WASHINGTON—The Build American, Buy America (BABA) provision in the recent infrastructure bill strengthens and expands the number of American-made products purchased by the federal government. It applies to most of the infrastructure spending, including potentially to information technology (IT). And while well-intentioned, applying increased and stricter BA provisions to IT purchases related to infrastructure will increase infrastructure costs, which will reduce the scope and quality of the national infrastructure build. According to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, if BA is applied to IT purchases, IT costs would increase by 25 percent, on average.
“Boosting U.S. manufacturing output is critical, but applying BA provisions to IT is not the solution,” said Rob Atkinson, president of ITIF and author of the report. “This will only raise costs, reduce infrastructure build, and delay project completion—all without creating any net new jobs.”
The BABA provision aims to use infrastructure spending to better United States infrastructure and increase U.S. manufacturing output, including IT output; however, these goals fail to recognize IT’s unique issues. Significant portions of the IT industry are outside of the United States. Because of this, the United States would need to bring back or create new IT production from scratch, which is a lengthy process. Additionally, innovation, specialization, and economies of scale are critical to the IT sector, making it challenging to reshore production.
Using an original model to estimate reshoring costs of 10 products across various four-digit harmonized system (HS) tariff codes that represent several of the essential IT goods, ITIF’s analysis estimates that imposing the BA requirements onto IT products for infrastructure spending would mean infrastructure providers would pay an estimated 25 percent more for IT products. Imposing BA on IT goods could also lead to higher prices and lower productivity growth, leading to higher inflation.
The U.S. share of global computer and electronics output had already fallen 8.2 percentage points between 1999 and 2009 when the Obama administration provide a blanket waiver for IT products in the American Recovery and Reinvestment Act of 2009. Since then, U.S. domestic IT capabilities have weakened even more, dropping another 2.3 percentage points of global market share.
The report explains that without stronger domestic IT manufacturing, applying BA will only boost costs and delays. But, if the United States were to adopt a more strategic advanced manufacturing strategy first, and spur the development of more IT manufacturing, then later application of BA to IT would be more likely to produce positive economic outcomes.
“The United States cannot create protected imperial markets, but BA is an attempt to create a protected domestic market, and this strategy will fail to produce a globally competitive sector, just as the United Kingdom’s strategy failed,” said Atkinson. “The federal government should focus on policies to foster U.S. technology innovation and production strength so U.S. IT can compete on its own globally.”