IN THIS ISSUE:

  • Bye Bye, Buy American
  • Soccer’s Big Clubs Learn A Costly Economics Lesson
  • Global Tax Evasion Is A Costly Problem

Ryan reviews the latest in a long history of policies to support domestic production.

Growing up, I recall the sticker on the back of our neighbor’s Chevrolet van: “Buy American: The Job You Save Could Be Yours!” I don’t know if the placard swayed any purchasing decisions, but perhaps it planted an interest in economics in my young mind.

Alas, slogans that fit on a bumper sticker are rarely comprehensive policy positions. So it goes with “Buy American,” or any other country’s marketing efforts to support domestic production. These politically popular exhortations have been around longer than most of us have been alive, but they sound much better than they perform in practice.

First, merely defining a product’s country of origin is difficult in an era of global supply chains. The more complex the item, the more international ingredients it contains. Cars and trucks are a ready example. Out of about 350 models available in the U.S. in 2020, 91 had a point of final assembly in the U.S. The list includes Japanese, German, Korean and Swedish names, with many of their models containing more locally made parts than domestic brands. These international companies’ U.S. factories employ thousands of American workers.

Secondly, most countries do not have domestic industries for all goods; patriotic shoppers will find buying local simply not possible for many purchases. Consumer electronics are almost exclusively made in Asia. The concentration of semiconductor producers in Taiwan has become a risk to supply chains everywhere.

And thirdly: where domestically made goods are available, they must compete with imported offerings, which often carry lower prices and higher quality. Manufacturers are skilled at locating production wherever their raw materials and labor can come together in the most cost-effective manner. If domestic producers cannot match this efficiency, they will lose market share. Free trade has given consumers more choices at lower prices; patriotic sentiment may not be enough to compensate for paying more.

Domestic producers on the losing end of market share battles can lobby for government support. Like many leaders before him, U.S. President Joe Biden is putting forth policies meant to promote domestic production. We see no reason to believe his efforts will be any more fruitful than those of his predecessors.