Originally signed into law by President Herbert Hoover on his final day in office in 1933, the Buy American Act has been revised a number of times since, all with the goal of strengthening American industries and creating jobs for American workers.
What is the Buy American Act?
The Buy American Act became a United States law in 1933 and primarily requires federal agencies to prioritize purchasing domestic goods. The intent was (and is) to create jobs and amplify American industries by making sure the United States government favors United States-made products. The law applies to all federal agencies and has a significant impact on the steel industry.
Minimum Purchases
The Buy American Act applies to large direct purchases made by federal agencies. In a hyperbolic example, a federal agency can purchase a single bolt from a hardware store for an insignificant price without needing to adhere to the Buy American Act; however, any major purchases must give preference to domestic products.
What are Domestic Products?
The act defines a domestic product as one that is manufactured in the United States and with at least half the cost of the components sourced in the U.S.
Exceptions and Waivers
The Buy American Act is intended to be strict in its requirements, but there are exceptions that allow federal agencies to buy imported products. The most common exceptions are if domestic products are “unreasonably expensive” or simply not available at all. Likewise, waivers—often due to reciprocal agreements with other countries or when waiving the law is considered to be in the public interest—can allow agencies to purchase from foreign suppliers.
Benefits of the Buy American Act for Steel Manufacturing
In the broadest sense, the main benefits to steel manufacturers are the opportunities to secure large government contracts, which can then lead to a competitive advantage, potential company growth, and the creation of more jobs, which help strengthen the economy as a whole. Of course, these opportunities apply to all domestic steel manufacturers, so there will still be competition, but that too can strengthen the industry and economy.
For example, a steel manufacturer that properly navigates the guidelines and increases its commitment to sourcing materials domestically could create an advantage for itself when bidding on government contracts. A company specializing in sourcing and manufacturing in the United States could also make itself more attractive to non-government customers seeking American-made products.
Overall, the Buy American Act supports American steel manufacturers who support American production, materials, and jobs. Those manufacturers who choose to embrace the potential advantages of securing government contracts and work diligently to do so can find a very favorable position in the market for themselves.
Challenges of the Buy American Act for Steel Manufacturing
This is, as should be no surprise, not as simple as “We make things in America so the government has to buy from us.” There are many domestic steel manufacturers competing for those government contracts, so manufacturers still need to focus on the fundamentals of their businesses.
Perhaps the biggest challenge is that the Buy American Act not only has requirements for federal agencies, but also for manufacturers. Being able to understand and implement all the guidelines and requirements can be difficult (particularly considering some states have similar legislation). For instance, documenting the origin of products, ensuring materials are sourced domestically, and maintaining compliance with complex regulations is a significant undertaking.
Another aspect of complex regulations is the risk of fines or even the loss of a contract in the event a manufacturer doesn’t comply with the guidelines of the Buy American Act.
Cost is another consideration. It’s possible that a company exclusively sourcing domestically could incur higher production costs than if using international suppliers, which could be detrimental to its profit margins. While federal agencies are able to get waivers when costs are “unreasonably expensive,” that’s not the same for the actual manufacturers. The cost of materials is the cost of materials.
All these challenges must be balanced with the beneficial opportunities to determine the right strategy for any given manufacturer.
What Does the Buy American Act Mean for My Company?
We know your specific situation is unique to you and your company. If you have questions about the Buy American Act, how you can (or if you should) pursue opportunities under the law, and how Capital Steel can help, contact us today to talk with our steel experts. We will be glad to help you determine what is best for your company.
