January 27, 2021

Buy American

President Biden has just announced he will require “Buy American.” 

There is a better solution, but he has no choice.

In the aftermath of Trump’s popular demand for “made in America,” and “America First,” it would be political suicide to President Biden and the Democratic Party to deny the reality of this popular sentiment. A big segment of Americans believes this is the way to go. 

These Americans do not understand the complexities of globalization or the implications of nativism. We seem to be lost in a xenophobic haze. 

Globalization is a good thing. Americans can save money on their purchases by buying foreign products—a lot of money. Most of our imports of consumer goods come from developing countries where the cost of labor is only a fraction of US labor costs. That’s why so many Trump supporters shop at WalMart, where up to 75% of all products were coming from China in recent years.

If major consumer cost savings accrue from globalization, then why doesn’t President Biden endorse globalization? Two reasons: First, the political reality is that a big swath of Americans don’t understand the relative costs of labor and the result in product prices. After all, they were buying all those Chinese products when Trump said he had a better solution and bought his promises. Maybe Trump supporters forgot their savings on consumption and focused only on the jobs reality in the US. They believed his outrageous claims that the US can be competitive again in manufacturing. That’s not true. We cannot turn back our economy to times when we were able to make a shirt for the price made in China or Bangladesh today. Virtually no economists bought his plan to restore American manufacturing. 

Does President Biden fail to understand the above? Not likely. He’s simply politically astute. If Trump supporters bought the Kool-Aid, they’re not ready for American cooperation with the Chinese. Few Trump supporters believed the truth that Trump’s trade wars cost the US billions. Nothing was gained and much lost, but the popular Trump supporter sentiment was positive.  But Democratic majorities in the House and the Senate are very thin, and President Biden needs the added power of popular support for key legislative proposals. 

Globalization was a huge benefit to American consumers and to large corporations. It was also a huge benefit to workers in developing countries. Millions rose from poverty in China across the 80s and 90s by moving from farms to factories and sending money home to their families. We should feel good about that, as citizens of the world.

But after decades of uncontrolled globalization, it became increasingly clear that some American workers had indeed lost their jobs to foreign manufacturers. Steel, textiles, furniture, toys, bicycles, and many other products moved to developing countries in Asia or South America. In my own home state of North Carolina, thousands of middle-aged manual workers were laid off. There was nothing available to replace those good jobs. Factories closed. But, as globalization rushed ahead, none of these strategies were employed. Call centers moved to India or The Philippines, where English is taught. US manufacturers opened plants abroad or contracted with foreign companies for manufacturing. This went on for years without any government policies to remedy the impact on pockets of American workers.

There is a strategy which could profitably accommodate the benefits of globalization net of the costs. Careful assessment of the predictable job losses by product and by geography could initiate a plan to either forego that particular product going abroad or provide for alternative employment for those expected to lose jobs. That could take the form of alternative job training, relocation and employment counseling, and unemployment insurance. If the overall benefit to the economy and the citizenry is found to be net positive, such a policy would be justified.

So, Biden is forced to declare Buy American. This choice is justified politically, but not economically (and not morally). What will be the challenges? First, costs of previously imported products will go up. WalMart shoppers will be dismayed with the prices. Second, American manufacturers will aggressively seek product cost reductions. These can only come from two sources—labor and capital. Not much can be saved on labor, considering American labor costs. Producers will seek to invest in technology such as robots. This will come at the expense of laying off workers.

There is a healthy academic debate about the impact of technology on jobs, some claiming losses and some claiming gains—jobs lost in one area are offset by new jobs in another area. If there are indeed new jobs created to replace those lost, there seems agreement that many of the new jobs will be lower paid jobs such as service workers such as cleaners and caring for older citizens, uber drivers, clerical workers, fast food workers, etc. Better paying jobs in manufacturing those robots or programming them will require significant levels of re-training.  

We’re talking about a transition which will take years. There will be much pain and disruption along the way. Many of our uneducated who are in their 50s will not be able to make the change. Much will be needed from the government in effective support of the transition. And no matter how thoughtful and well-intended the Biden administration may be along the way, Conservatives will resist providing the necessary support. And, we are at a low point in terms of confidence in government on either side of the aisle.