Dive Brief:

• President Donald Trump on Tuesday signed an executive order on "Buy American and Hire American" policies in an effort to increase the domestic share of labor and products used in federal projects.
• The new order calls upon Commerce Secretary Wilbur Ross to investigate current government procurement policies at federal agencies, with an eye toward disabling poor monitoring, weak enforcement and ineffective compliance efforts, Politico reported.
• In addition, the administration will assess guest worker programs and the cost-benefits of free trade provisions, allowing for national treatment of foreign contracts compared to the reciprocal access.   

Dive Insight:

Trump's new Executive Order targeting federal procurement practices highlights the impact that sourcing standards can have on the economy because of the multiplier effect they may have through supply chains.

The "Buy American" order targets a controversial aspect of federal policy: the way taxpayer funds are allocated to complete federal projects. When it comes to procurement, the government has long had "Buy American" provisions for federal projects to ensure taxpayer funds are recycled through the economy. If a foreign firm builds a road, is the spending really stimulating the U.S. economy?

The policies are designed to ensure U.S. raw materials, manufactured goods and services are given preference when it comes to federal spending. Yet, according to the White House, loose enforcement of the policy through reciprocal free trade agreements and widespread use of contract waivers have undermined such policies. 

In just one example, over 60 countries technically receive national treatment for federal contracting, per World Trade Organization and other similar agreements. In return, U.S. companies receive national treatment in these countries abroad — but a recent report found uneven enforcement of rules led to foreign firms gaining a higher share of the U.S. federal procurement market than U.S. firms have been able to secure abroad.

The argument for these agreements is that taxpayers will save money by contracting cheaper foreign services, while U.S. businesses will gain access to a $4.4 trillion global procurement market. Yet, the Trump administration argues the rules allow foreign contractors who use imported steel to gain access to U.S. projects, despite indirectly undermining the national steel market, for example. The Department of Commerce is investigating these practices and will issue recommendations within 220 days as part of the order.

The effects may appear simple, but they promise to have a multiplier effect along supply chains — in particular those involved in the materials, equipment or services involved in construction. 

"Here, it is useful to note that every direct job in the U.S. steel industry creates seven more jobs in the U.S. economy.  And through this multiplier effect, the steel industry here in America supports more than a million jobs," a Senior Administration Official said in a press briefing. "The melted and poured standard would let us fully capture the positive impact of infrastructure spending on the iron and steel manufacturing industry supply chains."

For now, the administration has simply ordered greater enforcement and inspection of procurement policies throughout the agencies. If successful, however, the promised boon in infrastructure spending would also spur demand for U.S. products and services, potentially straining supply and raising prices in the long-run.