The Obama administration’s determination to enforce 100 percent American content for high-speed train systems is roiling the rail supply industry, with some executives saying the rule would be “impossible” to achieve and others wondering how much it will slow down high-speed rail (HSR) development and add to the sticker price.
“We’re living in a global rail industry,” said an official at a large U.S. transportation manufacturer that depends on foreign parts. “Insisting on all-American content could mean losing 10 years in building our HSR supply chain.”
Karen Rae, deputy director of the Federal Railroad Administration, surprised rail advocates when she announced last month that the White House has decided to enforce the “domestic buying preference” provision of the Passenger Rail Investment and Improvement Act (PRIIA), which authorized $8 billion in HSR grants to state governments earlier this year.
Rae said at a conference sponsored by America 2050 that the administration had determined there was “enough excess manufacturing capacity in the country” to permit HSR equipment to be made of U.S. content. As a result, the administration did not anticipate issuing exemptions from the domestic buying rule, as permitted under Section 504(2) of PRIIA.
While Rae lauded the decision as a tool “to help reenergize manufacturing in the U.S.,” executives canvassed in the railway supply business say the provision could have the opposite effect.
“We could wind up getting 100 percent of nothing,” said one executive who exchanged candor for anonymity.
Things We Don’t Make Anymore
He and others say the biggest obstacle to American content is simply that this country does not produce some critical components. Take computer chips. They are not made in the U.S. There are American-owned suppliers, such as Intel, but the product itself is manufactured in Asia.
Computer chips are everywhere in modern rail cars, controlling the electric doors, regulating the heat and air conditioning, monitoring the mechanical and electrical systems, managing the P.A. systems and customer-information signs, to say nothing of Wi-Fi and other electronics that would be required in any HSR car order.
Outside of components, the sad fact is that there has not been a builder of passenger cars since Pullman-Standard Co. completed an order for Superliner cars for Amtrak in the 1980s and then went out of business.
In place of Pullman-Standard and other former U.S. manufacturing powerhouses, such as the Budd Co., a number of foreign-based companies have developed facilities to assemble rail cars.
The German giant, Siemens, builds light-rail vehicles (streetcars) from imported parts at a factory in Sacramento. Japan’s Kawasaki assembles commuter railcars in Lincoln, Neb., and New York City subway cars in Yonkers, NY.
French-based Alstom built Surfliner shells for the state of California in Brazil, shipped them to Baltimore and trucked them to a former railroad shop in Hornell, NY, for final assembly.
Bombardier built the shells for Amtrak’s Acela trains in Quebec and then shipped them across the border to a plant in Vermont for finishing. Talgo builds in Spain, but can do final assembly in the U.S.
Morrison Knudsen tried to break into the car-building business 20 years ago, but failed when projects like the proposed “Texas Triangle” HSR line collapsed.
In short, while there are many abandoned manufacturing plants in the U.S., it would take time to convert these plants into usable spaces for HSR equipment. Even more time and treasure would be required to develop a workforce capable of building technology that has more in common with modern aviation than lumbering freight trains.
What’s Consistent with the Public Interest?
China has offered to supply the equipment and engineers to help build California’s proposed HSR line between San Diego and Sacramento. If California accepted China’s offer, would the state have to repay the $2.25 billion it was awarded in PRIIA funding?
The language of the federal law is broadly written. In carrying out a rail project “funded in whole or in part with a grant under this title,” PRIIA calls for recipients to purchase “only unmanufactured articles, material, and supplies mined or produced in the U.S.” or “articles, material, and supplies manufactured in the U.S. substantially from articles, material, and supplies mined, produced, or manufactured in the U.S.”
The U.S. Department of Transportation (DOT) can waive this rule under three conditions: if the article is unreasonably expensive, if it is not produced in sufficient quantities, or if the requirement is “inconsistent with the public interest.”
It was assumed by the supply industry that the administration would use the law’s exemption liberally in order to expedite development of HSR lines. But Rae said that DOT’s No. 2 official, John Porcari, has been working with the White House to develop plans for 100 percent content and did not plan to issue any waivers.
Unintended Consequences
According to several suppliers, the literal interpretation of PRIIA could actually discourage American companies from entering the HSR field.
“Who wants to go through all these hoops only to find out you’re disqualified because some component is not considered American by a bureaucrat,” asked an executive.
One of the clearest-cut beneficiaries of the rule would appear to be domestic steelmakers supplying new track and structural steel. But who or what is a domestic steelmaker these days? Is it a company that owns plants in the U.S., a company owned by U.S. stockholders, or a company domiciled in the U.S.?
At present, foreign-owned-and-headquartered corporations control more than 35 percent of steel produced in the U.S. What’s more, half of the steel made here originates from raw materials mined outside of the country.
Similarly, GE Transportation, based in Erie, Pa., does a brisk business selling heavy-haul freight locomotives to China, Mexico, Brazil and Australia. Creating barriers for foreign suppliers may mean that overseas railroads won’t buy American in retaliation.
Getting Back on Track
The Obama administration would be wise to break free from the protectionist impulses of PRIIA and let all domestic and global rail suppliers compete for HSR contracts. Out of such competition, the best equipment and lowest prices should emerge.
A robust government policy toward high-speed rail would do wonders to revitalize entrepreneurship and encourage the private sector to enter the field.
This is the true challenge facing the Obama administration — establishing a long-term strategy for HSR, including how to finance the system. Parsing what is and isn’t “100% American” isn’t sound policy, it’s crowd-pleasing politics that will only delay the implementation of the administration’s own program.
Photo credit: Center for Neighborhood Technology’s Photostream
Tags: Amtrak, Asia, Australia, Baltimore, Barack Obama, Brazil, California, China, Federal Railroad Administration, high-speed rail, Japan, John Porcari, Karen Rae, Mexico, New York, Passenger Rail Investment and Improvement Act, Pullman-Standard Co., Quebec, Transportation, U.S. Department of Transportation
[...] Mark Reutter questions the government’s “100% American” policy for high-speed rail manufacturing [...]
If we demand that HSR trains are 100% American content we won’t get any HSR in America. We don’t have any manufacturers here doing HSR trains. We do however have all the global leaders in HSR trains with factories here building light rail cars, metro cars, etc. They will all scale up to build more of the HSR trains here once they see a sustained funding source and ongoing program to advance HSR in America.
There’s lots of debate about what made in America really means. Almost nothing we use or buy here in America is made in America at all, so finding anything that is 100% made here is nearly impossible. Our recommendation is to start the national HSR program with a wish for some of the trains to be assembled here, and then over time as the program grows, and more train orders come in, the manufacturers can gradually increase the amount of the train that is made here, to eventually the majority of them could be… but this will take a few years and a lot of train orders consistently.
Keep in mind that the trains are only about 15% of the total HSR system of any project. So we could rethink this and call for the infrastructure (the largest part of the project) all be done by American companies, or companies hiring a certain % of Americans to do the projects, and leave the trains to be shipped in from where they are made, at least at first.
Mark Reutter infers with his “…won’t buy American” comment that GE locomotives are U.S. made when less than 50% of the materials and supplies used in a GE locomotive are from U.S. suppliers. They have always had a “low-cost country” supply chain focus.
[...] Iѕ 100% American Content thе Best Route fοr High-Speed Rail? | Progressive Fix [...]
The author betrays a profound ignorance of domestic content rules, which have been in place in the U.S. since the 1930′s. I, for one, commend the Obama Administration for ensuring that tax dollars aren’t creating manufacturing jobs in Shanghai or Dusseldorf, even though the author wouldn’t hesitate to do so. We have a tremendous opportunity to build a manufacturing infrastructure for high-speed rail rolling stock in this nation, but if we fail to capitalize on this sizable public investment made by the Administration, we will depend on Asia and Europe for high speed rail in the same way we now depend on the Middle East for our oil. The author raises a red herring about foreign ownership. Buy America rules don’t care whether the firm is U.S. or foreign owned; only that the manufacturing and jobs are based in America. Anyone familiar with the rules could have told him that. But, this is just another piece by a group that has suppported trade policies that have piled up enormous deficits, cost us jobs, and eroded America’s standing as the leading manufacturer, so I’m not terribly surprised.
Perhaps inadvertently, Scott Paul reveals the intense political pressure exerted on Congress and the administration that has resulted in the 100% American content rules. He is the executive director of the Alliance for American Manufacturing, a D.C.-based group bankrolled by the United Steelworkers and U.S. steel companies. Its chief aim is to protect manufacturing jobs.
While I am a supporter of that broad goal (having written a book about the steel industry and steelworkers), I raised a point that Paul fails to answer – how can we develop HSR manufacturing when there are no American HSR manufacturers around? Delaying the program to “fabricate” such manufacturers or accepting inferior products from opportunistic domestic companies could undercut the utility of the whole program – as well as waste taxpayer money.
I have written about the tremendous opportunity to create American jobs through high-speed rail, but they must be created through superior technology and proven public benefits. Andy Kunz makes a good suggestion about how to develop a domestic trainset industry. And don’t forget that the vast majority of HSR expenditures will involve construction infrastructure, a task that American workers and companies are clearly world-class at delivering.
[...] high-speed rail, imitation can be an appealing form of flattery. While the Obama administration is literally tying the railway supply industry in knots by insisting on trainsets built solely of U.S. content, China [...]
[...] stepped up to this task. Pullman-Standard, the last U.S. manufacturer to build rail passenger cars, exited the business 25 years ago. General Electric makes world-class locomotives, but these are freight locomotives [...]
When WWII was on the Horizon,the US Govenment and Industry formed a Board for the co-ordination of wartime manufacturing which retooled industry and created new manufactures. It was a “CAN DO” mentality” We better get a “Can Do” Spirit back into our thinking our or Future jobs will go the “Other Gut”. We may need to crawl,we may need to retrain our thiking about Country First. And we may need to Rethink the concept of “Global Economy”. We need jobs now!! Let’s demand and get Ameica Back to Work! Innovate do nonot Procratinate!!!!