America's public bus service would be cheaper, greener, and better if federal rules didn't prevent cities from sourcing buses internationally. That's the finding from a recent working paper by economists Shanjun Li, Matthew Kahn, and Jerry Nickelsburg.
In the United States, public bus procurement relies extensively on federal subsidies—federal funds account for up to 80 percent of transit agencies' capital expenditure. The subsidy's intent is to improve access to public transportation in urban areas, but the federal funding is not unconditional. To qualify, cities must buy American-made buses.
The Buy-American mandate means that the bus must undergo final assembly in the U.S. and consist of 50 percent American-made components. Given the large role of federal funding in bus procurement, the Buy-American proviso effectively shuts out foreign competition. The main problem with this is that American-made buses are more expensive and pollution-intensive than their international counterparts.
The Li, Kahn, and Nickelsburg research suggests that buses in Tokyo and Seoul are about half the price of U.S. buses. Chinese buses, the vehicle of choice in the wealthy city-state of Singapore, are even cheaper. They also find that the fuel efficiency of bus fleets in Tokyo and Seoul is significantly higher than that of the U.S. bus fleet. Though the bus fleets of both Tokyo and the U.S. are diesel-dominated, the fuel economy of buses in the U.S. is 3.54 miles per gallon compared to 4.74 in Tokyo.
The Buy-American rule appears to be propping up a small and relatively uncompetitive domestically oriented bus industry. Very few public buses in the U.S. are produced abroad. Whereas major international bus makers like Daimler and Volvo have production facilities throughout Europe, Asia, and South America, none of the five firms that dominate the American market for public buses have operations outside of Canada or the United States. The annual sales of domestic producers are also far lower than the major international firms.
By insulating U.S.-based bus makers from foreign competition, the Buy-American requirement puts American tax-payers in a perverse position. Americans pay more to subsidize public bus fleets that impose comparatively high costs on the environment and public health. The higher prices also mean that cities are unable to afford additional buses for high-demand routes or periods of peak ridership. The inconvenience of the correspondingly lower-quality service may lead even more commuters to take private vehicles, further increasing emissions.
The cost of Buy-American protectionism for buses is therefore the difference in the price of domestically versus foreign-produced buses, along with the negative externalities associated with a more pollution-intensive bus fleet and poorer bus service. As the Li, Kahn, and Nickelsburg research suggests, free trade would make the fleet of public buses greener and cheaper. At lower prices, cities could buy more buses and improve service, leading to higher ridership and lower levels of traffic congestion and pollution.