Early in President Biden’s administration, he signed several executive orders aimed at strengthening manufacturing in Chicago and across the United States. Some of those were focused on COVID-19 recovery and resilience, while others are set to have a more lasting impact on the role of manufacturing in federal procurement and supply chain diversity. Executive Order Ensuring the Future Is Made in All of America by All of America’s Workers (“Made in America”) was signed just a few days into his presidency, and the following month, Executive Order on America’s Supply Chains (“Supply Chains”) solidified a U.S. focus on strengthening manufacturing.
It is estimated that the federal government spends around $600 million annually on contracting. While much of this amount is supposed to go towards American companies, loopholes and waivers often mean that more foreign-produced content can be purchased than what might otherwise be allowed. To ensure that American-made goods are prioritized, these Executive Orders outline the appropriate changes which need to be made. To help clients, prospects and others, Selden Fox has provided a summary of the key details of both Executive Orders below.
Made in America Executive Order
The Made in America Executive Order signifies a coordinated push to strengthen U.S. manufacturing by requiring federal agencies to buy more domestic products. There is a limited impact now in the short term but that could be changing soon as the deadline nears for the Federal Acquisition Regulatory Council to propose tightened rules to the Federal Acquisition Regulation (FAR).
Component Test and Other FAR Rules
These proposed rules center around the component test, which certifies compliance of domestic products; requirements for how much end products and construction materials constitute ‘made in America;’ and increases price preferences for domestic products and construction materials. The component test in Part 25 of FAR currently measures domestic content by whether it is manufactured in the U.S. with at least 50 percent of American-made components unless it is an off-the-shelf item. President Trump’s EO 13881 raised the numerical threshold to 90 percent for iron or steel and from 50 to 55 percent for other products, and these numbers could increase again.
New rules, which have yet to be released, will seek to measure domestic content by value-adds from U.S.-based production or U.S.-based economic activity. It is likely that once final guidelines are released, manufacturers will need to conduct a per-product analysis to determine if it meets the revised standard. This will be especially true for any components that are sourced overseas.
Once implemented, these new rules should close existing loopholes in how content is measured. Federal agencies will likely ramp up efforts to find more domestic manufacturers, especially small to mid-size companies, that can help increase the domestic output. The potential result is an expected opportunity for Chicago manufacturers.
Jones Act
The EO also mandates that only U.S. ships may carry cargo between U.S. ports consistent with securing and prioritizing American supply chains. Some believe that including the Jones Act is a sign that federal infrastructure projects will be getting a boost surrounding ports, maritime interests, and offshore renewable energy.
Waivers
Waivers, already mentioned as a way to avoid domestic procurement requirements, will likely be more difficult to come by in the future. The EO didn’t explicitly revoke any existing waivers, like if there are unreasonably high prices for U.S. products. However, instructions were given to federal agencies to review their own waivers and consider suspending, revising, or rescinding any inconsistent with Made in America priorities. In the short term, the process of obtaining waivers will probably be longer.
Made in America Office
To help usher new guidelines into practice, the EO established a Made in America office and developed a website to increase federal procurement transparency. The Made in America office will have greater oversight over potential waivers of domestic preference laws. According to Celeste Drake, Director of the Made in America Office, “the short- and long-term goals of the initiative are as much about increasing the goods and services bought from American companies as they are about data around how agencies make buying decisions.”
Supply Chains Executive Order
The purpose of this EO was to create an initial step to gather information on the global supply chains and subsequently provide potential reforms and strategies after key information is collected.
The Order requires two assessments by government agencies:
(1) An initial 100-Day Supply Chain Review focusing on key supply chain risks relating to semiconductors, batteries, strategic minerals, and pharmaceuticals; and
(2) Sectoral Supply Chain Assessments in certain critical business sectors (e.g., national defense, public health, information and communication technology, energy, transportation, and agriculture), which will determine the extent to which these critical sectors are reliant on products from so-called “competitor nations.”
Each assessment requires coordination among various executive agency heads.
In June, the 100-Day Supply Chain Review assessment was issued. While each segment was noted as facing its own unique challenges, some of the common elements were lack of domestic production and/or reliance on foreign nations, diversity in the supply chain network, sustainability, and technology and innovation. Particularly, the report recommended increased support for small and medium-sized manufacturers and disadvantaged firms in the supply chain. Cybersecurity remains a top priority across all industries, not just in this EO but in other presidential and government actions.
Next year, an in-depth review of more supply chain sectors will be published, which will cover transportation, public health, energy, and agriculture, to name a few.
Current State of Manufacturing
Reflecting some of the priorities laid out in the Made in America EO, many U.S. manufacturers struggle to remain competitive with foreign markets. Especially for manufacturers of semiconductors, communications equipment, precision tools, metals and chemicals, and autos and parts, they are losing ground compared to global production. On the other hand, R&D-and design-driven sectors like computer-systems design and scientific R&D have grown substantially.
The manufacturing industry is growing, even if growth has stalled somewhat in recent weeks. According to the Institute for Supply Management’s most recent manufacturing business index, the PMI fell slightly in June to 60.6%, which still represents growth mode. Production continues to grow while the rate of new orders slowed down; difficulty filling jobs ranks high on many manufacturers’ priorities. Despite a national focus on supply chain resilience, disruptions continue.
Manufacturers are also still waiting on the outcome of the federal infrastructure bill, which has been modified from its original proposal.
Contact Us
While these Orders provide general guidance on how procurement will be addressed and other changes implemented, the devil is in the details. In any case, Chicago manufacturers will have a new opportunity to take advantage of the renewed domestic focus in the coming months. If you have questions about the information outlined above, or need assistance with a tax or accounting issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
