Over the few hundred years of our country’s existence, the U.S. government has frequently passed legislation that gives advantages to domestic companies to stimulate the U.S. economy. One of these pieces of legislation is the Buy American Act, passed in 1933. But are laws like these actually effective? We’ll get into all that and more as we break down the Buy American Act.
What is the Buy American Act?
The Buy American Act was passed in 1933 by Congress and signed by President Hoover on his last day in the Oval Office (March 3rd). The act requires the U.S. government to “prefer” products made in the USA when buying goods and services for its various departments. It also only comes into effect when the goods are intended for public use within the United States. So, if the purchase is for something like a U.S. military base in another country, that procurement would not fall under the Buy American Act.
I emphasized the word “prefer” earlier because there are several exceptions to this Act, allowing the officer who is procuring that government purchase to waive this “preference” if one of three circumstances is true:
- The U.S. based product is 25% or more expensive than the same internationally produced product
- The goods aren’t available in the U.S. at significant quantity or quality
- Purchasing the goods internationally is “in the public’s interest”
The President of the United States also has the power to waive the Act if it’s directly against a trade agreement already set with another foreign country or group of countries.
There are also a few other loopholes with the Buy American Act, most notably at the state and local government levels. Contracts that are awarded by state and local governments under federal grant programs are actually not covered by this Act, unless explicitly stated in the terms of the grant. The authorized officer of the contract has to put that Buy American language in there in order for the Act to apply.
Buy American Act vs. Buy America Act
The Buy American Act is often confused with a separate piece of legislation called the Buy America Act, which was introduced 50 years later in 1983. The Buy America Act is a provision underneath the Surface Transportation Assistance Act of 1982 that only applies to the purchasing of goods for mass transit related government projects.
Is The Buy American Act Actually Effective?
Given the amount of exceptions in this Act and the ability to overlook or overrule the Act, it is hard to believe that it is effective in every large U.S. government procurement.
Our government spends a lot of money. In 2018, the U.S. government spent $4.11 trillion dollars. The Department of Health and Human Services spends the most at roughly 25% of that total, followed by the Social Security Administration (17%), Department of Defense (16%), and Department of the Treasury (15%).
Unfortunately, a lot of those contracts are being filled overseas because of Buy American loopholes, and our Department of Defense is leading the way. Between 2008 and 2016, the Department of Defense spent over $154 billion on foreign purchases, more than half of which was due to Buy American Act loopholes. Across all federal agencies during the same time period, our government spent over $92 billion on foreign contracts due to Buy American loopholes. Here is the breakdown by department for that $92 billion:
|Department||Cost of Foreign Exceptions and Waivers|
|Department of Agriculture||$169.3 M|
|Department of Commerce||$297.5 M|
|Department of Defense||$84.6 B|
|Department of Education||$0.5 M|
|Department of Energy||$26.9 M|
|Department of Homeland Security||$1.6 B|
|Department of Housing and Urban Development||$0|
|Department of Justice||N/A (doesn’t track cost of loopholes)|
|Department of Labor||$6.4 M|
|Department of State||$2.5 B|
|Department of the Interior||$234.4 M|
|Department of the Treasury||$510.8 M|
|Department of Transportation||$105.2 M|
|Department of Veteran Affairs||$301.1 M|
|Environmental Protection Agency||$19.3 M|
|General Services Administration||$105.9 M|
|Health and Human Services||$1.5 B|
In that same study by Senator Debbie Stabenow, they audited 280 Department of Defense contracts and found that 81 of them (29%) did not comply with the Buy American Act. Yet, no repercussions seemed to have happened.
The United States also opens up our government contracts to foreign countries a lot more than they do to American companies. In 2010, we offered foreign countries (that are part of the World Trade Organization) access to 80% of our federal procurements. In contrast, those same WTO countries only offered up access to anywhere from 13% to 30% of their federal contracts.
These are some staggering numbers and something needs to change. As consumers, you can always do your part by shopping American, just make sure you know what to look for.
If you’d like to take a look at the full Buy American Act, you can view it here.