President Trump’s “Buy American” policies could make it a lot harder for him to follow through on the ambitious $1 trillion infrastructure spending plan he touted on the campaign trail to win over blue collar workers.
Industry groups say the president’s plan, which he’s set to expand Tuesday, would raise prices on construction materials, making it more expensive to build oil pipelines, bridges, highways, homes, and schools.
Contractors are already grappling with higher prices on key materials for construction projects like diesel fuel, steel, copper, wallboard, and lumber, said Ken Simonson, chief economist for the Association of General Contractors, a lobbying group with about 26,000 members which also includes suppliers. And now he expects those prices to go up.
“Trade restrictions such as ‘Buy American’ limit the ability of producers—whether it’s contractors or manufacturers—to get the best prices for the things they need, and ultimately the public is either going to pay more or receive less,” Simonson said. “It may mean some school projects or highway projects get deferred or cancelled, because the dollars that get allocated won’t stretch as far.”
Over the past 12 months, prices have increased 19% on steel mill products, 17% on copper and brass mill shapes, 7.6% on gypsum products like wallboard and plaster, and 7.3% on lumber and plywood, according to data released last week by the Bureau of Labor Statistics.
Contractors are already having difficulty passing on those higher prices to their customers, and as a result, their profit margins are being squeezed, Simonson said.
President Trump is scheduled to sign his “Buy American, Hire American” executive order during a visit to Snap-On Tools, a tool manufacturer in Kenosha, Wisc. on Tuesday afternoon. Similar directives have already been in place for decades, but the White House makes the case that they’ve been “enormously diluted over time.”
Trump’s executive order is not expected to fundamentally change those policies overnight. Rather, the “Buy American” portion will call for federal agencies to initiate a 220-day review of how they can strengthen protections on American-made goods. The order also will demand that publicly financed projects use American-made steel. Raw steel imported from foreign countries but finished in the U.S. will be exempted from the rule.
Already, industry groups like the American Petroleum Institute and the Interstate Natural Gas Association of America have opposed the president’s earlier proposals to require new pipelines to use American-made steel, citing higher costs. The United States Chamber of Commerce has also objected to his Buy American stance, claiming that whenever the government has enacted domestic sourcing rules in the past, “the resulting experience has been higher overall construction costs, increased compliance burdens, reduced competition, and disruption of supply chains without significant American job creation.”
That powerful lobby group also claims that earlier Buy American rules tied to President Obama’s 2009 stimulus package, delayed “shovel-ready” projects as municipalities conferred with lawyers and manufacturers refrained from bidding on projects because they found it difficult to avoid sourcing their materials from abroad.
Trump’s Buy American policies could have a similar affect on his $1 trillion infrastructure plans, which he touted loudly on the campaign trail but has yet to detail specifics during his presidency. Last fall, the president’s economic advisors, Wilbur Ross and Peter Navarro, had described the plan as deficit-neutral with substantial tax credits encouraging investment from the private sector.
Rising costs mean the project could struggle to get buy-in from private sector players and have less impact overall.
“If the president and Congress are serious about rebuilding the nation’s aging infrastructure, it is vital to avoid artificially pushing up the cost of materials that go into these projects,” Stephen Sandherr, chief executive of the Association of General Contractors, said in a press release.