Buy American: Uncovering the Unintended Consequences of Well-intentioned Policies

In the pursuit of economic patriotism, state-level “Buy American” procurement policies have gained traction as a means of promoting domestic industries and creating jobs. While these policies may appear to champion American businesses and workers, they often come with hidden costs that negatively impact taxpayers, consumers, and even the very workers they seek to support. Let’s uncover the unintended consequences of “Buy American” policies and explore why they might not be the best solution for our economy.

The Taxpayer’s Burden

“Buy American” policies typically require government agencies to prioritize purchasing goods and services from domestic suppliers. Although this might seem like a win for local industries, the restrictions can lead to higher prices for taxpayers. By limiting competition, these policies can inadvertently result in less efficient procurement processes, driving up the cost of public projects and further stretching already tight government budgets.

Here is how the nonpartisan Peterson Institute for International Economics summarized the economic harm caused by these restrictive procurement policies:

Since U.S. public procurement amounts to about $1.9 trillion annually (some 10 percent of GDP), the import content of public-sector purchases amounts to about $95 billion annually. By comparison, $1.9 trillion of US private-sector purchases of goods and services has an import content of around $323 billion. Quantification is difficult, but the major federal Buy American laws probably equate to tariff equivalent barriers of at least 25 percent on federal purchases. State laws vary in scope and protective degree, but on average they probably entail at least 10 percent tariff equivalent barriers. Barriers of this magnitude likely impose a cost of 5 to 10 percent on US taxpayers through inflated prices for public purchases. The elevated cost—essentially government waste—could exceed $100 billion annually.

Consumers Pay the Price

When “Buy American” policies increase the cost of production for domestic businesses, those costs are often passed on to consumers. This can lead to higher prices for goods and services, disproportionately impacting low-income families who are more sensitive to price fluctuations. In this way, well-intentioned policies can inadvertently exacerbate economic inequality.

The Mirage of Job Creation

One of the primary goals of “Buy American” policies is to create and protect jobs for American workers. However, these policies can have unintended consequences that undermine this objective. By insulating domestic industries from international competition, “Buy American” can inadvertently stifle innovation and productivity growth. This can lead to complacency, reducing long-term competitiveness and job creation. Additionally, in a globally interconnected economy, protectionist measures can invite retaliation from trade partners, resulting in job losses in other sectors.

Rethinking Procurement Policies

While “Buy American” policies are rooted in a genuine desire to support domestic industries and workers, their unintended consequences call for a more nuanced approach. By promoting fair competition, fostering innovation, and encouraging international collaboration, we can create an economic environment that benefits taxpayers, consumers, workers, and families alike. As we navigate the complexities of the global economy, it’s crucial to look beyond the bumper sticker slogans and carefully consider the impact of our policies on all stakeholders.