President Trump is hard at work writing up executive orders in the hopes of fulfilling campaign promises that he made. During the campaign trail, Trump had two phrases that caught people's attention: "America first" and "Buy American, Hire American." Trump advanced from rhetoric to action. Last week, Trump signed the "Buy American and Hire American" executive order.
The executive order comes in two main components. "Buy American" means directing federal agencies to comply with "Buy American" laws and maximize the number of American products they purchase, especially with regards to steel, iron, aluminum, and cement. "Hire American" targets the H1-B visa program, which is meant to target high-skilled, foreign labor. Many expect that "Hire American" will translate into less H1-B visas. As stated in the executive order, Trump hopes that the executive order improves economic and national security, creates good jobs at decent wages, strengthens the middle class, supports American manufacturing, and protects the economic interests of the American people. The question here is whether these assumptions are true or not.
At first glance, "Buy American" might not sound so problematic because it only affects federal government procurement. The problem with that notion is that as of 2015, the U.S. federal government procurement market size was $1.7 trillion. This market size is a little less than 10 percent of the country's GDP, so it is safe to assume that "Buy American" is going to have at least some effect on the U.S. economy.
I talked about the folly of "buying local" a couple of years ago, and "buying American" is the national-level version of "buying local." First, Trump does not realize or acknowledge the complexity and global nature of supply chains, that six million U.S. employees work for foreign-headquartered offices, or that there is $1.9 trillion of foreign direct investment (FDI) stock in the U.S. There are so many products out that have components or inputs coming from other countries that it is not even funny. Even if it were feasible to identify which products are "100% made in America" or determine how to maximize "buying American," this limits purchasing options. As the Cato Institute points out, when we limit our pool of qualified suppliers or variety of eligible supplies, that means that prices go up (the Association of General Contractors expressed concern about this), projects take longer, and quality suffers. I'm already critical of government efficiency, so it would be unfortunate to see further inefficiency. Plus, since government services would become more expensive as a result, that means the taxpayers ultimately foot the bill for this inefficiency.
We also have to remember that the suppliers doing business with the federal government are, in most cases, doing business with the private sector, as well. Given the complex nature of supply chains and their interactions with other industries, it is more than plausible that this "Buy American" policy would reverberate and have negative spillover effects in the private sector.
Trump's "Hire American" aspect of the executive order involves reforming the H1-B visa program, which is for high-skilled non-citizens to temporarily work in a specialty occupation. Since I covered the topic of H1-B visas last month, I don't need to go into much further detail here. What I will say is that although you can find your criticism of the H1-B visa program, the truth is that the H1-B visa program has been an overall force of good for the American economy. We should find ways to tweak the program and let more qualified labor into the United States to help boost the American economy. The executive order does not answer certain important questions, such as whether there will be a reduction in visas or if there is a minimum amount that the H1-B worker will have to be paid. If Trump's past comments are any indication, I would expect less visas and a higher minimum salary for H1-B workers.
Even if you're not convinced that immigration brings greater economic prosperity, how does cutting off a source of qualified workers rehabilitate areas that are economically suffering? Forcing an increase of labor costs without expecting it to increase company costs or consumer prices is the same folly upon which minimum wage advocacy is based. But hey, I guess it's easier to stop talented immigrants from entering the country than it is to find ways to incentivize Americans to learn one of the STEM disciplines. Plus, why not destroy America's reputation as being overall open to immigrants while incentivizing immigrants to seek jobs in other countries?
Postscript: Whether Trump is able to fully enact the executive order, I can safely say that this reeks of economic illiteracy. In a 2017 report on trade barriers, the U.S. Trade Administration stated that trade barriers [such as "Buy American and Hire American"] "distort trade, discourage foreign investment, and lead other trading partners to impose similarly detrimental measures (p. 3)." For someone who is passing the executive order with the intention of boosting the economy, this is an inferior way of going about it. A freer economy and more international trade result in better economic growth and better quality of life. International trade is about cooperation, mutual trust, and peaceful transactions. The essence of free trade is that both the buyer and seller are better off after the transaction. If not, then why bother?
I would have hoped that after hiring low-skilled foreign labor for his Mar-a-Lago hotel under a separate visa program, using undocumented labor to help build Trump Tower, and manufacturing many of his products overseas, Trump would have realized that well-run businesses do not "produce for themselves inputs that they can acquire from others at a lower cost." Trump would have also realized by now that consumers do not care so much about where a good or laborer comes from. After working in the world of market research, what I can tell you is that consumers are primarily concerned about finding the best combination of price and quality. For the vast majority of consumers, anything else is a minor concern in comparison. Acquiring the best combination of price and quality is what drives competition, which in turn, drives greater productivity. I wish Trump were guided by business acumen from the aforementioned examples instead of his own political rhetoric, but alas, here we are.
At best, this executive order is a pedantic attempt at political showmanship to show how patriotic Trump is. Assuming Trump is actually able enforce "Buy American and Hire American," it will make government services more expensive, will kill jobs, reduce the wellbeing of Americans, and limit economic freedoms.