“I don’t buy for one second that the vitality of American manufacturing is a thing of the past,” President Biden said in January. The occasion was the signing of an executive order designed to put over $600 billion in federal procurement spending into the pockets of American manufacturers.
In an ideal world, President Biden’s plan – which involves tightening eligibility for waivers from Buy American requirements, improving standards to hinder federal contracts being rewarded overseas and potentially raising price differentials, among other proposals – would be enough to deliver on the promise to American manufacturers and their workers.
But American presidents, starting with Herbert Hoover, have been attempting similar campaigns for over a century – with mixed results. The reality is that in today’s world, Buy American, however promising in spirit, requires a long runway. It could take years to shift the supply chain in a way that’s truly meaningful to American manufacturers.
To understand why, keep in mind that federal procurement rules have always favored American-made goods. Before the Biden plan, federal purchasers were allowed to buy from foreign manufacturers only if they were significantly cheaper than the domestic option – 6% cheaper for big manufacturers and 12% for small businesses (a recent federal rule increased those percentages to 20% and 30%, respectively; percentages around the Biden plan will be determined in the next year).
So when U.S. government agencies opt to purchase foreign goods, it’s because they’re significantly cheaper than the domestic versions. Expanding that price preference will allow more American manufacturers to compete, and they will come out stronger. But many of them won’t be ready to start fulfilling government orders on day one. They’ll need time to retool their product lines, invest in new equipment, build quality assurance and hire the right people.
In this way, the Biden Buy American plan’s success hinges on a concerted effort not only from regulators and politicians – who must grapple with the ways in which Buy American plans have proven ineffective in years past – but also from the manufacturers themselves.
The Roadblocks To A Successful Buy American Campaign
At its core, the Buy American plan, like others before it, boils down to this: Can you find a U.S. manufacturer to (economically) make what you want – with consistent quality?
From the outside looking in, it seems like American manufacturers can make anything. And it’s true, we can. But to make things economically – and efficiently – organizations need highly specialized equipment. It can cost half a billion dollars to transform an auto plant to produce a new make or model. It’s not because it’s so hard to make, but because to make it economically, you need new equipment.
Even then, it’s rare that products come off the line perfect on day one – and even one miss out of 100,00 could mess up machines, cause defects and delay delivery.
What’s more, new Buy American requirements might hurt some U.S. companies’ ability to make money overseas. As a representative of Netzsch Pumps North America told The Economist, finding homemade components would be hard and could force up prices. Seeing as only 30% of their business serves government agencies, the extra burden “will definitely kill our ability to compete in markets outside the U.S.”
The Solution: Embrace Industry 4.0 And Collaborative Ecosystems
To make Buy American a workable reality, manufacturers and government stakeholders should embrace Industry 4.0. It encompasses a wide range of new technologies that increase productivity, speed up production processes and cut costs: sensors, predictive data analytics and 3D printing, to name just a few. Sensors can provide real-time data on the efficiency of production and various machinery; at DECA Manufacturing, for example, technologies like those have fueled a 20% increase in output, while simultaneously fostering the addition of new product lines.
The most successful American manufacturers have invested in these new technologies: In a recent survey, middle market manufacturers with annual growth rates of over 10% assigned more importance to every facet of technology about which they were asked.
Technology could offset the increased price of buying exclusively domestic components as well – we’ve seen Industry 4.0 technology enable manufacturers to sell their products as much as 70% cheaper.
Still, all the technology in the world may not be enough if manufacturers don’t collaborate with one another – as well as with local governments, university experts, startup accelerators, manufacturing extension partners and workforce development agencies – to form innovative ecosystems.
In Ohio, we saw this firsthand during the pandemic when Governor Mike DeWine launched the Ohio Manufacturing Alliance to Fight Covid-19. Working together, the alliance designed, among other items, a new, reusable plastic face shield, which went from idea to prototype to building a new local supply chain in less than two weeks. Together, we facilitated the production of one million specialty swabs to allow for expanded Covid-19 testing and produced copious amounts of PPE.
Adopting these solutions to facilitate a more impactful Buy American program will have a significant impact on U.S. manufacturers, their employees and the communities they serve. Nearly 600,000 factory jobs were cut during Covid-19, and our trade gap hasn’t been this bad since the last financial crisis. Losing our manufacturing prowess means sacrificing a vital part of America’s economic foundation, past, present and future: As a 2015 report from the Economic Policy Institute declared, “Manufacturing is by far the most important sector of the U.S. economy in terms of total output and employment.”
Government will certainly have to play a role, too. Making Buy American work won’t happen overnight and will likely exceed the four- (or eight-) year terms allotted presidential administrations. But if policymakers can match manufacturers’ fortitude by continuing to deliver meaningful government contracts, it could deliver far greater, longer-lasting benefits for U.S. manufacturing than any tariff ever will.
Their commitment – plus manufacturers’ ability to leverage ecosystems and Industry 4.0 technologies – can help Buy American live up to its promise. The benefits won’t be merely short-term gains but the long-term competitiveness our manufacturers need to thrive today, tomorrow and for years to come.
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March 08, 2021 at 10:22PM
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Biden’s Buy American Campaign Makes Sense – But It’s Not As Easy As It Sounds - Forbes
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