Effects of Buy America on Transportation Infrastructure and U.S. Manufacturing: Policy Options

Summary

With the aim of protecting American manufacturing and manufacturing jobs, Congress over the years has passed several domestic content laws. Buy America refers to several similar statutes and regulations that apply to federal funds used to support projects involving highways, public transportation, aviation, and intercity passenger rail, including Amtrak. Unless a nationwide or project-specific waiver is granted, Buy America requires the use of U.S.-made iron and steel and the domestic production and assembly of other manufactured goods. One of the main manufacturing industries this applies to is the production of rolling stock (rail cars and buses) used in federally funded public transportation and Amtrak’s intercity passenger rail service. This report examines the effects of Buy America on these two industries, iron and steel manufacturing and rolling stock manufacturing, in the context of industry trends.

Buy America dates to passage of the Surface Transportation Assistance Act of 1978 (STAA; P.L. 95-599), and is different from the Buy American Act, enacted in 1933, which applies to direct purchases by the federal government. Although the Buy America provisions have been in place in some form for almost 40 years, it is difficult to know how they have affected steel and rolling stock manufacturing in the United States, whether measured by jobs, output, or any other indicator. Empirical evidence on the economic benefits or costs of domestic preference laws is largely lacking, in part because the effects are small compared with macroeconomic forces such as global economic growth and the related growth in demand for steel. Although employment in domestic steel manufacturing has declined sharply, this is largely attributable to higher industry productivity. Buy America has likely promoted the production of rail cars and buses in the United States, but these industries are relatively small, and demand is related strongly to the combined level of federal, state, and local government funding.

Buy America could increase the cost of some transportation projects by requiring the purchase of domestic steel, vehicles, and vehicle components when imported products might be cheaper. In some cases, the difficulty of complying with Buy America rules has been blamed for project delays. The cost of imports used in federally supported projects could rise if some agencies within the Department of Transportation (DOT) begin to require that these imports be carried on U.S.-flag vessels in compliance with the FY2009 Defense Act (P.L. 110-417, §3511). Requiring transport by U.S.-flag vessels may also contribute to project delays. Lack of information makes claims about project cost and delay difficult to assess.

Much of the congressional activity related to Buy America seeks to strengthen its requirements. The Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act (H.R. 22), a six-year surface transportation bill passed by the Senate in July 2015, would increase from 60% to 70% the share of U.S.-made components and subcomponents required in public transportation vehicles bought with federal support. A version of H.R. 22 passed by the House in November 2015, the Surface Transportation Reauthorization and Reform Act of 2015, would do the same.

There are no legislative proposals in the 114th Congress to loosen Buy America requirements substantially. Two proposed provisions in the DRIVE Act would make Buy America somewhat less restrictive. The DRIVE Act would raise the threshold for purchases in public transportation subject to Buy America requirements from $100,000 to $150,000. It would also subject Amtrak to Buy America requirements only for purchases of $5 million or more, as opposed to the current threshold of $1 million.