President Biden recently mentioned in the State of the Union address plans to require more U.S.-manufactured building materials in federal construction and state and local buildings that are federally funded. Buy American rules like this are always popular with politicians but sometimes have counterintuitive effects. And the Biden administration rules for American-made materials in federal construction could soon become even stricter.
In the past, materials could qualify as American-made if at least 55 percent of the value of their components were sourced domestically. This has enabled companies to get some materials from different countries to reduce costs. But in 2021, Biden signed an executive order that gradually increased the percentage of value to 60 percent and then 75 percent. At the recent State of the Union, Biden doubled down, saying all construction materials used in federal infrastructure projects must be made in America, meaning 100 percent.
These requirements will cover many federal building projects if the rule is passed. And considering the rise in building materials prices in recent years, it could worsen things. Construction materials have been up 40 percent since February 2020, and restricting supply to American-made could squeeze contractors who are already challenged in getting materials globally at a reasonable cost. While the requirements will only cover federal projects, there could be spillover impacts in private commercial real estate. Large contractors likely won’t let go of lucrative federal contracts but may raise prices across the board for all customers. Buying American made goods can create jobs, but only if people are willing to pay more for it.