Biden Rejects Open Trade at a U.S. Factory Dependent on It

By Scott Lincicome of Cato.

"Reuters reports that President Biden today will travel to a Mack Trucks plant in Pennsylvania to announce more restrictive “Buy American” rules for federal contracts — a centerpiece of his administration’s “worker‐​centric” trade policy and broader embrace of U.S. industrial policy:

The new rules.. would expand existing “Buy American” provisions, which apply to about a third of the $600 billion in goods and services the federal government buys each year.

If approved, they would raise the minimum U.S. content for manufactured goods from 55% to 60% immediately, and then to 65% in 2024 and 75% in 2029.

“This proposal will strengthen procurement as a tool to strategically shape markets and accelerate innovation,” a senior administration official said. “The future of our economy depends on continuing to make smart investments, giving our workers and companies the tools they need to compete.”

As I explain in a new working paper on U.S. industrial policy (and as Cato scholars have explained for decades), “Buy American” rules are just another form of protectionism: they’ve been found, for example, to act as a barrier to entering the U.S. market and to raise domestic prices in the same way that a tariff does. Special provisions in the rules, moreover, make them a particularly‐​generous handout for the U.S. steel industry (to steel consumers’ clear detriment). The restrictions also encourage foreign retaliation against U.S. exporters, and, far from improving federal projects, routinely confound them (via higher prices, more paperwork, project delays, etc.). Indeed, according to one recent (and quite relevant for today’s purposes) study, “Buy American” restrictions tied to federal transportation subsidies raised the price of domestically‐​produced transit buses and discouraged the purchase of more efficient foreign‐​made buses, thus lowering the quality and use of public transit (frequency and coverage), increasing traffic congestion, and harming the environment.

Still, the White House’s decision to announce these new rules at a unionized truck manufacturer in an important swing state makes some superficial sense: Mack Trucks is a U.S.-based manufacturer, after all, and thus might benefit from government restrictions on foreign competition — restrictions that President Biden has unfortunately championed. Indeed, just today Biden’s Commerce Secretary, Gina Raimondo, told Bloomberg that President Trump’s steel, aluminum and other tariffs have been “very effective” in helping boost domestic steel production — repeating her initial (and wrong) take from a few months ago.

However, like most protectionist logic, the view that Mack Trucks and many other U.S. manufacturers would clearly benefit from a robust White House embrace of economic nationalism falls apart under the slightest scrutiny. In particular, Mack is foreign‐​owned and reliant on imports (emphasis mine):

[T]he Trump administration finds itself in an intensifying trade war with other countries, including Europe — a battle putting pressure on the company that assembled the truck that Trump had so much fun in 15 months ago.

That’s because Mack Trucks, which assembles its heavy‐​duty rigs in Lower Macungie Township and is owned by Sweden’s Volvo Group, uses treated steel from Europe in its production process, spokesman Christopher Heffner confirmed. He wouldn’t disclose what specifically the imported steel is used for, citing competitive reasons.

The Trump administration’s tariffs on European steel and aluminum mean Mack is paying 25 percent more for that treated steel, and Heffner noted the company is unaware of an appropriate American‐​made substitute.

In addition, Heffner said, Mack already buys a large amount of U.S.-produced steel, but those prices, too, are at risk of rising because, as a result of the tariffs, American steel‐​makers won’t be competing with lower‐​cost imports.

“Depending on how this issue evolves, being a U.S. manufacturer could become a competitive disadvantage,” Heffner said.…

Today, U.S. tariffs on European steel remain in place, even as domestic steel prices have skyrocketed (to U.S. manufacturers’ serious detriment).

But it’s not just imported steel on which Mack Trucks relies: Trade Partnership’s Dan Anthony notes, for example, that “[a]ccording to the [Panjiva supply chain database], Mack Trucks in Allentown was the consignee for 77 import shipments with nearly 900 tons of auto parts from suppliers in 11 countries….between July 1 and July 22.” In this regard, Mack is apparently following the standard practice of most automakers in the United States by augmenting its substantial production and employment here with imported parts and raw materials (not to mention foreign investment).

Given these additional facts, it seems odd that the president will today reject on “competitiveness” grounds the very things that made his host company truly competitive in the first place.

Maybe someone should ask Mack Trucks about that."