Buy American Requirements
- Specify the main points of the Buy American Requirements
- Determine the substantive means by which the Buy American
Requirements would benefit both VectorCal and your new
company. Provide a rationale for your response. - Analyze the fundamental ways in which the Buy American
Requirements are contradictory to a capitalistic ethos, given
that the U.S. government claims to promote competition and
the U.S. espouses a free market ideology (i.e., capitalism). - Determine the key advantages and disadvantages of using the
Buy American Requirements with the navigation system that
both VectorCal and your company produce. Justify your
response.
Buy American Requirements 2
Introduction
- The Buy American requirement has its origins in the Buy American Act of the year 1933 that
was signed into law by President Hoover just before he left office as the American President in
March 3, the same year. The Act requires the United States government to undertake in all its
purchases a preference for U.S made products.
However, in certain procurement the government may waive the requirement if the local
products which are identical to the foreign sourced are expensive or are not available locally as
per the specified quantity or quality. The requirement may also be waived on public interest.
The President of the US has been given authority under the same Act to waive its provisions
within the arrangement of reciprocal trade agreement with a country that shares reciprocal
treatment with the United States producers. Such provisions extend to the arrangements of
General Agreement on Tarrifs & Trade that was created in 1979, the US- Canada Free Trade
Agreement, World Trade Organization, the Government Procurement Code and the U.S. – Israel
Free Trade Agreement.
In construction industry and in all the infrastructure projects that involve repair work, alterations
or maintenance or other public works the materials used to accomplish such works must be
purchased from sources that have manufactured the products in the US (National Conference of
State Legislature, 2009, pg 2). The material used that may include iron, steel or any other
material must have been manufactured from the US.
Goods that have been manufactured in the US are defined as goods that have been wholly
produced or manufactured in the US or materials used in their transformation processes may
have been imported from other countries but the transformation or the manufacturing process has
Buy American Requirements 3
taken place in the US.
- Buy American Act was instituted to benefit the American companies operating in the US
thereby promoting the US economy by creating employment and wealth for the U.S. To benefit
from this Act, a company has to be located in the U.S. and also be legible to supply materials or
manufactured products to the U.S. government. The provisions of the Buy American Act are
very clear on the origins of the products that are supplied to the U.S. government. All the
products supplied must have been manufactured or the materials supplied must be from the US
(National Conference of State Legislature, 2009, pg.3).
Several Acts guide the stipulations of the requirements that outline all the provisions governing
the supply of goods to the US government. The Code of Federal Regulations supplements the
provisions of the Federal Acquisition Regulation that governs the administrative law that
oversees the implementation of the Armed Services Procurement Act as well as the Federal
Property and Administrative Services Act.
The bulk of U.S. governments contracts are from the defense department hence are strongly
regulated under the International Traffic in Arms Regulations (McVey, 2011, pg.4). The other
contracts are regulated under uniform commercial code.
To benefit fully from the Buy American provisions the company must set their bases in the US
and also abide by the US procurement amid other relevant government statutes. - Capitalism describes an economic system where all the means of production including trade
and industries are owned privately with the sole objective of maximizing profits. Capitalism is
the concept of embracing the principles of a free market economy where the prices of goods are
determined by their demand and supply. The favorable goods attract high prices because of their
Buy American Requirements 4
quality, value and utility hence their demand is also high. On the other hand poor quality goods
attract less demand probably because of their low quality and poor utility. The major components
of capitalism are private property, wealth accumulation, labor and competitive markets. The US
government subscribes to the principles of capitalism (Korstanje, 2015, pg 15).
Capital market economy is driven by independent capital investors who eventually determine the
prices that their assets and how to maximize on available demand. There are different models of
capitalism which depend on the level of intervention, regulation and the degree of state
ownership. The common capitalist market is the laissez-faire (free market capitalism) while
others are the state capitalism and welfare capitalism.
American government adopted the capitalist system as a way of promoting free trade in the US
and also across the world. The tenets of a capitalist system entail the adoption of a free market
economy and where the government’s role is limited to the provision of infrastructure that
facilitates free trade. The introduction of the Buy American Act interferes with the objective of
the laissez-faire principle where business decisions are determined by the market forces and the
government has no role in the market. By restricting government tenders to only American
companies the US government contradicts the principles of free market (Harvey, 2014, pg 12).
The requirement that the materials used must have been extracted or transformed substantially in
the US to quality for inclusion under the act represent a direct contradiction to the principles of a
free market economy where all the buyers and sellers have equal opportunities in the market.
Discriminating against traders from other countries is against the rules of liberalization.
- The principles of Buy American only contradict the US stand on fair trade practices. The Act
sets a bad precedent in the face of globalization where healthy competition encourages efficiency
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and improvement of product quality. Buy American is an act of discrimination against other
companies that manufacture the same products but are from different countries other than the
US. The act discourages importation of affordable and quality products from foreign countries
hence the government is limited to purchasing products from the US market only and the
opportunities of procuring better and affordable products from other countries is lost.
However, the act has been designed to favor small American companies that are still struggling
to enter the international market. The provisions of the Buy American Act favor small American
companies that are still developing at the expense of large and well established companies that
enjoy economies of scale. For many years large multinational companies that have huge budgets
for advertisement and also a lot more for research and development have monopolized the
American market leaving very little room for the growth of small family business that have little
upstart capital. The American government has gone out of its way to encourage the growth and
development of these micro small companies by buying their products as long as the products are
standardized and conform to the minimum requirement stipulated under the uniform commercial
code and other relevant contract documents (National Conference of State Legislature, 2009, pg
4).
The other advantage of the Buy American act is the ability to tame the excessive competition that
is presented by multinational companies that are driven wholly by the single motive of profit
maximization. Without the preference of the act large companies would outmaneuver the small
firms given their vast resources and extensive experiences besides their huge marketing budgets.
However, favoring small companies encourages inefficiency and production of substandard
goods (Dana, 2000, pg 65). The small companies find it convenient when reservations are made
for their produce to enter the market hence such firms do not work hard to earn their incomes.
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Buy American discourages the availability of substitutes in the American markets as most
companies would relocate to countries where the opportunities for profit maximization are equal
to all the trading companies.
- Using the requirements of Buy American promotes the development of the economy. The
requirement increases job opportunities for the Americans and it also encourages the growth of
the manufacturing sector.
The act promotes innovation and research activities for navigation systems in vectorcal and other
developing companies. Buy American Act provides an opportunity for the US government to
advice the small upcoming companies on the best business strategies and modern methods of
product development (National Conference of State Legislature, 2009, pg. 3).
The requirement by the Buy American Act that companies seeking to do business with the
government must have their business or plant locations in the US encourages investment in the
US by the American citizens. Investment creates employment for the Americans as well as
improves tax revenues for the government.
The major disadvantages of the Buy American Act is that it discourages the distribution of goods
and services in particular markets as companies that feel segregated may shun the American
market hence deny the Americans the opportunity to sample all the best products that are
available globally.
There is fear that other countries may also institute similar acts in their home countries hence a
backlash of the American Act can also affect large American multinational corporations that
operate globally.
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The restriction of government procurement to a limited number of companies that operate in the
US opens fertile grounds for perpetuation of inappropriate fraud by the state agents in charge of
the award of the tenders. There are some economists who argue that Buy American would
eventually lead to more job losses than actual creation. Most of the Buy American products are
more expensive in the market and more resources which would have been used on other services
but most of the money is tied on promoting the American products (Stossel, 2011, pg.10). Across
the world people prefer to buy less expensive products while saving the balance for later use
hence countries have specialized on production of products that they possess the highest
comparative advantage in its production. Free market encourages more productivity, high
efficiency in production and increased specialization. On the other hand protectionism
encourages inefficiency and retrogressive growth (Stossel, 2011, pg.10).
Finally to conclude, every country needs to develop its own policies to improve its own economy
and empower its own people. The American economy can be described as a mixed system where
the best of capitalism have been merged with the best of socialism. The greatest disadvantage of
capitalist systems is the inequality in income distribution that is associated with the system. The
rich control most of the economic decisions that border on wealth creation.
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References
Dana, F. (2000). Buy American: The Untold Story of Economic Nationalism. Beacon Press.
p. 65.
Harvey, D. (2014). Seventeen Contradictions and the End of Capitalism, Oxford University
Press .
National Conference of State Legislature (2009) The Forum of American Ideas, Buy American
Provisions in the American Recovery and Reinvestment Act (ARRA), A summary Based
on Interim Final Guidance Issued by the Office of Management & Budget, April 3, 2009
Korstanje M. (2015) A Difficult World: examining the roots of capitalism. New York, Nova
Science Publishers.
McVey, T. (2011) ITAR – What Government Contractors Need to Know
government-contractors-need-know
Stossel, J. (2011) The Stupidity of “Buy American” The Case Against Economic Protectionism
