On 18 April 2017, President Trump issued an Executive Order (EO) on “Buy American and Hire American.” This EO directs all U.S. federal agencies to ensure that federal procurement (and grants) maximize the use of manufactured goods produced in the U.S. – although it limits the definition of “produced in the United States,” only for iron and steel products.
The EO is one of President Trump’s electoral promises to bolster the production and manufacturing in the U.S., and in turn employment within the U.S. However, as with many of President Trump’s electoral promises, developing an effective governmental policy is becoming increasingly difficult.
The EO is another federal provision which aims to stimulate manufacturing in the U.S. A Congressional Research Service Report “The Meaning of Made in U.S.A.,”outlines the difficulties facing President Trump to effectuate his electoral promise.
According to the report, “almost without exception, these provisions define manufacturing as the process of physically transforming goods. Physical transformation involves what might be thought of as traditional manufacturing activities such as molding, cutting, and assembly.” For the most part, U.S. Federal support is based on two pillars, which might be outdated as a result of developments in the private sector. In this context the report summarizes the following:
- Each manufactured product is assumed to have a single country of origin. The determination of whether a product is American-made is binary; either it was made in the United States or it is an import. This assumption fits uneasily with the global value chains now widely used by manufacturers to combine raw materials, components, services, and intellectual property from multiple countries into a single, finished manufactured good.
- Physical transformation is assumed to be the means by which manufacturing creates economic benefits. Under a variety of statutes, the fact that other activities related to making a product are conducted in the United States is not relevant to the determination of whether the product is made in the United States.
This is generally the case even if those activities account for a large proportion of the value of the finished good or of the employment related to the good’s production.
Conversely, a good may be treated as U.S.-made if significant parts are of U.S. origin and if the good was transformed in the United States, even if all research, design, software development, and other nonphysical activities related to its production occurred in other countries. Note that the physical transformation of manufactured goods increasingly is performed by workers not classified as manufacturing workers.
Moreover, it appears that a growing share of workers whose jobs are related to manufacturing are employed in economic sectors not directly involved in physical transformation, including business services, software development, and after-sales service.
These changes have made it more difficult to identify workers whose jobs are related to manufacturing. Linkages between nonphysical inputs and factory production may not be evident in government statistics, as the software and services may be produced within the manufacturing firm itself or may be purchased from other firms and may be produced by workers in any number of domestic and foreign locations.
Many federal laws adopted with the goal of supporting manufacturing do not take into account the increasingly blurred lines between manufacturing and other types of economic activity.
Additionally, to the extent that domestic content requirements raise the cost of goods procured under federally funded contracts, they reduce the volume of procurement for any given level of expenditure and thus adversely affect employment in non-manufacturing industries, such as construction and freight transportation.