The “Buy American” Economic Fallacy

Recently, ABC News did a series where they blamed the consumers for American job losses because they weren’t “buying American.”  Let the Leftist guilt trip begin!

Problem is, the idea that “buying American” will protect American jobs is long-debunked economic fallacy.  Buying American-made goods doesn’t help our economy, and buying foreign products doesn’t hurt it.

Sheldon Richman addressed this pernicious fallacy back in 2004 when Bush was raising concerns about trade deficits:

The facts are these: “Buying American” doesn’t help “America,” and buying foreign products doesn’t hurt “America.” It takes the most naive form of collectivism to believe the opposite. To put it another way, the trade deficit is nothing that needs resolving. It’s a deficit only because not everything is being counted. If you only looked at your expenditures and ignored your income, you’d be horrified by your personal deficit. But of course you would be missing the full picture.

The so-called trade deficit refers to the current account, which keeps track of Americans’ exchanges of goods and services with people in other countries. If in the aggregate during a given calendar year, the dollar value of the goods and services we buy from foreigners exceeds the dollar value of what we sell to them, that difference is said to be the trade deficit.

But this is obviously a half-told story, because foreigners can do things with the dollars they earn other than buy American goods and services. They can invest in the United States by purchasing stock in companies or corporate bonds. That’s good for Americans because it helps create new products and job opportunities. Foreigners can also buy government securities. (There’s an easy way to keep foreigners from being creditors for the U.S. government, if that bothers anyone: stop deficit spending.)

The point is that when you count everything — purchases, investments, and dollar holdings — the books must balance. It’s an accounting certainty.

But surely “buying American” can’t hurt, can it? Yes it can. It can hurt particular groups of Americans. If we buy Toyotas and Hondas, Japanese people will have dollars with which they can buy, say, American lumber. (They can’t spend dollars in their supermarkets.) But if a wave of counterfeit patriotism sweeps the country and we buy only American-made cars, those Japanese won’t have the currency they need to buy the lumber. The lumber companies will have fewer sales and will lay off workers. Has America been helped by the “Buy American” policy? Not at all. Some Americans will benefit, but others will suffer.

We live in a global marketplace with a vast division of labor — the greatest exercise in worldwide cooperation ever seen. Nations don’t trade with each other. Individuals do. Just because two people are Americans, it doesn’t mean their interests are identical. If a Japanese auto corporation offers me a vehicle with the features I want at a price I like, I have a harmony of interest with that group of Japanese. “Buying American” would not make me better off. But it would hurt some Americas: remember the lumber workers.

If American automakers get the government to make it harder for me to buy a Japanese car, my interests are hardly served. So how can that policy be said to be in America’s interest?

It is time we got over the trade foolishness that is displayed daily in the nation’s newspapers and news programs. Voluntary exchange is good for buyers and sellers, or it would not take place. That the parties live in different countries is irrelevant.

To understand economics, you have to look beyond the immediate effects. “Buy American” hurts many Americans. Buying imports maintains and creates American jobs. Lose your guilt. Buy what you like.

Your Turn: History proves that ‘Buy American’ sentiment hurts economy

How ‘Buy American’ Can Hurt U.S. Firms

Milton Friedman: The Case For Free Trade

Gary North: The ‘Buy American!’ Fallacy

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