Current trade agreements mean foreign companies, including some big firms in Mexico, might well get in on the building of the president’s wall.
By T. Christian Miller
In one of his first tweets as president, here’s how Donald Trump promised to spend taxpayer dollars:
“We will follow two simple rules: BUY AMERICAN & HIRE AMERICAN!” he tweeted 55 minutes after taking the oath of office on Inauguration Day.
In the first big test of that pledge, here’s the reality: The Trump administration has opened the doors for firms from Mexico, El Salvador and other free-trade treaty countries to supply big-ticket items for the wall, the barrier along the United States’ southern border that Trump made a centerpiece of his campaign.
Earlier this month, U.S. Customs and Border Protection announced a bidding contest to start building the wall, which Trump wants to stretch a thousand miles, perhaps up to 30 feet high. Buried in the bid notice is language that permits the purchase of non-American materials for any contract worth more than $10.1 million.
Homeland Security has estimated the total cost to build the wall at around $21 billion — leaving plenty of room for orders for tens of millions of dollars’ worth of concrete, steel and other construction material.
Allowing the wall to be built with non-American materials is no oversight — it’s what is required under U.S. trade law.
“If we’re going to comply with our trade agreements, you can’t say we’re only going to buy American,” said Jean Heilman Grier, the U.S. representative who negotiated procurement issues with the World Trade Organization and other international trade treaty partners.
The hurdles facing Trump in buying American-made goods on this signature project is emblematic of the larger problems he will face in implementing an “America First” agenda. The U.S. has made promises over the years in trade deals, and foreign countries and companies can seek to enforce them.
The Buy American Act was passed in 1933 to encourage the federal government to purchase materials made mostly in the U.S. But the law is superseded by many of the free trade agreements the U.S. has entered over the years, such as the North American Free Trade Agreement, which includes Mexico.
Under most such treaties, the U.S. cannot apply the Buy American law for contracts worth more than $10.1 million, an amount that adjusts every two years. Similar restrictions exist for partner nations that seek to impose their own local preferences.
The primary reason that trade deals include such language is that U.S. companies want the opportunity to compete in bidding sponsored by other national governments. Foreign military and construction projects can be worth hundreds of millions of dollars.
At the same time, trade negotiators agreed to allow favoritism for national companies, only on smaller, bread-and-butter projects under the $10.1 million cap. But even for those, a company can get around the Buy American provision if it can find foreign suppliers whose prices are 25 percent cheaper than U.S. firms.
A note: the Buy American provisions are riddled with arcane language and exceptions. For instance, many transportation projects operate under a separate set of Buy American rules. But the general idea is that the U.S. supports free trade — and gets cheaper prices — by allowing government contractors to buy their supplies from any trading partner nation.
Presidents have tried to get around the free trade agreements. President Barack Obama attempted to implement Buy American requirements as part of the Recovery Act stimulus package that followed the recession. He encountered resistance from trade partners and anger from U.S. companies that found the buying requirements complex.
Shortly after last year’s election, President-elect Trump’s Defense Department transition team set up a special “Buy American” working group to come up with ways for Trump to use executive orders to set aside treaty obligations, according to a Washington, D.C., attorney who participated in the discussions.
“I explained that this could not be done by the stroke of a president’s pen on an executive order,” said the attorney, who requested anonymity due to his contacts in the Trump administration. “This put the idea into the ‘too hard to do’ category. The result: the task force gave up on this idea.”
Most recently, Trump issued a directive in January that the Keystone XL pipeline be built with American steel. He boasted about inserting a “little clause” to enforce the requirement. But the directive became moot after it emerged that Keystone had already purchased much of the steel from companies based in India, Italy and Canada.
Trump has issued no directives regarding construction of the wall.
“It’s not as simple and straightforward as individuals not familiar with the process might think it is,” said Stephen Gordon, the program director for procurement and contract management studies at the University of Virginia.
If Trump insisted that contractors purchase from American companies, he could renegotiate the trade agreements — a path he has said he would like to take with NAFTA.
It is also possible for him to simply ignore the existing agreements. Such an action would invite a trade war or a trip to a trade dispute forum. But whether a trade partner would challenge the U.S. in such a way is an open question.
“The law school answer is no we can’t” ignore trade obligations with other countries, said David Drabkin, a former senior federal contracting officer with the Pentagon and the General Services Administration. “The practical answer [is], where would they go to challenge the U.S. decision?”
The White House did not respond to emailed questions. A spokesman for Customs and Border Protection said the agency was too busy with questions from other media organizations to respond.
Further complicating Trump’s effort to buy American are the difficulties of acquiring material in the remote and potentially hostile border zone. Construction would require from 8 million to 12.6 million cubic yards of concrete, according to estimates. By way of comparison, the Hoover Dam required only 4.4 million cubic yards.
Two of the three companies best positioned to supply concrete and cement to the border region are based in Mexico, according to a research note by AllianceBernstein, an investment firm. They are Cemex and GCC, both major building suppliers with plants along the border. The third company is CalPortland, with headquarters in Glendora, California.
While the Mexican government has warned companies against participating in the wall construction, Cemex and GCC have both indicated interest. GCC’s top executive told Reuters in November that the company was willing to sell to contractors building the wall. Cemex has ruled out participating in the bid directly but has been cagey about whether it would be a supplier.
Trump has insisted that Mexico will pay for the wall. During his campaign, he suggested he would issue new regulations to stem the annual $24 billion flow of remittances sent by immigrants unless Mexico agreed to finance construction. More recently, the administration has floated the idea of a border adjustment that would tax imports from abroad. Mexican leaders have rejected the proposals.
In the meantime, Trump has proposed spending $4 billion of U.S. taxpayer money to build the wall over the next two years. Even that amount now seems in jeopardy. Republican Congressional leaders told Politico that they do not plan to fund the administration’s $1.4 billion request this year.
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