect procurement, see the GW Law “tracker“

Finally, the discussion below turns to a separate review by the Office of Management and Budget (OMB), regarding foreign subsidies which may distort procurement markets in the United States. This focus on foreign subsidies echoes the EU Foreign Subsidies Regulation, which allows the EU to take action if a foreign vendor receives unfair and distorting advantages through foreign government subsidies. The White House report signaled that the United States may take a similar approach against foreign subsidies.

For commentary on the White House report by Jean Heilman Grier (Djaghe LLC), please click here

Background

The White House report was delivered in response to President Trump’s “America First Trade Policy,” issued in his first hours in office, directing his administration to “review the impact of all trade agreements,” including the WTO Government Procurement Agreement, on the volume of federal procurement covered by Trump’s 2017 executive order (“Buy American and Hire American“) and to make “recommendations to ensure that such agreements are being implemented in a manner that favors domestic workers and manufacturers, not foreign nations” (Chapter 11). The White House report also responded to President Trump’s direction, per the “America First Trade Policy,” that the Office of Management and Budget (an office in the White House) “assess any distorting impact of foreign government financial contributions or subsidies on United States Federal procurement programs and propose guidance, regulations, or legislation to combat such distortion” (Chapter 22).

Only the executive summary of the report was published by the White House; the rest of the report was withheld from the public.

Many elements of the comprehensive report were delivered ahead of schedule. This suggests that the elements that relate to procurement, discussed below, may be referenced by the United States in ongoing bilateral or regional negotiations regarding the comprehensive reciprocal tariffs announced on April 2, 2025 (“Liberation Day”).

For information on how the sweeping tariffs announced on April 2, 2025 (“Liberation Day”) may impact procurement, see “Trump and Tariffs — The Procurement Exception“

Below, each element of the White House report regarding procurement is reviewed. The key language from the executive summary of the report is set forth in blue, and then discussed in detail.

White House: Buy American Is Common Sense

“Buy American is the epitome of common-sense public policy.” – White House Report

After nearly a decade of protectionism under the Trump and Biden administrations, the argument that Buy American policies are “common sense” seems uncontroversial. But protectionism in procurement marks a sharp change from the history of U.S. trade policy since World War II.

Source: BBC

In the years before World War II, many governments looked to protectionism in procurement as a solution for the economic catastrophes of the Great Depression. The Buy American Act was put in place in 1933, a few years after the financial crash of 1929 and after the steep Smoot-Hawley tariffs of 1930. At the same time, governments were using protectionism to stoke nationalism and xenophobia, which helped launch World War II. The poster at left, which says (in rough translation) “Hitler builds up — help him — buy German goods,” is an example of this sort of pre-war nationalism intertwined with protectionism.

In part because of this history of protectionism, nationalism and conflict, after World War II many U.S. policymakers hoped to include public procurement as part of a broader effort to open world markets so as to reduce the risks of war. For example, the suggested charter for what was to be the International Trade Organization (what eventually became the World Trade Organization), published shortly after the war in September 1946 by the U.S. State Department, in Article 8 would have included public procurement in a broader framework of free trade.

Source: Heritage Foundation (2017)

At the same time, there was a growing recognition that “Buy American” protectionism could carry real costs. A landmark study by Victoria University (Australia), for example, used macroeconomic data regularly relied upon by the U.S. government to conclude (as the Heritage Foundation reported in 2017) that “eliminating all existing domestic content requirements would provide immense benefits to U.S. producers and taxpayers, as well as contribute to significant job growth across the economy.” A 2024 study by international economists similarly concluded that, while “Buy American” laws can increase U.S. domestic employment, they do so at very steep social costs to the U.S. economy.

These political, diplomatic and economic concerns explain why the United States played a leading role into the 21st century in negotiating what eventually became the WTO Agreement on Government Procurement (GPA), which was most recently revised in 2012. (See history) The GPA is a plurilateral agreement (only some, not all, WTO members apply successfully to join), which generally opens member nations’ procurement markets (especially for civilian procurement).

Parties and Observers to the GPA (Source: WTO)

WTO Government Procurement Agreement

“In recent decades, the United States has weakened domestic procurement preferences by opening up our procurement market pursuant to the World Trade Organization’s (WTO) Agreement on Government Procurement (GPA). Unfortunately, this market access is lopsided. A 2019 report by the Government Accountability Office (GAO) on the GPA found that in 2010, the United States reported $837 billion in GPA coverage. This was twice as much as the $381 billion reported by the next five largest GPA parties (the EU, Japan, South Korea, Norway, and Canada), despite the fact that total U.S. procurement was less than that of these five partners combined.” – White House Report

Debate over “reciprocal” access: The debate over whether procurement trade is fair and “reciprocal” ultimately may be unresolvable. While the White House report (cited above) cites a 2019 GAO report to argue that the United States offers foreign vendors much broader potential access to the federal procurement market (“coverage”), the same GAO report acknowledged that only a very small portion of total federal procurement (roughly US$430 billion) actually went to foreign vendors in 2015, the year studied — only roughly $12 billion (less than 3 percent).

Estimated Bilateral Procurement Flows between Central Governments of the United States and the Other Six Main Parties to Selected International Procurement Agreements, 2015 (Source: GAO)

The European Commission has argued for a different approach to measuring access to procurement markets. The Commission has urged that the negotiating parties look to the access enjoyed by their vendors to both direct (through prime contracts) and indirect public purchases (through resellers in the foreign market, for example). Taking this approach, in Section 2.1 of a 2021 study the Commission concluded that (compared to foreign firms’ access to U.S. procurement), U.S. firms enjoyed much higher shares of the EU Member States’ public procurement markets, directly and indirectly.

The debate remains open, therefore, about whether there is fair “reciprocity” — however defined — between the GPA member nations.

“Moreover, some GPA partners open their procurement markets to third countries who are not parties, forcing U.S. suppliers to compete for the preferential market access they are entitled to under the agreement. To address this lack of reciprocity and unfair competition, the United States should modify or renegotiate the GPA, and if unsuccessful, withdraw.” – White House Report

The White House report here touches on at least three important issues regarding the GPA:

  • The GPA should be renegotiated — and that may prove difficult: Renegotiation of the GPA is not simply an option– it’s built into the agreement itself. Article XXII of the agreement contemplates that the parties “will continue improving the GPA,” the WTO notes. “The GPA 2012 sets out that the parties shall undertake further negotiations to progressively reduce and eliminate discriminatory measures and to achieve the greatest possible extension of the coverage.” In this regard, the WTO points out, “the GPA parties have also agreed to undertake a number of work programmes which will influence the future evolution of the Agreement,” such as in environmental sustainability, and regarding preferences for small- and medium-sized enterprises (SMEs). Some of these “work program” topics may prove very controversial among the GPA parties, and so renegotiations — if they follow this previously agreed path — could take years to complete.
  • Abandoning the GPA could be very difficult: Shortly before the end of the first Trump administration in 2021, senior policymakers signaled that the United States might withdraw from the GPA. Withdrawing then would have been difficult, and remains so: among other things, because Canada never joined the government procurement chapter to the regional U.S.-Mexico-Canada Agreement (USMCA), it is not clear how U.S. vendors could gain free access to Canadian public procurement markets (where the United States reportedly enjoys a trade surplus) if the United States withdrew from the GPA.
  • Barring third-party access to GPA markets is not (yet) part of the GPA: The White House report suggests that the United States is facing unfair competition because vendors from third parties — such as China, which is not a GPA member — are allowed to compete in GPA markets, such as in the Member States of the European Union. But nothing in the GPA bars the parties from opening their markets to third parties; as a matter of law and practice, a few EU Member States prohibit third-party vendors, as does the United States under the Trade Agreements Act (implemented through FAR 25.403). Barring third-party vendors generally would require a very new (and potentially very controversial) approach to the GPA. If GPA parties were required to exclude non-parties (such as China and Russia) from public procurements, the GPA might become a “friends” club limited to nations loosely aligned with the United States — akin to the “friend-shoring” advocated by the Biden administration. (For context, see the map of GPA members, above.)

For a discussion of EU efforts to block unfair competition from China and other nations click here

Defense Procurement Trade

“An additional challenge is that, although defense procurement is closed to GPA partners, the Department of Defense still gives countries access to our huge defense procurement market by negotiating Reciprocal Defense Procurement (RDP) agreements. Shockingly, these RDPs not only open our market to foreign suppliers, but also require U.S. firms to move industrial capacity offshore as a condition of access to the markets of partner countries. These RDPs must be reviewed to ensure they put America First.“ – White House Report

Assessing the reciprocal defense procurement agreements: The White House report also addressed reciprocal defense procurement agreements. Under these bilateral agreements between the U.S. Department of Defense and allies’ ministries of defense, the parties typically agree to open their markets for defense supplies, services, and research and development. See, e.g., Drew Miller, Is It Time to Reform Reciprocal Defense Procurement Agreements?, 39 Pub. Cont. L.J. 93 (2009).

Source: U.S. Government Accountability Office

Year after year, the United States enjoys a substantial trade surplus in the defense sector (see chart below). This defense trade, facilitated by the reciprocal defense procurement agreements, both helps strengthen the U.S. defense industrial base and reinforces the United States’ ties with its international partners. (On April 9, 2025, President Trump signed a separate executive order, E.O. 14268, Reforming Foreign Defense Sales to Improve Speed and Accountability, which (among other things) called for reforms to speed the United States’ Foreign Military Sales (FMS) process.) It is unlikely, therefore, that the United States would abandon these reciprocal defense procurement agreements.

Source: U.S. Government Accountability Office

The White House report released on April 3 suggests, though, that the United States might revisit the reciprocal defense procurement agreements because of concerns about the agreements’ impact on the defense industrial base (a recurring concern raised in a recent GAO report on reciprocal defense procurement agreements).

Those concerns about impacts on the defense industrial base may stem from “offsets“ — offsetting concessions that a contractor must make to a foreign government in order to win a contract (typically a defense contract).

Although the executive summary released by the White House does not reference offsets explicitly, the reference to reciprocal defense procurement agreements which “require U.S. firms to move industrial capacity offshore as a condition of access to the markets of partner countries” seems to be a reference to offsets because the reciprocal defense procurement agreements themselves do not require U.S. firms to move industrial capacity offshore. Offset agreements, in contrast, often do demand that a successful contractor move industrial capacity to the purchasing country, which suggests that the White House report was in fact targeting offsets.

While the GPA (discussed above) bans offsets from civilian agency procurements covered by the agreement (see Congressional Research Service report), it is not clear that the Trump administration intends to ban offsets from all defense procurements done under reciprocal defense procurement agreements. An important 2009 study done on the transatlantic defense trade, Fortresses and Icebergs, noted, for example, that U.S. firms were very successful in competing in defense markets that demanded offsets. Id. at 27.

It is more likely, therefore, that the Trump administration will focus on offset arrangements which hurt the U.S. defense industrial base, for example by requiring U.S. firms to subcontract some portion of their work abroad, or by forcing U.S. firms to deliver technical know-how that similarly weakens the U.S. defense industrial base. See, e.g., U.S. Department of Commerce, Bureau of Industry and Security, Offsets in Defense Trade — Twenty-Eighth Study, at 13 (2024); U.S. Government Accountability Office, Agencies Should Improve Oversight of Reciprocal Defense Procurement Agreements (2024). The chart below illustrates how common these types of arrangements — mandatory subcontracting, for example, or required technology transfers — are in offsets.

Source: U.S. Department of Commerce

Whether reciprocal defense procurement agreements could be modified to mitigate these impacts of offsets on the U.S. defense industrial base is, however, an open question.

Foreign Subsidies: Impact on Federal Procurement

“Foreign subsidies can disadvantage domestic products in a country’s government procurement market. The EU has recognized this problem and introduced the Foreign Subsidies Regulation (FSR) to address distortions caused by foreign subsidies for public procurement. OMB assessed the value of the FSR and other policies to tilt the playing field in favor U.S. producers by strengthening domestic procurement preferences and closing loopholes.” – White House report

In Chapter 22, the White House report summarized OMB’s findings regarding foreign subsidies’ potential impact on federal procurement. The January 20, 2025 direction from President Trump had called for an OMB report on “any distorting impact of foreign government financial contributions or subsidies on United States Federal procurement programs,” and to “propose guidance, regulations, or legislation to combat such distortion” — an echo of the EU’s Foreign Subsidies Regulation, which bars government subsidies which may give foreign vendors an advantage in EU procurements. (Background information on the EU Foreign Subsidies Regulation is linked below; see also Pascal Friton, Max Klasse & Christopher Yukins, The EU Foreign Subsidies Regulation: Implications for Public Procurement and Some Collateral Damage, 65 Government Contractor ¶ 63 (Mar. 22, 2023).)

As expected, the April 3, 2025 White House report did indeed follow the pathway of EU Foreign Subsidies Regulation. The White House report acknowledged the EU Foreign Subsidies Regulation (FSR) as a means “to address distortions caused by foreign subsidies for public procurement,” and noted that OMB had “assessed the value of the FSR and other policies to tilt the playing field in favor U.S. producers by strengthening domestic procurement preferences and closing loopholes.” The report did not explain how, exactly, the European Union’s strategy might be deployed by the United States.

Research Resources

Webinar — Kolin and the New Protectionism: EU/US
A New Barrier to Transatlantic Procurement: The EU’s Foreign Subsidies Regulation

Editor’s Note: This summary was prepared for GW Law School’s seminar on comparative and international public procurement law.

President Trump’s Reciprocal Tariffs — and the Procurement Exception

President Trump has announced sweeping tariffs against most of the United States’ leading trading partners. Many nations have indicated that they will retaliate (see running updates compiled by the Global Trade Alert), and international trade flows may be severely disrupted.

The Procurement Exception

There is, however, an important tariff exception for federal procurement. When foreign goods are imported for sale to the U.S. government, if proper procedures are followed, the goods may be free from tariffs, per longstanding U.S. regulations. For information on U.S. agencies’ exemptions from tariffs in their procurements, see the analysis compiled here.

Were the Tariffs Properly Calculated?

Source: USTR

Were the U.S. tariffs improperly calculated? The U.S. Trade Representative (USTR) has published the formula (at left) used to calculate the tariffs announced on “Liberation Day,” April 2, 2025. (The vast popular importance of this formula was confirmed when it became the subject of a Saturday Night Live comedy sketch on April 5, 2025.) The formula, described in the box below, was used (according to the USTR) to calculate tariff rates at the rate necessary to “zero-out” persistent trade deficits.

The USTR calculated the tariff rates as follows, referencing the formula below: “Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies.”

A number of experts from around the world have criticized the formula and the values used in the formula:

  • As the graphic from USA Today/AFP below shows, because the Trump administration assumed the value of “ε” (the elasticity of imports with respect to import prices) was 4, and the value of “φ” (the passthrough of tariffs to consumer prices) was set at .25, the equation neutralized those elements — essentially leaving the equation one of dividing the trade balance (“x” (exports) minus “m” (imports) divided by “m” (imports)), and dividing the quotient by 2.
  • As CNN noted, quoting Mike O’Rourke from Jones Trading, “‘While these new tariff measures have been framed as “reciprocal” tariffs, it turns out the policy is actually one of surplus targeting [i.e., aiming to “zero out” trade deficits]. . . . ‘There does not appear to have been any tariffs used in the calculation of the rate. The Trump administration is specifically targeting nations with large trade surpluses with the United States relative to their exports to the United States.'”
  • Senior economists Kevin Corinth and Stan Veuger at the American Enterprise Institute offered the following example to explain how the Trump reciprocal tariffs were calculated: “As an example, if the US imports $100 million worth of goods and services while exporting $50 million to a country, then the Trump Administration alleges that country levies a 50 percent tariff on the United States (the difference between $100 million and $50 million, divided by $100 million). The ‘reciprocal’ tariff put into effect by President Trump . . . would be half of that, 25 percent.”
  • The AEI economists argued that the formula used by the Trump administration was incorrect in assuming that “φ” (the passthrough from tariffs to import prices) was .25. They noted that “the elasticity of import prices with respect to tariffs should be about one (actually 0.945), not 0.25 as the Trump Administration states.” The Trump administration officials’ mistake, the economists said, “is that they base the elasticity on the response of retail prices to tariffs, as opposed to import prices as they should have done. . . . It is inconsistent to multiply the elasticity of import demand with respect to import prices by the elasticity of retail prices with respect to tariffs.” If the tariff rates were corrected, the AEI economists wrote, the corrected rates (assuming the 10 percent floor imposed by President Trump) would (for example) top out at 13.2% for Lesotho (compared to the current top rate of 50%); the rate for China would drop from 34% (which triggered massive retaliation from China) to 10% (the lowest rate allowed by the Trump policy).

Could Tariffs Replace Income Taxes?

One of the open questions surrounding the Trump tariffs is whether tariffs, if raised high enough, could replace U.S. income taxes. Economists Simon Evenett and Marc-Andreas Muendler concluded the answer is no: “Until the late 19th century, states raised most of their government revenues from import tariffs. Could the practice work today? A side effect of taxes is that they discourage the economic activity that they are assessed on. Tariffs are taxes on imports and no different: they shrink trade. [In their study they] allow tariff revenues to change an economy’s savings and therefore the trade balance, as the U.S. administration intends. Then the displacement effect of import tariffs is so strong that tariff revenues cannot plausibly fund more than a few days of annual U.S. government spending.“

Tariffs on U.S. Services Exports

Another open issue is whether U.S. services — which normally enjoy a substantial trade surplus — might be subject to reciprocal and severe tariffs abroad. A study published by Simon Evenett and Fernando Martín Espejo shows that the U.S. Trade Representative’s formula for reciprocal tariffs, if turned about and applied by foreign nations to U.S. services exports, might result in much steeper tariffs against U.S.-based firms, if the practical barriers to imposing tariffs on services could be resolved.

On February 21, 2025, GW Law’s Government Procurement Law Program held a webinar on rising U.S. and EU protectionism, which discussed recent caselaw in the EU Court of Justice and the Trump tariffs.

Click for information on Trump tariffs and u.s. Procurement