One of President Trump’s major economic policy initiatives has been to get American companies — as well as the federal government — to “buy American,” as the president has repeated over and over like a mantra. But on the latter note, the Trump administration is effectively starting from a negative position as new data showed that foreign companies took in more from the federal government in the last three months than in any other three-month period in more than a decade.
Much of this profiteering — worth more than $400 million in the last 90 days — is due to contracts signed by the Obama administration. These contracts will continue to be in effect for much of the rest of this year. After adjusting for inflation, the $400 million figure is at least double what foreign companies made during the first three months of the Obama presidency back in 2009.
To combat this, the Trump administration has begun a 220-day review of all government departments to detect waivers and loopholes that could undermine new efforts aimed at buying domestic products. But the administration will essentially be swimming upstream with its actions.
Despite President Trump having authority over all federal contracts, the powers of the president are still limited by Congressional laws. In recent days, it’s become clear the president is beginning to realize this. He strongly criticized the North American Free Trade Agreement (NAFTA), promising to renegotiate it.
This is because agreements like NAFTA dictate that bids from Mexican or Canadian companies must be treated exactly like bids from American concerns.
“If the law says you must buy a purple widget, [President Trump] can’t say, ‘Well, I want a yellow widget,'” said Lawrence M. Prosen, a government contracts partner at the law firm of Kilpatrick Townsend & Stockton LLP.
A Wall Street Journal analysis looked at a host of government contracts but excluded those at the Department of Defense because it operates with a different set of rules that prioritize security needs. Most of the foreign companies that benefitted from the increased spending were automakers.
Some of the models the government purchased have been specifically highlighted by the president in his push to get American automakers to build more of their cars inside the U.S.
“The American people voted to end the theft of American prosperity,” said Trump. “They voted to bring back their jobs and bring back their dreams into our country.”
Such messages helped Trump to win with voters in states where industrial manufacturing is prevalent, such as Wisconsin and Michigan. But many current laws focus on where items are assembled or made rather than what country a manufacturer is located in. Typical government contracts aim for the lowest bids or best deals submitted.
“These types of arbitrary distinctions tend to punish the consumer, which in this case is the American taxpayer,” said Steven Schooner, professor of government contracts law at George Washington University. “Embracing the global auto market is going to get you better results than just saying ‘Buy American.'”
As of today, the government makes bulk purchases of vehicles from different manufacturers based on feedback from federal agencies. Contracts are given to companies at or near the start of the government’s fiscal year on October 1.
The contracts pay out as agencies select their vehicles from approved lists. The government’s General Services Administration (GSA) gave a contract worth up to $3.7 billion to London-based Fiat Chrysler and six U.S. firms last October. So far, the government has paid out more than $100 million on the contract.
Although there could be legal challenges, President Trump does have a few options he could employ, such as simply canceling unfavorable contracts.
“The Trump administration could go to an automaker and say, ‘If you don’t sell me purely American built cars with American parts, I’m going to terminate you for the convenience of the government,'” claimed Lawrence Prosen.
But any executive order demanding such a condition could be fought in court, overturned by Congress or reversed by a future presidential administration.
Federal departments are obliged to consider all automakers regardless of the country they’re based in when the value of a contract exceeds $10 million. This was mandated by design in order to make it easy for U.S. firms to compete overseas by easing mutual trade restrictions with competing countries.
In return, agencies within the government’s executive branch must consider foreign contractors the same way they look at U.S.-based ones. However, a federal report issued in March suggested that foreign companies benefit more than American ones with these deals.
In 2010, for instance, the U.S. gave contracts to foreign firms that were worth twice as much as all contracts received by American companies from the nations of Canada, Norway, South Korea, Japan and the European Union combined.
Clearly, the Trump administration has its work cut out for it. Some change can likely occur, but major swings in the overall totals being spent by the government won’t likely be seen until 2018 at the earliest.
In the meantime, the Trump administration needs to address how Congress can rectify some of these existing laws so that a “Buy American” requirement can last beyond his years in office, and not swing with the tides of incoming presidential administrations.
Regards,
Ethan Warrick
Editor
Wealth Authority
