Estimating the impact of the 'Buy America' provision on steel imports

This study estimates the impact of the "Buy America" provision of the American Recovery and Reinvestment Act (2009) on US steel imports. This policy, as part of the almost $800 billion stimulus package, required that all iron, steel, and manufactured goods, including $48 billion in transportation projects, be made in the US. However, the ‘Buy America’ provision does not apply to trade partners that are signatories of the WTO’s Government Procurement Agreement (GPA), which includes most industrialized countries. It also does not apply to US FTA partners and members of the Caribbean Basin Agreement.   BRIC countries (Brazil, Russia, India, and China), however, are not members of the GPA and were thus particularly likely to be affected by the ‘Buy America’ policy.  This paper estimates the impact of the “Buy America” policy, in order to assess whether the policy caused steel imports to shift from BRIC economies to GPA-member countries and/or to domestic producers.

Empirical results suggest that the primary effect of the Buy America policy was to shift the share of imports away from non-GPA members in favor of GPA members. Our data include a panel of quarterly observations of steel imports from GPA and non-GPA signatory countries spanning the period 2006.1-2012.3 across six different steel products. Our econometric estimates indicate that the Buy American policy reduced the share of steel imports from non-GPA members by about 3%, with the bulk of this effect stemming from lower shipments from China. However, our results also show that the trade diversionary impacts of the Buy America policy varied significantly across different steel products.