'Buy America' Was a Bad Idea Last Century. It's a Worse One Now.
(Bloomberg Opinion) -- The infrastructure bill moving through the Senate takes more than 2,700 pages to lay out $1 trillion in spending. Many aspects of the plan will be popular. Americans love infrastructure; who doesn’t want nicer airports, roads, bridges, clean drinking water and access to cheap broadband? In theory at least, we not only enjoy better infrastructure, but it’s also an investment in our future — making the country safer and more resilient while boosting growth. But many of the potential economic benefits will be undermined by the nearly 60 pages of the bill dedicated to “Build American, Buy America.”
“Buy America” requirements have been around since the Great Depression and are often a feature in U.S. infrastructure plans. They require that government-funded projects use domestically produced materials and are completed by American firms with American workers. This latest incarnation is similar to others before it. There are, of course, many pages of exceptions: For instance, if it costs 25% more to use U.S. steel, foreign steel can be substituted. But there are costs to obtaining such an exception, and it can be an unpredictable, slow and expensive process.
Buy America has always been a bad policy, but if the goal is to modernize the American economy and its labor force, it's even worse now.
First, the scale of this bill is enormous, the biggest infrastructure plan in more than 70 years. And the Buy America provisions make it even more expensive and complex. Each job saved or created through the Buy America rules is estimated to cost tax payers between $250,000 and $1 million, and the jobs from the program may only last a few years until construction is finished. Work and materials that meet the requirements are often of lesser quality, and historically there have been instances of price gouging from U.S. suppliers.
Second, the world has changed since the 20th century. The economy, and manufacturing, is more technical and globally integrated. Buy America has always made infrastructure more expensive, but at least in the 1950s and 60s, the U.S. had a large manufacturing base and there were fewer foreign alternatives. Take trains as just one example. The current bill would spend $66 billion updating freight and passenger rail service, in addition to another $39 billion for public transportation that will include modernizing and replacing subway cars.
Over the years, the U.S. has let its rail cars fall into disrepair while it's become a small, peripheral player in the train-car manufacturing market, says Alon Levy, a fellow at New York University's Maron Institute. More train-oriented countries, such as Japan and Europe, have developed better modular technology. For example, European subways allow passengers to walk between cars, while U.S. manufacturers are only starting to experiment with this technology. And Levy estimates U.S. trains cost 35% to 60% more than those of foreign competitors.
We could justify the expense of Buy America as an investment in building a competitive manufacturing base that will provide good jobs for decades to come. But there have been various Buy America provisions for decades and they’ve never succeeded at this task. Manufacturing in America became a smaller part of the economy because Buy America ultimately isn’t enough to ward off a changing global marketplace. No matter how ambitious our infrastructure plans are, eventually U.S. manufacturing will have to compete with more productive firms while using top-quality, cheaper (and often, foreign-made) inputs. Subsidies and restrictions might aim to protect American workers from competition, but they also take away the incentives to innovate, adopt the best technology and hire the best workers, even if they are foreign.
The desire to build America’s manufacturing capacity feels more pressing after a pandemic that disrupted trade and highlighted our reliance on China for so many of our supply chain's most vital parts. The bill asserts that bringing back more domestic manufacturing will make the economy more resilient. Depending on any one country to make things you need is risky, but that also includes overdependence on your own country. Shutdowns can happen here, too. Just because supply chains are global doesn’t mean they're limited to one country — ideally, we’d have a diverse network of suppliers all over the world. Resilience comes from diversification, not concentration.
The goal of this infrastructure bill is to bring the U.S. economy fully into the 21st century with the same kind of gleaming infrastructure we see abroad. Unfortunately, the Buy American restrictions will leave the American economy back in the 20th century.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of "An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk."
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