The cost of buying American

Abstract

The latest resurgence in the U.S. of policies aimed at reducing imports and bolstering domestic production has included the expansion of Buy American provisions. While some of these are new and untested, in this paper we evaluate the employment and welfare impact of long-standing procurement limitations on the purchase of foreign products by the U.S. Federal Government. Employing procurement micro-data, we calibrate a quantitative trade model adapted to include features relevant to the Buy American Act: a government sector, policy barriers in final and intermediate goods, labor force participation, and external economies of scale. We show that current Buy American restrictions on final goods create about 100,000 jobs at a welfare cost of about $170,000 per job. The imminent tightening of domestic-content rules for inputs to 75% creates about 86,600 jobs at a welfare cost of about $119,000 per job. We also find scant evidence of the use of Buy American rules as an effective industrial policy tool.