Review of manufacturing policies in the United States and the European Union

The Buy American Act was originally passed by Congress in 1933 and has undergone numerous changes through several presidential administrations. While the core of the law has remained essentially the same, requiring the U.S. government to purchase goods produced in the U.S. under certain circumstances, domestic preference requirements have changed over the years. While the Buy American Act applies to direct government purchases, the separate (but similarly named) Buy America Act of 1982 imposes similar American content requirements for certain federally funded infrastructure projects. In general, the Buy American Act’s “made in the USA” requirement ensures that federal government purchases of goods valued at more than $10,000 are 100% manufactured in the USA, with a fixed percentage of the cost of the components comes from the US. From 2024, the established percentage will be increased to 65%. Therefore, the cost of domestic components must be at least 65% of the total cost of components to comply with the rule. Under existing rules, the threshold will rise to 75% by 2029. These planned changes are consistent with the trend of increasing preferences for domestic goods over time (a trend that has continued under governments on both sides of the political spectrum ).

Not surprisingly, protectionist policies that favor U.S. manufacturing could produce similar protectionist measures as abroad. The European Union (EU) European Green Deal Industrial Plan (also called the Buy European Act), which includes the Critical Raw Materials Act (CRMA) and the Net-Zero Industry Act (NZIA), have both been formally adopted in the last few months. The NZIA, agreed in February, targets the production of clean technologies in Europe and sets two benchmarks for such production in the EU: (1) that 40% of the production needed to cover the EU will be domestic in 2030; and (2) that EU production will account for at least 15% of world production in 2040. The NZIA includes a list of net-zero technologies, including wind and heat pumps, battery and energy storage, hydropower and solar. The CRMA, adopted on March 18, sets targets for raw material consumption in the EU by 2030: that 10% come from local extraction; 40% to be processed in the EU; and 25% comes from recycled materials. The CRMA also stipulates that “not more than 65% of the annual consumption of each strategic raw material at any relevant stage of processing in the Union may come from a single third country.”(1) While Europe’s new laws may be more targeted are on raw materials and clean technology, the joint efforts of the US and Europe to focus on domestic production will be something to watch in the coming years. It is especially worth seeing whether the recent EU measures provoke a response from US lawmakers. If so, it could accelerate the already increasing stringency of Buy American and Buy America requirements.

(1) https://www.consilium.europa.eu/en/policies/eu-industrial-policy/