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To buy American, or not to buy American

That is the question

Created date

August 24th, 2017
Photo of the words "Made in USA" stamped into a concrete surface.

The rallying cry of "Buy American" has historically been in response to adverse economic conditions.

Throughout the twentieth century, the United States was perhaps the single most self-reliant country on the globe. 

From the 1930s to the 1960s, the majority of American-used products came from American-based companies that employed American workers. There were Pennsylvania steel, Texas and Ohio oil, and automobiles from Michigan.

Naturally, there were some exceptions, but on the whole, Americans had plenty of choices in the way of American-made goods. With the emergence of a global economy in the 1960s, however, U.S. industry met with stiff competition from the cheaper labor forces of countries such as China, Japan, and Korea. 

Bolstered by an array of international trade agreements, this shift had a palpable effect on the American manufacturing labor market. Thus was born the rallying cry of Democratic and Republican politicians alike: “Buy American!”

Their clarion call is among the few issues on which American voters from both sides of the aisle can agree. A survey by the Pew Research Center found that 70% of Democrats and 66% of Republicans enthusiastically supported a provision limiting government spending to American-made goods and services in the 2009 federal stimulus plan.

Nonetheless, this bipartisan support stems largely from the campaign rhetoric of vote-hungry politicians. While promises to bring back American manufacturing and jobs naturally appeal to the electorate’s patriotic and financial sensibilities, the seemingly simple matter of buying American is deceptively complex.

“Historically speaking, laws that favor American-made products are usually created in response to adverse economic conditions,” says Andrew Schwartz, a policy analyst at the Center for American Progress (CAP) in Washington, D.C. “The goal is to jump-start a depressed economy by suppressing foreign competition and promoting domestic labor and production.”

1933 Buy American Act 

Congress attempted to do precisely that with the Buy American Act of 1933, which gave preference to American industry in matters of government procurement. Over the next 80 years, a host of similar laws and executive orders materialized.

The latest example is President Trump’s “Buy American, Hire American” executive order. Issued in April, the order clamps down on the H-1B visa program, which allows American companies to employ foreign workers in specialty fields like information technology.

But the question that voters forget to consider and that politicians repeatedly fail to answer is: Do such policies work?

“Buy American” proponents cite the economy’s cyclical nature as proof that they do. 

In the case of government procurement, public works projects such as bridges, highways, and railroads require a variety of material and equipment. The demand for these goods intensifies with every government contract.

According to “Buy American” advocates, if lawmakers confine the marketplace to U.S. manufacturers, the cumulative effect will be more jobs and, ultimately, a healthier domestic economy.

“A strong labor market definitely corresponds with a robust economy, which is why ‘Buy American’ supporters argue that foreign trade hurts American businesses and American workers,” says Schwartz. “Without question, the number of production jobs in the U.S. has fallen, and wages in some places have stagnated.”

Industrial parts of the country—namely the Midwest—are acutely affected. A 2017 CAP report determined that the U.S. lost 5 million manufacturing jobs between 2000 and 2016; 1.5 million of them in the Midwest. 

Since 2000, Midwestern workers have seen a dismal 2% increase in median wage growth compared to an 8% rise nationally. Researchers at the Economic Policy Institute further contend that the $367 billion trade deficit with China is to blame, and that “Buy American” regulations are the solution.

But some analysts caution that overtly protectionist mandates can do more harm than good. 

“The critics can go back to the 1930s to support their position,” says Schwartz. “The global economy wasn’t nearly as developed as it is now; and, even then, there were negative implications associated with laws that benefited American industry at the expense of foreign trade partners.”

Global balancing act

In other words, in a global economy governed by myriad trade agreements, domestic decisions have a direct impact on neighboring countries. Opponents therefore argue that protectionist policies of any kind are likely to backfire on U.S. citizens.

“Buy American” laws that discourage or restrain international trade could induce foreign states to retaliate in kind through exclusionary sanctions aimed at American-made goods. Similarly, nations hit with prohibitively high border tariffs merely pass the added cost on to the American consumer or they tax U.S. exports just as heavily. 

Critics use the Smoot-Hawley Tariff Act of 1930 as a paradigm for the latter. The act, which raised import taxes on goods from over 20 American trade partners, was supposed to boost the U.S. economy by curbing foreign competition. 

Instead, it prompted Canada to levy a tariff on 30% of America’s exports. Many economic historians believe this simply worsened the Great Depression.   

“When you get into the actual economics of the whole ‘Buy American’ debate, you realize that there’s a lot more to this discussion than meets the eye,” notes Schwartz. “People on both sides of the issue make valid points, but the bipartisan public support for these policies probably won’t change anytime soon, no matter what the opponents say.”

Indeed, patriotism and the purse are very persuasive.

 

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