On Monday, President Joe Biden signed a new executive order imposing new rules on federal government purchases. With this decision, officials are required to buy American by increasing the volume of American-made products, in order to follow in the footsteps of his “Buy American” campaign to strengthen domestic manufacturing.
Biden’s policy will involve increased scrutiny of procedures to prevent federal agencies from comparing imported products, revising the definition of what constitutes an American-made product and requiring percentages of products made by local manufacturers in bidding.
The announcement of Biden’s executive order came with concern in Canada. On Sunday, Canadian Foreign Affairs Minister Marc Garneau told the Canadian Broadcasting Corp. news agency that he told Biden in a phone call that he was concerned about the “Buy American” program.
This is the second time in less than a week that the Biden administration has disappointed America’s second-largest trading partner -after China-. The first occurred when President Biden, through an administrative order, decided to veto the construction of the fourth stage of the Keystone XL project, a pipeline network stretching from Alberta, Canada, to the Gulf of Mexico.
Although U.S. manufacturers were pleased with Biden’s decision, economists remain skeptical about the impact of these policies, as they could trigger tariffs on U.S. exports in response, complicating government actions for economic recovery.
During his campaign, Biden pledged to work with U.S. partners and allies to modernize international trade rules, including those related to government procurement, “to make sure that all countries can use their taxpayer dollars to stimulate investment in their own countries.”
Buy American, Biden’s protectionist campaign
In addition to the new “Made in America” tax on federal government purchases, Biden’s stance on trade did not differ much from that of his rival, former President Donald Trump, whose 2016 election victory was due in part to his pledge to bring jobs back to the United States.
Biden pledged to bring back U.S. manufacturing within his stimulus plan that includes a 10% tax on imports from companies that outsource their activities abroad, which implies a real increase in corporate tax to 30.5%. In contrast, the Democratic economic plan also offers a credit of up to 10% on the amount of taxes paid by the company for those that invest in the country and generate manufacturing jobs.
There are doubts as to whether this tax will really help recover manufacturing jobs or only increase the operating costs of U.S. firms, affecting their productivity and the pockets of consumers who will see higher prices for the goods supplied by the companies affected by this policy. As the United States is a service economy, it is likely that the jobs that will be recovered in the manufacturing sector will be marginal in relation to the costs of this measure.
Although he has not specified which ones, Biden is expected to lift much of the tariffs imposed during the Trump Administration. Although many of the restrictions are aimed at China, the United States maintains the imposition of tariffs valued at $7.5 billion on the European Union, including 25% import duties on products such as wines, cheeses, olives and spirits; as well as a 15% tariff on finished aircraft.
With respect to China, the Trump administration imposed tariffs on steel and aluminum imports, as well as other manufacturing goods, totaling $250 billion. While Trump succeeded in lowering the U.S. trade deficit with China from $367 billion in 2015 to $347 billion in 2019, the total deficit with the rest of the world grew from $735 billion in 2015 to $854 billion in 2019.
Although Biden has maintained Trump’s stance on China, he is also unlikely to bring down the trade deficit, as it is driven by higher consumption and lower savings by Americans compared to other countries.
For the time being, Biden is not expected to relax his trade stance towards China, as there is distrust from both parties in Congress towards the Asian giant. However, if he continues to impose barriers to trade with China, and even with Europe or Canada, it is likely that the global economic recovery will be lost in a heap of trade retaliations as it was during the Great Recession.