New “Buy American” Executive Order Is Misguided

President Trump’s goals of boosting national security and growing the economy by cutting taxes and red tape are absolutely correct, but his administration’s January 31 Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects is completely out of whack. “Buy American” provisions weaken the economy, weaken national security, and end up harming American taxpayers.

As President Trump has said, “economic security is national security.” The increased costs imposed by Buy American infrastructure mandates must be financed through increasing taxes on Americans, borrowing more from China and other creditors, or reducing the budgets of the Defense Department and other agencies. This runs directly counter to President Trump’s stated goals.

In an era of trillion dollar deficits, the Trump administration’s priority should be to encourage the responsible use of federal dollars, not to artificially inflate the cost of government infrastructure projects. “Buy American” laws prohibit federal agencies from getting the best value for taxpayers.

The long-run implications of this executive order are also worrying. The new Buy American mandates would apply not just to contracts, but to federal financial assistance, including government grants, appropriated funds, loans, and insurance. Specifically, the executive order would “encourage” recipients of federal financial assistance to use products made in the United States.

With this executive order, the federal government continues down a slippery slope to a future where the federal government has the power to prohibit student loan recipients from buying imported cars, farmers who participate in federal crop insurance programs from driving tractors containing foreign steel, families with kids in Head Start from buying affordable foreign-made sneakers, people with Fannie Mae mortgages from buying houses made with Canadian lumber, and Valentine’s Day gift givers who have FDIC-insured bank accounts from buying roses grown in Colombia. It is a reminder of just how pervasive the federal government’s role in Americans’ everyday lives has become.

As trade expert Gary Hufbauer has pointed out, Buy American mandates like this are contrary to U.S. trade policy. According to the Office of the U.S. Trade Representative’s 2018 National Trade Estimate Report on Foreign Trade Barriers:

The United States has observed a growing trend among trading partners to impose localization barriers to trade – measures designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property at the expense of imported goods, services or foreign-owned or developed intellectual property. These measures may operate as disguised barriers to trade and unreasonably differentiate between domestic and foreign products, services, intellectual property, or suppliers. They can distort trade, discourage foreign direct investment and lead other trading partners to impose similarly detrimental measures. For these reasons, it has been longstanding U.S. trade policy to advocate strongly against localization barriers and encourage trading partners to pursue policy approaches that help their economic growth and competitiveness without discriminating against imported goods and services.

The Trump administration should hold itself to the same standard it applies to our trading partners. President Trump can absolutely achieve his objectives of improving our national security and economic output, but the path to doing so must involve free markets, not protectionism.