Days after his inauguration, President Biden signed an executive order modifying the rules for the Buy American program. Essentially, the order will:
- Make it harder for contractors to qualify for a waiver and sell foreign-made goods to federal agencies.
- It changes rules so that more of a manufactured good's components must originate from U.S. factories.
- American-made goods will also be protected by an increase in the government's threshold and price preferences, the difference in price over which the government can buy a foreign product.
- To help enforce these goals, the order establishes a job at the White House Office of Management and Budget to monitor the initiative and focus on ensuring the government buys more domestically made goods.
- It also requires federal agencies to report on their progress in purchasing American goods, as well as emphasizing Biden's support for the Jones Act, which mandates that only U.S.-flag vessels carry cargo between U.S. ports.
We recently sat down with Eskander Yavar, national leader of BDO’s Manufacturing practice and a NAM Board Member to discuss some of the impacts of the President’s order.
Jeff Reinke, editorial director: One of the biggest questions manufacturers have is how the Biden administration will handle China, in terms of trade restrictions, tariffs and IP protection. From a manufacturer’s perspective, how will the president’s plan address concerns about China?
Eskander Yavar, BDO: We may see a continuation of some of the policies from the Trump administration, meaning policies that prioritize American business and manufacturing. Biden may also focus on opening China’s state-dominated economy, rather than just on narrowing China’s multibillion-dollar trade surplus with the U.S., which was where the Trump administration predominantly put its' focus. However, we may also see Biden take a less aggressive approach. He has already extended the deadline for a ban on Americans investing in companies tied to the Chinese military.
According to BDO’s 2021 Manufacturing CFO Outlook Survey, trade policy stability was one of the top five factors that CFOs say is most crucial to the manufacturing industry’s recovery. While trade tensions with China are unlikely to be entirely resolved in the near future, resolving trade issues with close U.S. allies may be more likely under Biden.
Manufacturers that rely heavily on sourcing from China may want to consider diversifying their supply chains geographically to reduce the impact of tariffs. Additionally, all manufacturers that import should review the tariff codes that they’re applying to their products to make sure you are applying them appropriately. If you discover that you are improperly applying a tariff code, you can change the tariff code and may be able to reap savings.
JR: Do you see President Biden’s plan doing anything to influence U.S. manufacturers to move more manufacturing activity, not just out of China, but directly to the States?
EY: Yes, based on his recent “Buy American” executive order and what was said on the campaign trail, I think Biden will support policies aimed at bringing more manufacturing capacity and jobs back to the U.S.
For example, Biden has stated he wants to penalize companies that offshore manufacturing jobs in order to sell goods back to the U.S. market by imposing a 10 percent penalty surtax on such profits. Biden has also stated he wants to close offshoring tax loopholes in the TCJA, and that he wants to grant a 10 percent “Made in America” tax credit to encourage businesses to produce goods in the U.S.
We may also see legislation that aims to reshore the manufacturing of products deemed critical to U.S. national security, such as medicine and medical devices. Our survey found that 22 percent of manufacturers are already planning to re-shore their supply chains to the U.S. in 2021, and new financial incentives could motivate more manufacturers to consider reshoring as well.
JR: Supporters of the Trump administration lauded tax cuts and reinvestment incentives that seemingly boosted U.S. manufacturing and the overall economy. Will U.S. manufacturers see more of these types of incentives from the Biden administration?
EY: I think we’re going to see a similar approach to bolster U.S. manufacturers with tax credits and incentives. However, with the Democrats having a narrow majority in Congress, a lot of Biden’s plans and intentions hinge on what policies can pass Congress. I think we may also see a more multi-lateral approach when it comes to negotiating trade agreements with other countries, whereas with Trump we saw more of a unilateral approach, such as his withdrawal from the Trans-Pacific Partnership.
We’ve already seen some of these tax credits and incentives be proposed by Biden, such as the “Made in America” tax credit mentioned previously. We’ve also seen Biden increase the amount of U.S. content that must be in a product to be considered made in America under existing “Buy American” requirements. Manufacturers should pay attention to any new federal incentives that are passed by Congress and incorporate them into their supply chain planning.
BDO USA, LLP is a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies.