Biden’s ‘Buy American’ plan eyed warily by other countries

WASHINGTON -- President Biden is expected to fulfill a campaign pledge Monday by detailing his "Buy American" plan, an initiative that will be watched closely by other countries mindful of another of his promises -- to mend fences with trading partners.

Domestic-purchase plans put other governments on alert, causing concern that their companies would be excluded from the U.S.'s huge government-procurement market when Washington is making massive investments to fight the fallout of the Covid-19 pandemic.

"It's particularly relevant to Canada and the U.S. because of our deeply integrated economies," said Colin Robertson, a former Canadian diplomat who is now a vice president at the Canadian Global Affairs Institute. "Once the thing goes into effect, there will be Canadian companies who will say, 'Oh, we are excluded.' Then, they will begin to squawk."

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Although there are differences in the details, Mr. Biden's initiative echoes former President Donald Trump's own "Buy American" program, which was part of his "America First" policy that fueled tensions with trading partners through tariff wars and confrontations with the World Trade Organization.

The Buy American plan Mr. Biden espoused during the campaign called for tightening existing rules on government procurement by raising domestic content requirements and closing loopholes available for purchases of foreign products.

He also called for spending $400 billion in government procurements, which would boost demand for American products and services together with his clean-energy and infrastructure-investment projects.

Ron Klain, Mr. Biden's chief of staff, said in a memo that the coming executive order will "fulfill his promises to strengthen Buy American provisions," without elaborating.

Trading partners will be closely watching whether the executive order will include language that ensures foreign access to U.S. government procurement in compliance with an existing WTO agreement, said Gary Hufbauer, a nonresident senior fellow at Peterson Institute for International Economics.

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"For Biden coming into office with a tone that he wants to cooperate with allies and do away with these frictions, how he writes the Buy American executive order is a real test," Mr. Hufbauer said.

A European Union spokesman in Washington declined to comment before the release of the executive order. Officials for the Japanese Embassy didn't respond to a request for comment.

In their report analyzing Mr. Biden's trade policy toward Asia, analysts at Dentsu Public Relations Inc., a Tokyo lobbying firm, urged Japanese companies to pay close attention to the Buy American pledge because it could have a powerful impact on supply chains linking the two countries.

Trade and manufacturing experts said the coming executive order will likely include technical fixes to the existing government-procurement rules. These rules will then be applied to Mr. Biden's ambitious investment programs for infrastructure and clean energy, and possibly pandemic-related spending. Such spending would require congressional approval.

"A big piece of this is, if you are to invest trillions of dollars either in infrastructure or in federal procurement, that will obviously have a big impact," said Scott Paul, president of the Alliance for American Manufacturing, a group representing domestic manufacturers. "Coupled together with Buy American domestic preference, that can spur factory-job creation and investment."

According to the Government Accountability Office, federal agencies spent $586 billion on direct procurement contracts for goods and services in fiscal year 2019, with the Defense Department -- the world's largest purchaser of manufactured goods -- spending nearly two-thirds of that amount.

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The GAO said foreign products accounted for less than 5% of direct federal procurement but has warned that the actual amount might be larger owing to system errors and limitations.

Mr. Biden has a model for how to address foreign trading partners' concerns. Former President Barack Obama's $800 billion stimulus package in 2009 during the global financial crisis had a "Buy American" provision requiring the use of U.S.-made iron and steel and manufactured goods in public works projects. The package, however, excluded procurement covered by the WTO agreement.

Jean Heilman Grier, trade consultant at Djaghe LLC and a former Office of the U.S. Trade Representative official who helped to negotiate WTO procurement rules, said Mr. Biden's Buy American policy could look similar.

"The assumption with the Biden administration is that they are going to do things that are consistent with trade rules and trade-agreement obligations," Ms. Grier said.

Mr. Trump started his term with a Buy American policy, but his legacy is mixed, experts said.

His January 2017 order requiring energy-pipeline makers to use U.S.-made steel was never implemented, and his attempt to mandate that federal agencies review their procurement practices never resulted in publicly available reports.

Late last year, in response to the Covid-19 crisis, the U.S. proposed to the WTO that it exempt a number of essential medicines from the group's government-procurement rule. Talks are continuing.

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Mr. Trump's most significant policy change on procurement came out little noticed on the day before his departure. The administration issued a new rule on Jan. 19 to strengthen domestic-preference rules under the 1933 Buy American Act.

The rule, among other things, calls for an increase in the percentage of domestic content required for a product to be considered American-made from 50% to 95% for iron and steel products and to 55% for other products.

It also raised the price thresholds for American products to be considered "reasonable" compared with competitive foreign products, narrowing the window for government purchases of foreign products.

The last-minute rule change followed November guidance issued by the Office of Management and Budget to encourage state and local infrastructure projects to increase domestic content. Ms. Grier said it is too early to determine the impact of these most recent policies.