When the transit agency that serves Washington, D.C., replaced its aging trains during the last decade, it ended up paying about $400 million more than global averages—the equivalent of an additional 150 cars.
One major reason for the higher costs, according to economists with the American Action Forum who studied the D.C. Metro’s procurement process, was a federal mandate first imposed in 1982. It requires that equipment purchased by federally subsidized transit agencies contain at least 60 percent American-made components.
Such “Buy American” rules for government purchases, which apply to a wide range of goods, have been around since the heyday of protectionism in the 1930s. They are political tools that drive up costs and distort markets while allowing politicians to claim credit for defending domestic industries from foreign competition. President Donald Trump expanded “Buy American” rules as part of his administration’s attack on free trade, and President Joe Biden has doubled down on that misguided policy.
“The previous administration didn’t take it seriously enough,” Biden said on January 22, before signing a series of executive orders that restricted the process for granting exemptions from the government’s existing “Buy American” rules and created a new White House office to oversee a government-wide “Made in America” push. In another order, Biden instructed federal agencies to “increase the numerical threshold for domestic content requirements for end products and construction materials,” although the specifics will vary from item to item. Trump may have been more outspoken about his anti-trade views, but Biden likely will prove to be the more competent protectionist.
The cost of “Buy American” provisions can be significant. An analysis by the Peterson Institute for International Economics, a pro-trade think tank, found that “Buy American” rules on the books in 2017 cost taxpayers $94 billion that year—$745 per household.
These rules not only require the government to overpay certain vendors; they also distort the market in other ways. One potential government contractor might get an advantage over another because it makes widgets with 61 percent of the components produced in America instead of 58 percent. Favoring one over the other is purely arbitrary in an era when global supply chains mean everything from N95 masks to subway cars are the product of cross-border trade.
Overpaying for subway cars didn’t make the D.C. Metro safer or more efficient. All it did was force riders and taxpayers to spend more for less. The same will be true of Biden’s policies.
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