new York Does the wind turbine off the American east coast have to come 100 percent from the USA? German companies ask themselves these and similar questions when it comes to the trillion dollar economic stimulus packages from Washington. Congress postponed the vote on the more than one trillion dollar infrastructure package at the last moment to next week. But one thing is already certain: “Buy American” will be a condition.
German companies also have to adjust to this. Those who are not already on site have to buy in production in order to benefit from the dollar blessing. This applies to the infrastructure package as well as to the social and climate package linked to it. Even if the final details have not yet been determined: In both legislative packages, the requirements for the US portion of the products will be even stricter than under Donald Trump. Observers are therefore already expecting a wave of takeovers in the USA.
When the new government under Joe Biden announced their mega investments in the climate change at the beginning of their term in office, German companies had already sensed their chance of the century. Whether Siemens, BASF, RWE Renewables, ENBW or the automotive supplier ZF: They all hoped for more business from the new course in Washington. When it comes to renewable energies, European manufacturers are often further ahead and can provide important know-how in the area of wind energy, for example. But it couldn’t be that simple.
“The biggest obstacle for foreign companies is that Biden is taking ‘Buy American’ dead seriously,” said Jacob Kirkegaard of the Peterson Institute for International Economics, a think tank in Washington. “Biden’s climate change goes hand in hand with the revival of working-class jobs. That’s his answer to Donald Trump, ”he explains. Kirkegaard is convinced that companies that are not already on site with their production would have to buy local production companies. “There will be a wave of takeovers in the US,” he predicts.
Top jobs of the day
Find the best jobs now and
be notified by email.
Daniel Kronenwett from the strategy consultancy Oliver Wyman can confirm this from practice: “I am currently experiencing a strong desire among many of my industrial goods customers to make acquisitions in the USA,” he reports. He is convinced that this will tend to increase, “both to improve local access and to be able to participate more quickly in the high growth opportunities in the US”. After all, an organic structure takes much longer. However, Kronenwett also points out that US companies are currently very highly valued.
“Buy American” applies to both polymers and steel
“Buy American” – with these words the draft of the infrastructure package overwrites the requirements for public tenders: Anyone who wants to get around one trillion tax dollars must also produce and create jobs in the USA. The requirements state that US companies with US production must be given preference in tenders and that the materials – from polymers to steel – must also come from the USA.
Kirkegaard explains that these regulations also affect local tenders. “Buy American” rules at the local and state level in the infrastructure sector and “Buy American” rules for procurement at the federal level are nothing new in and of themselves. The clauses have been around for many decades. But now the required local share is to be increased.
Companies that already produce locally for the US market have better chances. Bonnie Tully, head of the US subsidiary of the Essen-based specialty chemicals company Evonik, expects business to be booming: “Many of our customers benefit directly from the construction of roads, bridges, airports, rails, the charging network for e-cars and investments in clean energy, ”explains Tully to the Handelsblatt. This also means higher demand for Evonik products.
In Tully’s opinion, the new local requirements will not diminish the outlook for Evonik with its 5,000 employees in the USA. “Evonik produces almost all of the products that are sold on the US market in North America,” explains the US boss. North America already accounted for 24 percent of group sales last year at just under $ 3 billion.
Exceptions for products that do not exist in the USA
Ullrich Umann, head of the office of Germany Trade and Invest (GTAI) in Washington, points out that German manufacturers, even with “Buy American” clauses, have supervision of business deals if their products or services have unique selling points that are not American can also offer other foreign competitors.
“In the area of infrastructure, these include engineering planning work, energy-efficient construction (passive and active houses), facade designs, complex bridge and tunnel constructions, but also components of water technology or mechanical engineering products,” explains Umann. In environmental and climate protection projects, the German economy has a knowledge advantage, among other things, in the establishment of offshore wind power fields. But there are also unique selling points for certain applications for hydrogen, be it for electrolysis processes, the production of green steel or fuel cell technology.
For example, SMA, Germany’s largest solar group, does not expect the “Buy American” clauses to restrict them. “On the one hand, there are currently no US competitors for our products and, on the other hand, the US market will be so large that the part reserved for US companies is a maximum of a third according to current calculations,” says a spokeswoman about future installations. SMA manufactures inverters and generates almost a quarter of its sales in the USA.
Despite these highly specialized manufacturers, GTAI expert Umann also expects German companies to expand their presence in the USA by setting up branches, entering into joint ventures or even buying companies. “German planning and architects’ offices work with US partners because only these are authorized to sign in the respective state,” he explains.
“Buy American” is only one reason for this. “Orders from the private sector can also be acquired more easily if you are represented on site, if after-sales service can be guaranteed and if the service staff is trained in-house,” says Umann.
“There will be a boom, but not an export boom”
The consultant Kronenwett also anticipates enormous potential for German companies despite stricter local requirements: “There is still an opportunity of the century for German equipment manufacturers – despite the ‘Buy American’ tightening”, he is convinced. The sheer size of the program and the ambitious timeline towards climate neutrality require technological innovation, a large number of “green” equipment products and all of this in a relatively short period of time. “US companies are unlikely to be able to do this on their own,” he says.
“There will be a boom for German companies. But that won’t be an export boom, ”says Kirkegaard from the PIIE think tank. “Rather, the US share of companies’ sales will increase.” That is good for the corporations. But in Germany you will not necessarily feel any of this.
Kirkegaard advises German companies not only to increase their presence in the USA but also in the individual states in order to be able to participate in local tenders. “You should also play the union card and talk about the traditionally good management-union relations and the training system,” he says. “That goes down well with the current government.”
More: US House of Representatives postpones vote on infrastructure package