Why Arguments Against Government Mandated “Buy Made in USA” Programs Are All Wrong

Over the last few years, several states have considered bills that would mandate preferences for U.S. made products in the government procurement process.  An effort in Maryland was ultimately successful, and a Texas bill passed overwhelmingly in a bipartisan vote before being vetoed by Texas Governor Rick Perry.  In spite of the obvious benefits of such policies, constituencies opposed to the measures made strikingly similar arguments against them.  Here is a recap of the arguments typically made against “Buy American” provisions – and why those arguments are wrong.

Argument #1 – Buying American would raise the costs of the project.

Yes, the price of the project may be higher, but if all companies bidding for the project are under the same “Made in USA” constraints, then the playing field would be level for all bidders.

We must also consider the total cost to the city, state, or federal government.  If the price to the government entity for the “Made in USA” project is X% higher, is that X% premium covered by the taxes paid by the U.S. workers employed because of the “Made in USA” provision?  Conversely, if those jobs are lost due to the lack of the “Made in USA” provision, what is the cost to the government entity of unemployment and other benefits?

Thus, although the price of the project may be higher, the difference between the higher price and the actual cost to government may be ameliorated, or eliminated, by these other factors.

Argument #2 – It’s impractical – some intermediate parts may not be available here in the U.S.

Yes, that’s possible in some cases.  However, most “Made in USA” provisions of which I am aware are expressed as preferences.  Thus, if the price is too high, or the product is not available from a U.S. vendor, then bidders are typically allowed to source outside the country.

Argument #3 – Even though working conditions are deplorable in most low cost manufacturing countries, by buying there we help create better living conditions for the jobless in those countries.

This is a public relations argument often used by multi-national manufacturers, brands, and big box retailers to justify offshoring.  It’s ironic when large corporations characterize their sourcing model as a form of philanthropy for developing nations, when what the sourcing model truly reflects is the slogan “always the lowest price, always.”  For example, it’s apparent that apparel importers started sourcing in Bangladesh not to help the Bangladeshi people, but to buy at the lowest possible price.  It is only since the Tazreen factory fire that those same companies are now touting their sense of “social responsibility” for the people of Bangladesh as the reason for not moving their apparel purchases to another country (or back to the U.S.).

Of course, anyone with a shred of empathy is concerned about the poor in developing countries.  But should that concern drive government purchasing policies?  Should U.S. government procurement be a form of social welfare for other countries?  Is that not the role of foreign aid?

Argument #4 – We should let the free market rule and buy where the goods are cheapest.   In the long run, it’s better for all.

This argument is based on the economist David Ricardo’s theory of competitive advantage.  In a nutshell, it says that if you produce X efficiently and I produce Y efficiently, then I shouldn’t waste my labor producing X and you shouldn’t waste your labor producing Y.  If each of us does what we do most efficiently, then we can trade X for Y (and vice versa) and we’ll both be better off in the long run.

It’s a nice theory, but when Ricardo developed it he presupposed perfect competition and undistorted markets; neither of which exists when it comes to our trading relationship with China, the country from which we import most of our finished goods.  When China lets its currency reach market value, protects intellectual property, and invests in the manufacturing costs required to make goods that comply with CPSIA and FDA guidelines, then we will be nearing the state of undistorted markets under which the comparative advantage argument might be considered.

Finally, let’s remember that China is a strategic threat to the U.S., so the trade policy tail should not be wagging the foreign policy dog.

Argument #5 – Government preference for “Made in USA” is protectionist trade policy – China cites “Buy U.S. Made” rules as a justification for their own discriminatory policies.

This is a spin-off from the “comparative advantage” argument, often used by multi-nationals more interested in selling into China than rocking the boat with China.  If China didn’t have “Buy American” policies as an excuse for their own trade barriers, they would find another whipping boy.

Argument #6 – If it’s good to buy USA-made, isn’t it even better to buy Texas-made?  And if it’s good to buy Texas- made, isn’t it better still to be Dallas-made, etc.?

Hoover Institution economist David Henderson actually made this weak “reductio ad absurdum” argument for a John Stossel column written in November 2011.  Why is it weak?  Because the debatable proposition is not whether it is good to buy “Made in USA.”  Rather, it’s whether it is in the best interest of the U.S. and its citizens for U.S. government purchasing policy to establish a preference for products made in the U.S.A. under reasonable circumstances.  This is a more nuanced proposition than the one set up by Henderson.

There is no downside to government mandated “Buy American” provisions in Maryland, in Texas, or in any other state, as long as that mandate ensures flexibility if the comparable U.S. product is much more expensive or simply not available here in the U.S.  Sadly, the point may soon be moot.  The Trans-Pacific Partnership trade agreement currently being negotiated with Pacific Rim countries is likely to further weaken – if not eliminate entirely – government mandated “Buy American” provisions.

Michael McKeldon Woody is host of the upcoming television program, and author of the upcoming book “American Dragon,” both of which profile U.S manufacturers successfully competing with overseas companies by using the principles of FEWER, FASTER, FINER.  He can be reached at mmw@americandragon.us and on Facebook at American Dragon – Michael McKeldon Woody.  Twitter @usdragon1 

 

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