Biden’s Buy American pledge has its limits

Hello from Washington, where we’re approaching a full working week of President Joe Biden in the White House. We still don’t know when the new US trade representative Katherine Tai will be confirmed, but Biden has wasted no time in rolling out one of his first big (arguably trade related) pledges — the Buy American scheme. More on which below, as we look at what it means for businesses, both US and multinational.

Our person in the news is Gina Raimondo, the governor of Rhode Island and Biden’s pick to lead the Department of Commerce, which is in charge of everything from regulating technology exports to protecting fish and oceans, and rolling out rural broadband in the US.

The barriers to Biden’s domestic manufacturing push

Trade policy watchers may have been forgiven for rubbing their eyes when they saw Joe Biden on Monday standing in front of a blue banner reading “The Future Will Be Made in America”. Was this Biden, or Donald Trump, or even Herbert Hoover, who signed the first Buy American Act in 1933? Biden has wasted no time in enacting his campaign pledge to boost domestic manufacturing by forcing more government procurement of goods produced by US companies.

Under existing rules, boosted by Trump, US public procurement contracts must go to iron and steel products that are 95 per cent made in the US, falling to 55 per cent US-manufactured for other items. Under the Biden tweaks, it will become harder for companies to get exemptions, or waivers, if they’re manufacturing overseas. The new administration says any waivers will be made public, so that US companies can potentially challenge them by offering their own US-made products instead. A new position in the White House will also oversee how those waivers are given out, and officials will also keep a close eye on the list of items exempt from the Buy American rules due to them being unavailable in the US.

Enter, stage left, the World Trade Organization and its Government Procurement Act, or GPA. For those of you unfamiliar with it, the GPA is a global pact covering $1.7tn in global public procurement contracts. Any US public procurement contracts worth more than $182,000 are included in it and are therefore open to the twenty signatories of the GPA, as well as other countries the US has bilateral trade agreements with. This, of course, limits the effect Biden’s Buy American can really have as large public procurement contracts are still open to foreign competition.

Joe Biden has wasted no time in enacting his campaign pledge to boost domestic manufacturing © Bloomberg

Despite the GPA putting the brakes on Biden’s Buy American ambitions, there are a few worried faces — including among US businesses. Access to foreign government procurement markets is something US businesses value — we see this any time the US tries to leave the GPA when they voice their objections. The US Chamber of Commerce has, for instance, spent a lot of time arguing that US business gets more out of access to foreign government procurement markets than it loses in return. But they have come perilously close to losing that access. As recently as November, Trade Secrets learned there was a cabinet meeting at the White House to discuss withdrawing, which ultimately came to nothing.

If we look across the pond, US businesses who love the GPA might have another reason to be nervous. In Brussels, diplomats are already using the dreaded word “reciprocity”. Responding to a question on Biden’s new plans, Valdis Dombrovskis, the EU’s trade commissioner, noted on Tuesday morning that the EU was “working for open procurement markets everywhere in the world”. The bloc would like reciprocity, he went on, and was preparing new powers to restrict access to EU procurement contracts to companies based in countries that blocked European companies. This would mean no dice for much of US business.

There are lines in Biden’s executive order, too, that talk about the potential to “modernise international trade rules”. “Does modernise mean change, improve, tighten, restrict?” wonders Nasim Fussell, formerly the top Republican trade counsel on the Senate finance committee and now a partner at Holland & Knight. Fussell says that while she’s only reading between the lines, she wonders if the current easy access to US public contracts for GPA signatories could be up for discussion. There is also, she points out, a new requirement that the head of each agency submits records of where money went to foreign countries bidding under GPA or other trade agreement rules.

Biden is no stranger to the GPA versus Buy American problem. The GPA helped constrain the Obama administration’s own use of Buy American provisions in its 2009 economic stimulus plan. Back then, Biden backed Buy American hard. But Barack Obama decided the US would just have to stick to its word when it came to international agreements. 

The GPA is probably safe for now — Biden has gone for an easy win in the early delivery of a key election pledge. But it looks like the EU dream of open public procurement markets across the globe are under scrutiny here in Washington. We’ll be watching this space.

Person in the news

Gina Raimondo drew fire from Republicans at her Senate confirmation hearing when she refused to promise to keep Huawei firmly on the US entity list © Getty Images

Gina Raimondo, Biden’s pick for commerce secretary, faced her Senate confirmation hearing on Tuesday, drawing fire from Republican quarters when she declined to promise to keep Huawei firmly on the US entity list, which bans the Chinese telecoms company from receiving any item exported from the US without government approval.

The current governor of Rhode Island and former venture capitalist did, however, commit to use the powers of the commerce department “to protect Americans and our network from Chinese interference”, and said the Chinese government’s practices were “anti-competitive, hurtful to American workers and businesses”.

Raimondo sidestepped questions on whether the US’s steel and aluminium tariffs would remain in place, answering only that the US would work with allies such as the EU — particularly on China.

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Source: Economy - ft.com