Comparing BAA Compliant TAA Compliant and Made in America: Will purchasing products that are BAA Compliant help avoid paying tariffs?
For most people not intimately familiar with the nuances of US Government contracting, the terms Made in USA, Buy American Compliant (BAA), Buy America, Build America (BABA), and TAA Compliant can all seem essentially interchangeable. Most commercial users in the private sector have a vague understanding of what each of these terms mean but may not be familiar with the critical details the separate each designation from the others.
Similarly, in our current environment of rapidly evolving US trade policies based on the America First Trade Policy Memorandum released on January 20, 2025, many of these terms have been used when referring to products that may be exempt from the current tariffs on steel, aluminum, and copper or additional levies in place for foreign-made goods, particularly those from countries such as China, Mexico, and Canada.
The critical power and cooling industry is truly one that relies on global trade. Chassis are made of steel or aluminum from various countries, printed circuit boards are typically manufactured in China, Taiwan, and South Korea. Sealed lead acid batteries are most economically manufactured in Vietnam, and lithium-ion batteries are primarily made in China. Because key components are typically of Asian origin, most manufacturers in the critical power and cooling industry have a large portion of their manufacturing and assembly plants based in southeastern Asia.
In 2018-2019, in response to changing US Trade Policy towards China, most major critical power and cooling manufacturers worked to diversify their supply chains by sourcing components outside of China and/or moving critical manufacturing facilities to other countries. In most cases, the replacement components started coming from Southeast Asian countries such as Taiwan, South Korea, Japan, and Philippines. With the 2020 signing of the USMCA (United States – Mexico – Canada Agreement) replacing NAFTA, many manufacturers in the data center infrastructure and critical power industry invested heavily in manufacturing operations in Canada and Mexico.
Current US Trade Policy levies a minimum 10% tariff on foreign goods coming into the United States with even steeper penalties for products from China, Canada, and Mexico. Components manufactured from foreign made steel, aluminum, and copper have especially high tariffs. Corporate and private-sector customers in the critical power and cooling industry, hoping for some relief from increased costs related to tariffs, are increasingly asking about US-made products using various government procurement classifications such as BAA Compliant, BABA Compliant, and TAA Compliant.
The fact is, for the critical power and cooling industry in particular, most products that meet BAA or TAA Compliance designations will likely still be subject to some sort of tariff-adjusted pricing under the America First Trade Policy. To understand how and why, it is first critical to understand what each of these terms mean and how they differ from each other. Some designations are more applicable to the power and cooling industry than others. And, meeting the requirements for any or all these designations does not necessarily mean a product will be exempt from tariffs. Whether and how much a certain product may be subject to tariffs is effectively unrelated to which procurement designation a particular product may meet.
In this whitepaper, we will define four of the most frequently seen procurement terms – Made in the USA, BAA Compliant, BABA Designation and TAA Compliant – and discuss what they mean in the context of current US trade policy and how it affects the critical power and cooling equipment market. Further, we will discuss strategies to identify products that may have minimal, or even, no price influence from US tariffs.
US Government Procurement Terms Defined
Different US Federal agencies define and manage these standards, and while the word “manufactured” is not clearly defined in the language of the different legislations, the term has been interpreted broadly by various US Government agencies. For instance, the U.S. Government Accountability Office (GAO), which handles federal contracting disputes, has interpreted the term “manufactured” to refer to those operations which make the item suitable for the government’s intended use and establishes its identity. The Civilian Board of Contract Appeals (CBCA) has further held that the scope of manufacturing operations required to meet the ‘‘manufactured in United States’’ standard is understood to require more than packaging, but less than a substantial transformation (i.e., processing that results in an article with a new name, character, and use, as that term is used in U.S. Customs and Border Protection (CBP) country of origin determinations). These more institutional definitions for the purposes of US Government procurement all mean essentially the same thing, that “manufacturing” occurs when the item’s various components lose their individual identity and are transformed into a finished article having a new name, character, and use.
Manufactured in the USA/Made in America
To meet Made in USA requirements, a product generally needs to be “all or virtually all” of US Origin. According to the FTC, in its simplest terms, this means the final assembly and processing must occur in the US. Similarly, any critical processing steps that significantly transform the product must occur domestically. Finally, the product should be composed mostly of US-sourced components and materials. More nuanced definitions exist that consider other factors such as cost of manufacturing and the significance of foreign content. Such as:
- What percentage of the cost of manufacture occurred in the United States?
- How far removed is the foreign content from the finished good?
- How much of the total value is attributable to non-US content?
While seemingly vague, the understanding is that the components that make up the final product must have a material change in appearance and/or function and not just be finished and packaged in the United States.
As a basic example, consider a printed cotton t-shirt. If the t-shirt itself is sewn in a foreign country, but the US company applies the design and packages the t-shirt for sale, it cannot be labeled as Made in America since the primary component, the base t-shirt, was manufactured elsewhere and did not undergo a material change in appearance or function through the printing process. Similarly, if that same t-shirt was sewn in the United States using cotton fabric that was imported from another country and then printed and packaged in the United States, a principal component of the t-shirt, is manufactured with foreign content and thus is not considered manufactured in the USA. However, if the cotton was imported from another country and the fabric and yarn were spun and manufactured in the US, the shirt was sewn in the US, and printed and packaged in the United States, that product can be labeled Made in America because the foreign content, the raw cotton, is far removed from the finished product. Obviously, if the t-shirt was manufactured with US-grown and processed cotton, sewn in the US, and printed and packaged in the United States, it is Made in USA.
Typically, Made in USA or Manufactured in the United States is not a procurement designation seen on its own in either the public or private sector without significant additional context and explanation as defined by the organization issuing the RFQ. It is more common to see the term Made in the USA on consumer goods in a marketing application rather than in a federal, state, or local government solicitation.
Today, there are few product categories within the critical power and cooling industry that meet the above criteria for Made in USA or Manufactured in the United States.
Buy American Act/BAA Compliant
The BAA (Buy American Act), passed in 1933 in the wake of The Great Depression, requires Federal agencies to procure domestic materials and products. Two conditions must be present for the Buy American Act to apply:
- The procurement must have a contract value of $10,000 or more and be intended for public use within the United States.
- The items to be procured or the materials from which they are manufactured must be present in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality.
For a product to be considered Buy American Act (BAA) compliant, it must be manufactured in the United States, and the cost of its components mined, produced, or manufactured in the United States must exceed 55%. In 2024, the domestic content requirement percentage increased to 65% in many cases and is scheduled to increase to 75% in January of 2029. There is a noteworthy subtlety to the 65% rule. It is the percentage materials cost that matters, not the overall percentage of materials.
This applies to federal procurements for public use, except for Commercially Available Off-the-Shelf (COTS) items, where the component cost test is waived if the item is manufactured in the US. For products predominantly made of iron or steel, the cost of foreign iron and steel must constitute less than 5% of the total component cost.
Based on the above definitions, you will see that BAA Compliant does not apply to the private sector. Buy American Act was put in place to protect American businesses after The Great Depression in an attempt to restart the economy. The idea was to create a bias towards US-made goods in US federal government procurement. The BAA designation is used in Federal Government contracting for items intended for public use. In other words, non-military and for civilian use by the general population. So, even within US Government contracting, BAA Compliance has a narrow application. State and local governments are not required to use BAA regulations in their procurement. While private and public organizations can request BAA compliant goods in their RFQ’s in their own effort to support US businesses, they are not required to do so by BAA legislation and, therefore, would have some leniency in their final procurement decision-making.
The COTS (Commercial Off-The-Shelf) Exception
COTS, or Commercially Available Off-The-Shelf, refers to ready-made products (software or hardware) manufactured on a large scale, that are designed to be used as-is, are available for purchase by the public, meaning they are not specifically tailored for a specific customer or organization, and can be integrated into existing systems. Instead of developing custom solutions, organizations can leverage COTS products to save time, reduce costs, and focus on their core business activities.
The COTS exception to the Buy American Act (BAA) allows for the purchase of certain goods without adhering to the domestic content requirements of the BAA. Specifically, the domestic content test of the BAA is waived for COTS items, except when the item is wholly or predominantly made of iron or steel, or a combination of both (excluding COTS fasteners). The COTS exception was put in place to streamline the procurement process for items that are readily available commercially and are not typically subject to extensive domestic production or manufacturing.
In the critical power and cooling industry, where there is currently a very limited offering of BAA Compliant products, the COTS exception can be widely applied to procurement requests that require BAA Compliance. For example, single-phase UPS equipment such as Smart-UPS meet the definition as described above because they are readily available for both public and private use, are not specifically manufactured for a single organization or entity and are not predominantly made of iron or steel. It is worth noting that some major manufacturers, such as Schneider Electric, recognize the void of BAA compliant single-phase UPS products in our industry and are currently preparing to release a line of BAA Compliant Smart-UPS manufactured in Ohio. This business line is specifically designed to cater to US Federal Government and SLED (State, Local, and Education) procurement requirements.
Build America, Buy America Act (BABA)
Often referred to as Buy America, as opposed to Buy American discussed above, the Build America, Buy America Act, or BABA Designation mandates the use of domestically produced good and materials for use in federally funded infrastructure projects. This means that for projects receiving federal funding, materials like iron, steel, construction materials, and manufactured products must be made in the United States.
Defined in more detail, BABA requirements apply to purchases of iron, steel and other manufactured products permanently incorporated into infrastructure projects. Further, these projects must be undertaken by US states and municipalities with funds issued by certain US federal departments and agencies, such as the Federal Transit Administration, FAA, EPA and FEMA, to name a few.
Given that the language in BABA, specifically calls out construction materials such as iron and steel and says the products must be “permanently incorporated” into the infrastructure projects, BABA seems to have very little application to the critical power and cooling industry. However, there may be relatively small requirements included in larger infrastructure projects that do call for critical power and cooling products, so it is important to understand the BABA Designation.
BABA mandates that the products used in federally funded infrastructure projects must be:
- Made in the United States
- Or, if not, the cost of components mined, produced, or manufactured in the US must be at least 55% of the total cost of all components.
BABA applies to a wide range of infrastructure projects, including roads, bridges, public transportation, water systems, and more. There are applications for UPS products in each of these examples. Back-up power for electronic tolls, signage and gate arms, emergency power for railroad signaling systems and remote signal sites, and back-up power for flow controls in water systems. It is unclear if these would be considered “permanently incorporated” into the project since critical power and cooling products have a much shorter expected lifespan than, say, a steel beam, so the applicability for our industry is a bit unclear in this case.
BABA allows for waivers in certain circumstances where domestic products are not reasonably available in timely, adequate quantities. However, unlike BAA, the COTS Exception cannot be applied here so there are very few products in our industry that would comply with BABA, even if they were considered permanently integrated and subject to BABA requirements.
Trade Agreements Act – TAA Compliant
Unlike the BAA’s domestic price preference regime where a small percentage of components can be foreign made, the TAA imposes a complete ban on the purchase of items that do not fully comply with the TAA (Trade Agreements Act). Specifically, the TAA limits government procurement to items which are either of US origin or originate from a TAA-eligible country.
TAA eligible countries are those with whom the US has signed either a multilateral or bilateral trade agreement, such as a Free Trade Agreement, or the World Trade Organization Government Procurement Agreement, or countries that have otherwise been designated as TAA eligible (i.e., Least Developed Countries and Caribbean Basin Countries). A full list of TAA countries can be found at: https://gsa.federalschedules.com/resources/taa-designated-countries/
The TAA applies to government contracts valued above the TAA threshold, which is currently $183,000 for a supply contract. In such cases, the BAA requirements are generally waived, and the TAA requirements would apply.
For an item to be TAA compliant, the item must comply with one of the following:
- The item must be wholly grown, produced, or manufactured in the United States or in a ‘‘Designated Country’’
- The item must be substantially transformed into a new and different article of commerce in the United States or in a ‘‘Designated Country’’
A substantial transformation occurs when, through further manufacturing or processing, the item’s various components (perhaps originating from one or more countries) lose their individual identity and are transformed into a finished article having a new name, character, and use.
While there are very few products in the critical power and cooling industry that are made in the United States, there are a significant number of products that are TAA Compliant. Most major manufacturers have been producing TAA Compliant product lines for years. Of those products, the majority are produced in foreign countries, most commonly Taiwan, Mexico, Canada, Japan, and the European Continent. In the current trade environment of 2025, experts are watching US trade policy closely to see if there are any significant changes to the current administration’s application of the TAA. While the TAA was signed into law to bolster trade with US allies, it does not exempt products from any US-imposed tariffs on imports from TAA designated countries.
How to Determine if a Product is Subject to Tariffs
How does the US determine the products subject to tariffs, and how are tariffs calculated?
For the sake of tariff calculations, the country-of-origin determinations by U.S. Customs and Border Protection (CBP) and the U.S. International Trade Commission Harmonized Tariff Schedule (HTS) are what determines the amount of the tariff. Imported products are accompanied by documentation that includes their HTS code. The HTS code is US-specific and typically includes 7-10 digits. HTS is an expanded subset of the universal HS code (Harmonized System Code) that is a globally accepted standard used to classify goods for international trade that is generally 6 digits. An example is below.
- HS Code 0901.11 – coffee, not roasted, not decaffeinated
- HTS Code 0901.11.0025 – organic coffee, not roasted, not decaffeinated
Products coming into the US are classified using their more specific HTS code. In determining tariffs, US Customs and Border Protection identifies the HTS code first to see what tariff rate will apply to that product category. Once that is identified, they look at the country of origin of the finished product to calculate the final tariff rate.
The example above using coffee is simple as it is a crop that has had minimal, if any, processing. The complexity can come in with manufactured products that contain multiple components from various countries. This is generally the case in the critical power and cooling industry. Consider a rack-mount single-phase UPS. Let’s say the finished good was manufactured in and shipped from Philippines. But the internal battery was manufactured in Vietnam, the capacitors were manufactured in China, and the printed circuit boards were manufactured in Taiwan. How are the tariffs calculated when there are components from multiple countries in the same product? The tariff is calculated by the final country of assembly and manufacture and the stated country of origin on the final product nameplate. In this case, Philippines.
Using the current US America First Trade Policy to calculate the tariff that will apply, this rack mount single phase UPS, which has an HTS code of 8504.40.7018 (static converters, specifically uninterruptable power supplies, with a power output exceeding 600VA but not exceeding 10,000VA), we first refer to the current HTS tariff schedule which indicates a 1.5% rate for 8504.40.7018 under the MFN (Most Favored Nation) or general rate. Then, we add any additional duties or fees that may apply for the country of origin, Philippines. As of this writing, that tariff rate is the baseline tariff of 10% but it is scheduled to change to a 17% reciprocal tariff specific to Phillppines on July 8, 2025. Finally, there is a Merchandise Processing Fee (MPF) of 0.3464% (minimum $26.22, maximum $508.70 per entry) that applies to all imports into the United States. Therefore, the calculations for a UPS coming in from Philippines valued at $2000 would be the following:
- Tariff Rates:
- MFN Rate: 1.5% = $2000 x 0.015 = $30 based on the HTS code
- Baseline Tariff: 10% = $2000 x 0.10 = $200 based on Country of Origin
- Total Duty (before July 8, 2025) = $30 + $200 +$230
- MPF: $2000 x 0.003464 = $6.93 – increase to $26.22 to meet the minimum
- Total Cost = $256.22 for tariffs and MPF – does not include any additional taxes or fees
If the current pause on reciprocal tariffs based on country of origin is not lifted, after July 8, 2025, the total tariff rate would be18.5% (1.5% MFN + 17% Reciprocal) totaling $370 for a total cost of $396.22 for the tariff and MPF. This is equal to 19.8% of the original product cost of $2000.
Are BAA Compliant Products Exempt from Tariffs?
We have observed an increase in inquiries for products that are BAA Compliant from customers that are not affiliated with the US Government. Similarly, many manufacturers are simultaneously prioritizing their efforts to broaden their BAA Compliant product lines. Anecdotally, it is easy to deduce that both phenomena are in response to the America First Trade Policy that has been rolling out in early 2025. However, for reasons that we will explain below, while on the surface it may seem that seeking BAA Compliant products is a possible strategy to avoid potential increased costs related to tariffs, the components that make up a particular BAA Compliant product, if imported, are still subject to tariffs under current US trade policy.
Bear in mind that the Buy American Act (BAA) is a procurement requirement that applies to US Government purchases over $10,000. While companies can certainly request BAA Compliant products in their own corporate efforts to support US manufacturing, they are not required by law to do so unless they are purchasing on behalf of the US Federal Government under a contract that requires adherence to the BAA. In other words, for non-US government entities, including state and local governments, BAA compliance is a nice-to-have, not a requirement. It is worth reiterating here that state and local governments are not required to adhere to BAA policies unless they are using federal funds that specified a BAA compliance requirement.
As previously mentioned, many major manufacturers are increasing their production of BAA Compliant products. For example, Schneider Electric is working to expand their popular Smart-UPS online product family to include models that are manufactured in Ohio and meet the BAA domestic content requirement of 65% of the materials cost to come from products made in the United States. And while some companies are marketing these BAA compliant products as a possible alternative to avoid the tariffs that may be imposed on their standard products primarily produced in Asia, the reality is that up to 35% of the cost of BAA Compliant products can be foreign made. That means that up to 35% of the product cost may come from components that are subject to tariffs.
Going back to the discussion about when and how tariffs are calculated, recall that imported items are assigned an HTS code and are evaluated for tariffs due upon entry to the United States. The final tariff rate depends on the HTS code and the product country of origin. Sticking with the BAA Compliant Smart-UPS Online, let’s assume that the batteries are manufactured in Vietnam, as many small-sealed lead acid batteries are. To secure components for manufacturing, Schneider Electric would have had to import batteries (HTS code 8507.20.8041) from Vietnam to power the BAA Compliant Smart-UPS. At the time of import, Schneider Electric, or the exporting supplier, would have to pay the tariff for the products coming from Vietnam. As of this writing, that rate is 13.5%, representative of the 3.5% MFN rate for HTS code plus the America First Trade Policy baseline rate of 10% (scheduled to increase to a 46% reciprocal tariff rate – 49.5% total – on July 8, 2025).
Recent market behavior suggests that the tariff, whether 13.5% or 49.5% will be added to the product cost and passed along the supply chain, ultimately falling to the end user. In other words, while a tariff is not payable for a BAA Compliant UPS manufactured and sold in the United States, up to 35% of the component price may have been subject to tariffs paid by the manufacturer. That increased component cost will likely be passed along to the wholesaler and, eventually, to the end user. In this regard, buying a BAA Compliant product does not necessarily avoid a price increase related to tariffs.
The America First Trade Policy is still very new and constantly evolving as negotiations with US trading partners continue. That means new rules, policy details, and clarifications are being released every day. One question that remains is how the tariffs – especially the reciprocal tariffs scheduled to go into effect July 8th – change the calculation for the domestic content requirement for BAA Compliant products. Recall that only 35% of the material cost for a BAA Compliant product can come from foreign-made materials. So, as prices change, any given component’s proportion of the total cost can change. When calculating the material cost for BAA compliance, do we calculate using the landed cost in the US? Or is the calculation based on the pre-tariff cost? Continuing the discussion using the Vietnamese-made small-sealed lead acid battery for a Smart-UPS or other single-phase UPS, consider this scenario for a $2000 UPS:
- On January 1, 2025, the pre-landed cost of the UPS battery to be installed in the BAA Compliant UPS was 5% of the total component cost for the UPS, or $100. At that time, the MFN tariff of 3.5% was the only tariff due when importing the battery from Vietnam. Total cost – $103.50 (5.18% total component cost)
- As of May 1, 2025, the UPS battery is now subject to an additional 10% tariff for 13.5% total – $113.50 (5.68% total component cost)
- On July 8, 2025, the UPS will be subject to a 49.5% tariff, or $149.50. This now 7.48% of the total component cost of the UPS.
*For simplicity, the MPF (Merchandise Processing Fee) that applies to all imported goods was omitted from the above calculations since it does not change based on tariff rate.
We now have what started as 5% of the material cost increasing to almost 7.5% of the material cost. Consider how quickly that would change if some of the components were manufactured in China, which is most likely the case. Given the current tariff rates on Chinese goods of 30%, the proportion of the foreign-made material cost can easily go well over the 35% currently allowed under BAA rules.
This raises the question, as global manufacturers of critical power and cooling equipment ramp up production of BAA Compliant products, are they chasing an unknown with the fluidity of US trade policy? How do they calculate the total component cost and the country of origin mix to remain compliant to BAA standards?
Are TAA Compliant Products Subject to New Tariffs under the America First Trade Policy?
Similar to the discussion above, TAA Compliant products can contain foreign made components and are therefore subject to tariffs. In fact, as defined earlier in this whitepaper, TAA Compliant products do not necessarily need to be manufactured in the United States. They simply need to be made in a designated country under trade agreements with the US as defined in the Trade Agreements Act. TAA countries are generally known US trade allies such as Japan, or Canada and Mexico, or most of the US allies on the European Continent and the UK, to name a few. Current America First Trade Policy levies tariffs on all countries of origin outside of the United States. Therefore, TAA compliant products are subject to the same tariffs at the same rates as other imported goods.
Is the Trade Agreements Act (TAA) Going to Change with the America First Trade Policy?
One question that has surfaced is whether the TAA and therefore the TAA Compliance procurement rules are at risk of being modified or abandoned altogether with the America First Trade Policy. The Trade Agreements Act (TAA) of 1979 governs federal procurement, requiring that certain products and services purchased by the US government meet specific country of origin requirements, typically favoring goods from the United States or designated countries under trade agreements like the USMCA or WTO agreements. TAA Compliance is heavily engrained in US Government procurement practices and GSA (General Services Administration) Schedules. Any major change to the Trade Agreements Act and its designated countries could cause a significant disruption to current US Government procurement practices.
Based on the available information and recent developments, there are no explicit public statements or actions from the current administration in 2025 directly indicating an intent to abandon the Trade Agreements Act itself. However, current trade policies and actions suggest a focus on reshaping trade frameworks to prioritize American interests, which could indirectly affect how the TAA is implemented or enforced.
TAA is not a trade agreement on its own. It is legislation that requires US government procurement to purchase products from designated countries that we have trade agreements with. That means that as US trade agreements change, the list of designated countries under the TAA can change. Consider the USMCA, or United States – Mexico – Canada Agreement. Because this is a current trade agreement that the United States has with Canada and Mexico, both those are considered designated countries under TAA. Should the USMCA be abandoned by the United States, the possibility exists that Canada and Mexico are no longer designated countries under TAA and products manufactured there would no longer be considered TAA Compliant. The same holds true with any WTO (World Trade Organization) agreements that the United States has that may be renegotiated or canceled under the America First Trade Policy.
To view the most current TAA designated countries, it is advisable to monitor this list: https://gsa.federalschedules.com/resources/taa-designated-countries/.
Conclusion
BAA Compliant, the BABA Designation and TAA Compliant are all US government procurement designations that were Congressionally approved and signed into law at various times in the last 100 years. Each has a different set of rules, but all are designed to support US manufacturing. Made in the USA is also a US government defined term, sometimes seen in private sector procurement, but it is most frequently applied to consumer goods for marketing purposes and less so for procurement requirements.
As of this writing in May of 2025, the brand-new America First Trade Policy has created some confusion which had led to the spread of partial or erroneous information suggesting that purchasing products that carry the BAA, TAA or even BABA compliance designations will help avoid paying the new tariffs levied on all foreign goods coming into the United States. In fact, except for products that are 100% made in the US with materials that are 100% mined, grown, manufactured or produced in the US, all products sold in the United States, whether wholesale or retail, will have had some form of tariff levied on the finished good, the internal components, or both.
Organizations are working to adjust to the new rules of the America First Trade Policy and even with so many unknown factors, both recent history and early market indicators suggest the supply chain is passing down the cost of these new tariffs to the end user. We have already witnessed it with large-scale price changes in the indsutry. While BAA Compliant products in particular are the most likely to have the least amount of total tariff levied on them, the total amount of the tariff, and thus additional cost, will highly depend on the country of origin of the foreign-made components.
In the critical power and cooling industry that relies heavily on Asian and overseas manufacturing, the major equipment manufacturers have been working to increase their offering of BAA and TAA Compliant products for several years. While the America First Trade Policy may have accelerated those efforts, we are already seeing some new product lines come to market, such as the Schneider Electric BAA Compliant APC Smart-UPS Online, demonstrating the expansion of BAA compliant products was already well underway at the beginning of 2025 with more to come.
At Power Solutions, we are watching the evolving policies of the US government as the America First Trade Policy is refined and executed. Similarly, we closely monitoring the product developments of our manufacturer partners and seek to notify our customers in near real time of changes in our industry that may impact them. We recommend periodically checking our website for more information and to follow our email newsletters for important updates and announcements.
For more information, call 800-876-9373 or email [email protected] or click here for the whitepaper version of this article.