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The High Cost of Protectionism

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The High Cost of Protectionism

President Biden’s “Buy American” commitments will conflict with his goal of improving mass transit. February 11, 2021
Politics and law
Economy, finance, and budgets
Infrastructure and energy

In late January, President Biden signed an executive order enhancing “Buy American” requirements for federal procurement, a long-standing policy mandating that federal infrastructure projects use U.S.-made construction materials. Donald Trump famously touted, but didn’t aggressively enforce, his own “buy American and hire American” policy. Biden seems more committed: his order establishes a Made in America office to increase oversight. But whether this commitment lasts remains to be seen, as the policy conflicts with another administration goal: improving mass transit.

The Buy American Act, passed in 1933, requires that federally funded public projects use domestically produced iron, steel, and manufactured goods, unless doing so increases project costs by 25 percent or more. A separate act called “Buy America” (no “n” at the end) puts these requirements on state and local projects that receive Federal Transit Administration grants. The Biden administration will oversee enforcement of both laws.

The raison d’être for the laws is protectionism: limiting foreign competition to encourage job creation and wage increases for those working in manufacturing. Another, more nationalist justification is that the U.S. is stronger when it has a robust manufacturing sector.

Both of these principles cost U.S. taxpayers, however. A Congressional Research Service report found that the Buy America policy broadly affects the manufacturing of passenger trains and buses, influencing how steel, electric batteries, and other key parts are assembled.

Streetsblog, a transit-advocacy organization and long-time Buy America critic, has shown how this can undermine specific projects. In 2013, for example, then-Secretary of Transportation Ray LaHood cited Buy America provisions when the Department rejected a $5.5 billion loan application for XpressWest, a mostly privately funded high-speed rail project to connect Los Angeles and Las Vegas. (The project is now moving forward under new investors.)

A 2013 effort to modernize one Staten Island Ferry boat to run on liquified natural gas would have reduced the boat’s $6 million annual fuel costs to $3 million and cut its carbon emissions by 25 percent. The Federal Transit Administration granted New York City’s Department of Transportation $2.34 million for the conversion, but the department couldn’t find the necessary LNG or Dual Fuel engines in America. After some back-and-forth, the federal agency waived the grant in 2020.

Amtrak has also been a victim of Buy America absolutism. In 2008, the intercity rail service stood to benefit from $352 million in stimulus money to expand its fleet of double-decker railcars. But the passenger-train market isn’t robust in America, and neither is the U.S. apparatus for railcar manufacturing. Amtrak wanted Japanese firm Nippon Sharyo to make the cars, but Buy America laws meant that the company had to build a $100 million plant in America, adding significant costs and putting the project well behind schedule.

Such protectionist thinking has even migrated to state governments. Massachusetts governor Charlie Baker celebrated the opening of a Springfield factory building MBTA subway cars. This may seem like a feel-good local manufacturing story, but the decision to produce railcars in a high-cost-of-living state has cost taxpayers dearly. The Chinese-run firm that operates the factory followed a project-labor agreement that guarantees 100 percent union workers earning an average of $66,000 annually.

Protectionism adds inefficiencies no matter the industry or jurisdiction involved. If it benefits the New York MTA or its riders to use only American-made rolling stock, why not take that thinking further? Wouldn’t the city benefit from sourcing railcars inside the city, or from a single depressed neighborhood? It wouldn’t, because the benefits don’t outweigh the costs of shutting out the world.

Asian countries like China and Japan have captured much of the global manufacturing market due to labor efficiency and other comparative advantages. They’re particularly good at building rail transit because they use rail even more than we do. If President Biden strengthens “Buy America,” U.S. transit systems, already struggling with ridership declines and Covid-induced budget shortfalls, won’t be able to take advantage of the innovation that these countries offer. The enhanced Buy American program may also suggest that Biden plans to continue the broader protectionist policies of the Trump administration, such as tariffs, which have cost consumers billions of dollars and angered U.S. allies.

Photo by Spencer Platt/Getty Images

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