Following up on our previous post on the Trump administration’s renegotiation of NAFTA, the President has taken further steps towards his campaign theme of promoting American industry.  On April 18, 2017, President Trump signed the “Buy American, Hire American” executive order.  The White House release states the order was promulgated in response to a February 2017 Government Accountability Office (GAO) report “suggest[ing] the United States is not getting its fair share of the global government procurement market through the World Trade Organization (WTO) Agreement on Government Procurement (GPA).”  Further, the release contends, “companies routinely abuse the H-1B visa program by replacing American workers with lower paid foreign workers.”

The “Buy American, Hire American” idea is certainly not new.  William Randolph Hearst coined and used the phrase during the Great Depression.  President Hoover signed the Buy American Act in 1933, generally imposing restrictions on federal government contracts to favor domestic end products.  The Trade Agreements Act of 1979 followed, prohibiting products or services that are not substantially transformed in the U.S. or a designated country.  Numerous other restrictions on federal contracts exist, such as the Surface Transportation Assistance Act of 1978 and the Berry Amendment, to name a few.  Adding another layer of compliance complexity, free trade agreements can override provisions of these statutes.

At the signing ceremony, President Trump stated the federal Buy American statutes “have been gutted” by loopholes.  The President promised to “aggressively promote and use American made goods.”  Notably, he also brought back his campaign promise to “get rid of NAFTA.”

The Buy American, Hire American order is two-fold.  The Buy American agenda will: (1) instruct agencies to conduct comprehensive assessments; (2) target waivers and exceptions allowing foreign goods advantages in U.S. government procurement; (3) require a review of WTO’s Agreement on Government Procurement and other trade deals to ensure compliance with new standards; (4) require Buy American bidding processes to take into account unfair trade practices; and (5) promote American-made steel.  The Hire American agenda will: (1) enforce laws governing entry of foreign workers in order to promote rising wages and more employment; and (2) direct agencies to propose reforms to H-1B program.

Industry trade groups, including the American Petroleum Institute and Interstate Natural Gas Association of America, claim the order will reduce competition leading to higher prices.  Ken Simonson of the Association of General Contractors, states he expects prices to go up on key materials for construction projects, such as fuel, lumber, steel, and copper.  Simonson warns trade restrictions limit the ability of contractors and manufacturers to control costs leading to projects being deferred or even canceled.

There are further concerns the order will cause countries to enact similar policies in response.  American companies bidding for foreign government contracts could get cut out of the bidding process, leading to loss of revenue and possibly jobs.

In addition to the expected additional scrutiny to ensure compliance, manufacturers and suppliers should prepare for increased agency enforcement action against noncompliance.  Consequences could include monetary penalties, contract termination, and even debarment from future contracts.  Importantly, President Trump’s comments regarding NAFTA suggest the administration is prepared to take an uncompromising stance in the upcoming NAFTA renegotiations.  Manufacturers and suppliers will want to keep a careful watch over the renegotiation of NAFTA for further developments.