“Made in America,” “Buy American” Requires Good Trade Policies: Trading Manufactured Versus Extracted Goods
The “Made in America” campaign of the Trump Administration, which is akin to the decades-old “Buy American” campaign, may draw the scrutiny of critics, but the sentiments resonate well among the American People. A PR campaign is, however, not what Americans need. Encouraging people to buy American products with patriotism and guilt might push some individuals to purchase products made in the Untied States. Unfortunately, economics behavior is not driven by emotion. Over time, people will buy whatever products serve their economic interests.
The only individual economic question is whether to opt for cheaper, less durable products or more expensive, more durable products. Beyond that, the winners will always be the businesses, industries, and countries that provide consumers with products that present the best value. Consequently, the United States, and all other nations, need to focus on policies that can foster the kind of economic environments and industries capable of providing domestic and foreign consumers the best value. In part, this means crafting trade policies that reflect the national interests of nations and the Peoples of those nations.
Since taking office, the Trump Administration has withdrawn from TPP and threatened to abandon NAFTA, which is viewed by proponents as a means for the US to compete against cheap Chinese labor by utilizing cheap Mexican labor. In terms of building trade blocks, China would also have to secure cheaper labor to out compete the US. TPP, from which China is currently excluded, has been framed as a means for the US to secure US economic interests and rewrite the rules of trade in Asia, yet critics see it as a threat to American workers. Although the US has rejected TPP, other TPP members have moved forward, including Japan, Australia, New Zealand, and Vietnam.
For the aforementioned countries, the TPP framework may well be more advantageous than detrimental. While some of the TPP countries are wealthier than others, which can put the workers of the wealthy ones at a competitive disadvantage, their relatively small sizes allow these nations to specialize their industries and take advantage of the products their partner nations specialize in without deleveraging their domestic industries. Just as the EU offers costs and benefits for wealthier Germany, France, and Great Britain, TPP can be beneficial to rich Asian nations as well as poor Asia nations in need of capital and jobs. There will, however, be detrimental costs if TPP simply intensifies competition by undermining domestic production.
For big and rich countries like the US, which has a large population, an extensive cache of natural resources, and plentiful capital, TPP can easily do more harm than good. When it comes to trade, the US needs to lower technical barriers to trade, which TPP does whether or not the US adopts it due to many of the standards incorporated into the agreement. The US also needs tariffs lowered on US goods. Unfortunately, broad “Free Trade” agreement threaten the US manufacturing sector, because cheap imports and outsourcing to cheap foreign labor place US-based operations at a cost disadvantage.
Because the quality and durability of goods matters as much as price, removing tariffs to make cheap goods even cheaper is not sound policy or helpful to consumers. On the one hand, he US has an interest in security a manufacturing sector that provides a massive number of well-paying jobs. On the other hand, the US has an interest in securing trade relations and building the economic sectors that provide the raw materials used by industry. In manufacturing, products are produced by workers and machines, thus operations and jobs can be outsourced, which means “free trade” represents a threat.
In the agricultural and mining sectors, however, goods are grown and extracted, thus their production cannot be outsourced. Although prices face upward pressure from global demand, the price of all goods are based on global supply and demand. Selling America’s goods extracted from America’s natural bounty to the rest of the world can, therefore, help create jobs in the US, guarantee the viability of US industries, and extend America’s economic reach. It also allows America to set the standards on environmental and labor regulations.
There is, of course, a strong argument to be made for securing America’s long-term needs by under-developing America’s drilling and mining operations, but those are industry specific while long-term interests must be balanced with short-term needs. Looking at the potential US-Mexican Sugar Pact and the fight to secure the US sugar supply, sugar producers place a great deal of pressure on government to safeguard their market shares and the viability of their industry. The interests of the industry are not, however, necessarily always those of the US government and the American People.
Americans share the long-term interest of maintaining viable industries, but the government’s responsibility of ensuring safety and a secure supply of goods trumps industry interests. Under the sugar pact, there are a number of mechanisms to control how much and what kind of sugar can enter the US market, which creates an overly complex and inefficient compromise that taxes the sugar market. Free trade sugar deals alone are not likely enough to protect the viability of the US industry, but a trade pact that relies on tariffs to maintain prices and balance subsidies, instead of other more cumbersome protectionist measures, would allow the sugar market to function more efficiently without catering to the especial interests of the sugar industry, thereby maximizing the benefit to US consumers.
With that in mind, the balancing of competing interests is a way for government to play its role in trade across all industries and fulfill the interests of the American People, which are the only interests of government. Securing America’s economic superiority in the global economy does not require a broad free trade response, especially when such policies deleverage American manufacturers and workers. US prosperity can be secured by fostering healthier trade relationships and opening the world to extracted US goods in a way that US domestic interests, including jobs and the US manufacturing sector, are also protected.
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