The Year of Regulatory Reform: Biden's Buy American Order Will Backfire
Rather than stimulating economic growth, "Buy American" will backfire, driving up the price of goods and making the economy less robust by prioritizing production around demand that doesn't exist.
A federal policy promoting domestic production sounds good, especially when it’s aimed at the products that government uses. After all, a common modern perception of representative government is that it exists to look out for and advance the interests of American citizens. And surely that should apply to the resources bureaucrats expend while implementing the policies that do so.
But the sense of gratification associated with this rather shallow and sophistic line of thinking is about the only positive it can claim.
Because, beyond promoting a misplaced sense of self-accomplishment, there are no benefits to regulations like Biden’s “Buy American” executive order.
When Biden signed this executive order earlier this week, followers of American politics may have felt a sense of familiarity: Trump, too, used executive action to try and increase the federal government’s consumption of public goods.
And it went precisely nowhere. In part, this can be attributed to exemptions granted to nations with whom America has trade pacts and to the inescapable fact that America simply doesn’t produce all the goods government needs to function.
(Nor is this the only part of Trump’s quasi-mercantilist trade policy that went awry because of exemptions. The previous administration also handed out exemptions to tariffs, a signature part of Trump’s “free, reciprocal and fair trade mantra,” often granting these to friends of the administration and refusing those not privileged enough to count themselves among Trump’s friends. And this is a fundamental weakness of this type of regulation: born of individual preferences and designed to promote that individual’s way of thinking, those same personal preferences also lead to selective implementation: giving preferential treatment to allies and spurning opponents.)
Biden though, seems confident that where his predecessor failed, he’ll succeed. And he offers no real concrete evidence of this beyond the defense of all bureaucratic managers: that he’s the right person for the job because he has the right credentials and Trump didn’t.
Nor is this the only part of Biden’s “Buy American” strategy that isn’t grounded in facts. There are no concrete goals outlined in his executive order, only the rather ambiguous statement that the government “should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”
So, not only are there no real targets—does this mean half of goods consumed by federal agencies and departments, or more than this?—set, but there’s also wiggle room in the establishing of vague goals like helping “America’s workers thrive” that could possibly give the Biden administration grounds to launch more aggressive policy in pursuit of this end.
Production, much like politics, doesn’t occur in a vacuum. So, while it sounds laudable that the American government wants to consume more domestically-produced goods,
Consider it from the view of a taxpayer: prioritizing domestic goods limits supply, which tends to drive up the prices of those goods. This is good in the short-term for producers (but not in the long-term because it also limits the number of people to whom they can sell and puts a cap on the growth of businesses) but bad for citizens whose tax dollars bankroll these kind of executive agendas.
Does it really benefit the nation as a whole to raise the cost of federal operations? If that requires the government to raise taxes, that in turn takes money away from domestic consumers. That means more of their income goes to covering the basics one needs to live and less of it goes into the economy, particularly into leisure activities. And that’s bad for economic growth.
Further, this kind of artificial market inflation distorts the free market. It makes it seem there is a demand for particular goods and services that wouldn’t actually exist if it weren’t for regulation.
This idea—that independent people are able to organize themselves around perceived area of need, benefiting others because they can benefit themselves—is known as “spontaneous order.”
It plays a crucial role not just to theories of self-government, but to economics as well.
Perhaps the best example of exactly how spontaneous order works in society and in economic interactions that are mutually beneficial to producer and consumer alike is Leonard E. Read’s essay I, Pencil.
As both the essay and the short film explain, many of the goods we use in our everyday lives are the product of a vast and interconnected web of interactions between people across the world and in different industries. They’re all able to thrive and create utility, both for consumers and for themselves, by responding to perceived areas of need in society.
But that only occurs so long as there’s no mastermind pulling the strings of various societal entities and telling them how to behave. When social behaviors are mandated, it’s impossible to gauge where real need exists or how prevalent it may be. That makes it difficult for producers of goods to navigate supply and demand. It artificially inflates the price of the goods for which those pulling the strings, i.e. issuing executive orders, have artificially created demand.
That doesn’t just affect that one good, but others as well that, thanks to artificially created need, now seem less desirable in comparison. This can drive up the price of goods that are actually in demand because they’re not the focus of production, making them more scarce.
Markets are interdependent. And declaring that more goods need to be made in America might be a good talking point, but it’s bad policy because it ignores how much of America’s economic success is in its ability to offer low-cost goods by exporting manufacturing. This is a net win for American consumers, both because it lowers the cost of goods people need in their lives, making their dollar go further, and because it fosters good relationships with other nations around the world.
Just as the valuation of the dollar has intrinsic and extrinsic meaning (the dollar represents both the cost associated with producing the materials in a finished product and, more symbolically, whether you happen to think what you’re getting in exchange for your dollar is worth giving it up), so too does trade.
Trade is about more than the economic value of the goods produced. It’s about how robust the order produced by trading relationships is. When regulation steps back, healthy and robust order, which responds to real needs at the level they exist in society, emerges. When government inserts itself and artificially inflates demand and, by extension, the cost of goods, economic health is not bolstered.
Trump’s efforts to stimulate American manufacturing reflect this. And Biden’s efforts to do the same buy ordering the federal government to prioritize consumption of domestic goods will do the same.