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Buy American?

Mr. Randy Erwin
Buy America Challenge blog

Dear Mr. Erwin:

Thanks for exporting to my household a link to your Feb. 12 blog post “Record Crushed: U.S. Trade Deficit with China – $273 Billion in 2010 – Biggest Ever Between Two Countries.”  In it you write that

We can solve our country’s economic problem ourselves by changing our buying habits just slightly and buying American more often.  The average adult consumes $700 per month in imported goods.  If we could reduce that to $517 per person per month, we would have no trade deficit at all.  With no trade deficit, we would likely have 3-4% unemployment.  All we need to do is reduce our consumption of imported goods 25% to have jobs again in this country.  That will secure our long-term economic future (a.k.a. our children’s future).

I’ve some questions for you.

– Because “buying American more often” means buying low-priced imports less often, Americans’ spending power will shrink.  Americans will then have less money to spend at the movies, at local restaurants, on premium cable-tv packages, and the like.  How do you know that the job losses that result from contractions in these industries won’t offset whatever job gains emerge in other industries from “buying American more often”?

At least half of all U.S. imports are inputs used for production here at home by American firms.  So if American firms substitute more costly American-made inputs for lower-priced imported inputs, many American firms’ costs will rise.  These firms will lose market share.  How do you know that the job losses that will result from these firms’ contractions and bankruptcies will not offset whatever job gains emerge from “buying American more often”?

– Because every dollar of America’s trade deficit is a dollar invested in the U.S. economy – investments that overwhelmingly expand the volume of America’s productive capital assets above what this volume would be without these foreign investments – eliminating America’s trade deficit will likely result in a net reduction of investments in the U.S. economy.  How will less investment “secure our long-term economic future”?

I have other questions, but I’ll content myself with asking only the above three.

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030