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Buy American? Last edited January, 2004, last reviewed September 2007 Is it patriotic to "buy American"?
Many mainstream organizations would have you think so. We have all
heard the arguments for the practice of limiting one's purchases to
products manufactured entirely in the good ol' US-of-A: it will save
American jobs, it will bring down trade deficits, it will force the
foreigners to stop their sweatshop practices or to lift their tariffs on
American goods. Oftentimes the arguments have a distinct
xenophobic lilt to them with vague disparaging references to the
Chinese, or the Mexicans, or some other target group. The
"buy American" arguments also seem to go hand in hand with
similar arguments for tariffs and trade rules aimed at
"dumping" buy foreign manufacturers and other imagined
slights. Are these and other related arguments really in
support of the future of our American way? America is still, relatively speaking, a free
country. There is nothing to stop our citizens from choosing the
products they purchase based on the country of origin, nor should there
be. But is that the smart move? Does buying American really
"save" American jobs or reduce trade deficits?
Protectionism, the term given to the category of ideas and actions
related to the restriction of trade by foreign producers, has a long
history in America and the world. It is easy to see why it has
enjoyed popularity as a concept—what could be easier to support than
an indistinct cheer for the "home team?" Are those bad
guys messing with our teammates again? We'll show them, we'll
boycott their products and then we'll see who's who. Such a
guttural, sub-conscious response to a perceived threat against the
American way is understandable, but it is it defensible? Buying
American is a form of protectionism practiced by individuals instead of
our government, but to the extent that such a campaign is successful, it
has the same disastrous results as a government limiting the power of
the marketplace. The defense of free trade has been so well stated,
so well documented, and so well supported by experience that it should
not need repeating here. Yet, the basic principals of free markets
apparently continue to elude understanding by many Americans. The
"invisible hand" described by Adam Smith over two centuries
ago remains invisible today in more ways than he or our founders
probably imagined. It is crucial to understand that the invisible
hand works both domestically and internationally. It is a
universal principal that describes the seemingly magical way that
markets, when supported by a government that enforces property rights
and when left free from further intervention, guide the course of human
action toward the most efficient use of resources. That is another
way of saying: you get the most bang for your buck. It is another
way of describing a system known as capitalism. This system,
embodied in the very core of our national being, depends on free markets
within our borders and also free trade with nations and organizations
outside our borders. If we choose to restrict our trade with those
outside our borders, we also choose to restrict our own efficiency and
our own growth. Let us look at some specific examples. The idea that imports cause the loss of American
jobs is misleading at best and factually wrong in the strictest sense.
It is possible, of course, that a US manufacturer of widgets could come
upon some very stiff competition from a foreign manufacturer who has a
lower cost structure for labor or materials. Perhaps the US
manufacturer is forced to pay high wages to attract workers for the
unpleasant work or perhaps a dated contract with a labor union has
resulted in artificially high wages. Perhaps the raw materials for
widgets have become scarce within the US borders, and high shipping
costs to import the raw materials have resulted in a high cost basis.
Perhaps the US manufacturer is stuck with outdated tooling, or perhaps
it is clinging to a needlessly high standard of quality based on what
the market for widgets will actually bear. The foreign
manufacturer, on the other hand, is saddled with none of these problems.
The foreign manufacturer is inundated with dirt-cheap laborers clamoring
for work in conditions that would make most Americans cringe. The
raw materials are readily available from within the manufacturer's
borders, a large port is located nearby, and capital for the growing
widget market is readily available. In practice, this foreign
manufacturer is able to produce widgets of an acceptable quality to
American consumers for a fraction of the price that the last standing
American producer can do. In this perfect microeconomic example,
it is easy to see the writing on the wall. American widget jobs
are on the way out due to the so called "dumping" of goods by an evil
foreign manufacturer. Imports are causing the loss of American
jobs. Right? Not exactly. Before we start a "buy American
widgets" campaign and call our congressman to advocate widget tariffs,
lets take a closer look. You see, advocating such protectionist
tactics is analogous to asking for a subsidy for being inefficient.
Imagine two strapping young men competing to cut your lawn for you.
One young man from the next town over offers to use
a new motorized push mower with a sharp blade and to work according to
your schedule. He will charge $50.00 per cut. The other
young man offers to use a rusty old manual mower that has never been
sharpened and to cut the lawn whenever he gets around to it. He
will charge $75.00 per cut, but, he is quick to add, he lives right in
town and knows many of the same people you do. The rational choice is obvious. The
protectionist choice is obvious too. Whether we are speaking of
lawns or widgets, the principal is the same. The American widget manufacturer is likely to go
out of business if it does not lower it's cost structure and it's price.
It is inefficient in the marketplace. As a result, Americans with
jobs at that manufacturer will lose their positions. However, in
the macroeconomic view, the picture is different. Those displaced
workers will have to find new jobs or become very hungry. In a
modern, prosperous America built on free markets, those workers will
soon be absorbed into other occupations related or unrelated to the
manufacture of widgets. If this were not true, if manufacturing or
other jobs that were "lost" to foreign competition were not
being replaced with different jobs, we would now be a nation probably
over half unemployed! In the long run, those widget workers and other
workers like them will find different vocations perhaps in service
industries, in technology, or in "knowledge industry" jobs
that are very different from the world of widget manufacturing.
The process will be disruptive and possibly painful for the individuals
involved. The process will be productive and lucrative for the
generations of Americans that will follow, however. So, then, the
choice we face is to make a probably futile attempt to save specific
jobs for a small amount of workers right now or to seek the most bang
for our buck and embrace change for the sake of efficiency and future
growth. Put another way, it may feel patriotic and energizing to
root for the "home team" by "buying American", but
even the best teams eventually need to pull the star quarterback or
another player off the field to make way for new talent. In the
long run the team will be better off. What of some of the other arguments, though?
Isn't our massive trade deficit cause for concern and reason enough to
take protectionist action? The current account deficit has indeed
become large by historical standards. What are basically net
imports of goods and services has been measured as high as 5 percent of
our GDP. Such a deficit must, by definition, be financed through
foreign investment in American interests. Is this a really big
deal? Not necessarily. In a global economy where capital and goods
are allowed to flow freely, at least across our own borders, the effect
on currency valuation has not become dangerous and there is no sign of
inflation that would indicate an unstable dollar. A very flexible
international financial market has allowed continued inflows of foreign
capital into an American economy that is trusted by foreign investors
who expect a higher rate of return than they might find elsewhere.
The size of the current deficit is probably not sustainable, but as
others have noted, we tend to run bigger deficits during times of
prosperity and smaller ones during times of recession. As long as
the markets remain open, foreign investments will continue to offset our
net imports. However, if we start to deprive foreigners of US
dollars through the use of tariffs, quotas, or other protectionist
measures, then we will be setting the stage for other outcomes.
Currency markets lacking a generous supply of dollars will raise the
value of the dollar, thereby making US exports more expensive and
reducing the foreign demand. Recent history has shown that the ebb
and flow of cross-border trade will resolve itself given the flexibility
to do so. It is when protectionist distortions to the market are
introduced that we find trouble. And what of the supposed moral arguments for buying
American? What of the sweatshop conditions we hear so much about
in these backwards countries? Should we not buy American if only
to show by example what sort of treatment we demand for our fellow
humans? Isn't it morally repugnant to buy products made by
laborers working 18-hour days under squalid conditions for mere pennies?
Well, assuming we are speaking of laborers and not actual slaves, the
answer is: no. While the majority of modern day Americans would
not choose to work under such conditions, the folks in these sweatshops
have a different set of choices. In fact, if we look at our own
American experience during the same phase of development, we would find
very similar conditions. That is to say, the conditions in our own
American factories, farms, mines, construction sites and offices in, for
example, the 1800s were equally as ugly as those that might be found in
some third world countries today. Our American ancestors certainly
yearned for better conditions and greater wealth. In time, it came about
through painstaking hard work. The search for wealth and profits
led to greater productivity, technological advancement, and better
working conditions for each new generation. Do foreign workers not
deserve the same opportunity? By implementing protectionist
measures against foreign firms we may make ourselves feel better, but in
reality we are simply robbing foreign workers of the only livelihood
they can currently manage. Since they do not live in a thriving
and advanced economy like ours, they do not have the same prospect of
simply switching careers either. Instead, many foreign workers would be
puzzled by the American desire to teach their employer a lesson. Given
the available alternatives, working 18-hour days in a squalid factory
for pennies may well be a pretty good deal. That good deal goes
for them and for the American consumers who can wear inexpensive
sneakers and for the investors in the squalid factory, and for the
investors in the American sneaker company who outsource the
manufacturing of their design, and for the Madison Avenue agency that
creates those amusing television spots for the sneakers. *** Copyright 2004, rationalamerican.com *** To cite this article: Painter, John. Buy American?. (January 2004). Retrieved month x, 2xxx, from <http://rationalamerican.com/economics>
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