A “Buy American” Clause Could Help the American Steel Industry – Here’s How

A “Buy American” Clause Could Help the American Steel Industry – Here’s How

Few industries are more sensitive to federal trade policy than steel. That’s why U.S.-based steel executives are welcoming the news that the Trump administration plans to increase the Eisenhower domestic content threshold for steel and iron forged in the United States.

According to Peter Navarro, a key White House trade policy advisor, Trump’s “Buy American III” executive order directs the Federal Acquisition Regulatory Council to consider an amendment to the current Eisenhower domestic content threshold rules that would lower the acceptable threshold of foreign-iron and steel in projects covered by the rules from 50 percent to 5 percent, on a net cost basis. If adopted, contractors working on federally funded infrastructure projects would need to source virtually all of the projects’ iron and steel from domestic producers.

President Trump’s trade advisors are bullish on the move. According to Navarro, the “Buy American III” directive will drive “a revival in United States steel production and a renaissance in American manufacturing,” writes Navarro.

The Trump administration’s move is welcome news to steel executives who’ve advocated for fair trade policy. Majestic Steel president and CEO Todd Leebow, for instance, has long been a proponent of the sensible exercise of aluminum and steel tariff authority vested in Section 232 of the Trade Expansion Act of 1962, a key pillar of American industrial trade policy. While business leaders like Leebow stress that the fortunes of the steel industry depend on more than federal trade policy, a leveler playing field for global trade certainly doesn’t hurt.

President Trump’s executive order also contemplates changes to sourcing requirements for other materials. The Eisenhower domestic content threshold rules for materials other than iron and steel are currently set at 55 percent (no more than 45 percent foreign content), but Buy American III lays out a possible path for more stringent domestic sourcing requirements.

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Additionally, Buy American III requires that:

“Within 180 days of the date of this order, the Secretary of Commerce and the Director of the Office of Management and Budget shall, in consultation with the FAR Council, the Chairman of the Council of Economic Advisers, the Assistant to the President for Economic Policy, and the Assistant to the President for Trade and Manufacturing Policy, submit to the President a report on any other changes to the FAR that the FAR Council should consider in order to better enforce the Buy American Act and to otherwise act consistent with the policy described in section 1 of this order”

In other words, Buy American III could have ramifications far beyond the American steel industry. But a report by Market Realist makes clear that steel companies and downstream partners would be among the immediate beneficiaries.

“Infrastructure investments coupled with a ‘buy American’ focus would be a positive driver for US steel stocks,” writes Market Realist. The imposition of tariffs on non-U.S. producers could affect the industry’s fortunes, as well; the federal government’s ongoing tariffs on steel sourced from Mexico and China are among the most consequential moves to date.

Still, it’s too early to tell precisely how Buy American III will affect specific steel producers and their customers. Trade policy doesn’t operate in a vacuum, after all, and macroeconomic forces that have nothing to do with Buy American III could swamp any benefit or detriment from the Trump administration’s latest moves.

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