Buy America done incorrectly, will kill, not increase, U.S. jobs

Posted on February 23, 2012 by Frank Di Giacomo, Publisher

Whenever the U.S. economy loses a substantial number of jobs, there are calls within Congress and among the general public for more conditions on how taxpayer dollars are spent. It has been happening in transportation since the Civil War, and in public transportation, it's been a debate since the Great Depression. The Great Recession has been no different, but like the earlier tries at tightening restrictions, the recent proposals could very well kill more jobs than they create.

The current law requires that all finished steel, cement and other construction materials used in transit and highway projects that are partially funded by federal grants be made in America. For buses, rail vehicles and other "rolling stock," 60% of the content, by value, must come from U.S. suppliers and the vehicles must also have their "final assembly" in the U.S. A variety of bills in Congress, including the already-enacted stimulus legislation that included grants for intercity rail projects, want to go even further, including 100% U.S. content and restrictions on the waivers that the FTA or FRA can grant.

Supply chain is global marketplace
This approach, however, ignores four things about how the supply side really works in our industry. In the first place, the supply chain is a global marketplace. If anything, it has gotten even more globalized since the Buy America content threshold was raised to 60% from the 50% required in the 1970s and early 1980s. This means that the U.S. market is tiny compared to European, Latin American and Asian markets, and any restrictions would have a tiny impact on this global market; in fact, such restrictions might cause them to leave it altogether.

Secondly, many U.S. suppliers also happen to have a high level of foreign components in their products, an inconvenient fact brought out when Buy America enforcement got tighter in recent years, partly due to the globalized marketplace mentioned above. Thirdly, there are too many links in the supply chain that have only one or two choices. This is in part due to a fourth, and perhaps most important fact about the supply chain: most suppliers serve other, bigger markets, such as trucking or freight railroads. Tougher restrictions may force these suppliers out of public transportation entirely.

Imagine where the transit bus segment would be if the only engine supplier decided to seek its fortunes elsewhere.

Grow the whole market
As I have said before in this space, the best way to grow U.S. jobs is not by putting more restrictions on doing business in the U.S. The only real way is by growing the whole market - through a larger, stable, long-term funding that gives suppliers incentives to invest here.

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