Buying Domestic Products

Where to buy our products raises many issues and concerns, especially how government purchases necessary items, such as materials and equipment to build roads and bridges, and then the equipment to maintain them. The question of whether or not to buy more domestic products comes up especially when a country’s economy is down. One of the most common ways to measure a country’s wealth is the measure of its GDP (gross domestic product). GDP is calculated from the final sale of all goods and services. If a product like a car or a computer is manufactured and assembled in China, then shipped to the United States and sold in a store there, the sale is counted in China’s GDP because both the car and the computer initially existed in their final form within China’s borders. The question therefore becomes, “is it better for a country to only buy products produced within its own borders to boost its own GDP?” Because the United States has one of the largest economies in the world, this paper will focus on the discussion of whether American consumers should only buy products produced in the US.

In exploring this question, many factors can be taken into consideration, such as whether putting more money into American companies and keeping money within our borders is worth the ramifications that cutting off foreign imports could have for our own exports and for global trade. Consumers want to have the most value for the least amount of money. In looking at the purchase of goods, it is important to look at both the value that consumers are getting for their dollar and the impact of that dollar on the economy, the environment, and the people in the workforce. Another important consideration is how well resources are being allocated, conserved, and consumed. Good cost/benefit analysis of whether or not countries should only purchase their own goods needs to take into consideration whether buying only products from within their own borders means that companies that don’t put resources to their most efficient use are not being encouraged to change and innovate their manufacturing processes because they are getting paid no matter what. After careful costs and benefit analysis however, the logical conclusion is that consumers should not buy goods only from their own countries.

Buying only domestic products can lead to an overall decrease in quality of life for a country’s citizens. Because the focus of this paper is on the United States, the following arguments will primarily deal with American products and the American economy. Buying only American products would mean that often consumers would not be getting the most value for the money because American products are often more expensive. In 2011, the “[m]edian household income after inflation fell to $50,034” (Tavernise), meaning that the median American family can really only afford to shop at places like Wal-Mart, Old Navy, and Vons-––all importers of foreign-made goods and products. The ‘Made in America’ label is an expensive buy that the median American family cannot afford. Part of the reason American-made products are more expensive is that employment standards are higher in the United States than in many places, particularly the developing world. It is not surprising then, that in 2010 United States imports totaled $2.734 trillion––$0.54 trillion more than our total exports (Amadeo). In the United States, labor conditions are under tight scrutiny, and wages are much higher than in many other countries. For example, in 2012, the US Bureau of Labor Statistics found that “[t]he average hourly wage for Chinese manufacturing workers is less than a tenth of their average United States counterparts” (Kavoussi). Because of this, American companies more often than not have their products manufactured overseas or in Central or South America. Because so many American companies outsource their production, the United States finds itself in the paradoxical position of being the world’s third largest exporter––after the European Union and China, the world’s second largest importer––after the European Union (Amadeo), and a country that produces that vast majority of its products outside its own borders. All these things are important to the question of whether American consumers should only buy American-made goods because better labor conditions and higher wages for laborers mean that a much higher cost of employment in domestic manufacturing for employers. This rise in cost compared to the cost of manufacturing overseas has to be absorbed by the consumers. In simple terms, this translates to a higher cost for products made in America than those that are made by foreign manufacturers.

Though paying more for domestic products means that American consumers are supporting American workers (Degreecouncil.org), strengthening American small businesses that are most likely part of consumers’ local communities and buying American can mean creating more demand for American made goods which could encourage employers to open more American jobs. With the median American family only making $50,000 a year, it is simply unrealistic to expect American consumers to absorb the expenses and instable price levels of American products when they could be getting the same product for a significantly cheaper price. Furthermore, even if Americans bought only American goods when the economy was up and an increase in wages made domestic products more affordable, as soon as the economy fluctuated in a negative direction, purchases of domestic products would cease at a rapid rate, causing a much more devastating blow to the nation’s economy than if the fluctuation in purchases of domestic products mirrored the fluctuation of the economy (Degreecouncil.org). Another important aspect to the fact that American-made goods are usually more expensive is that buying only domestic products would mean consumers would be spending money on products that they could get from other countries for far cheaper. Spending unnecessary amounts on American goods when other options are available would mean that American would have less money to spend overall. The realistic version of Americans buying only domestic goods would mean tightening consumer budgets, and therefore, the overall amount of money going into the U.S. economy would be less than if Americans simply bought the identical products made in America that they had previously been buying from foreign manufacturers. And in the end, even if some American products are of higher quality than foreign products, consumers the world over want to pay the least amount possible for their products.

Manufacturing in the United States is not only more expensive, but often does not put resources to their most efficient use. Foreign products are often made better––better in many senses of the word. Cars made in Japan and China are often made with better resource allocation and are often produced with fewer environmental impacts than cars made within the United States. Additionally, the demand in the United States for economical, environmentally-friendly cars is proportionally much less than other countries, and this has resulted in less incentive to innovate car manufacturing and design to keep up with increasing global standards for carbon emissions and resource consumption. For example, in Brazil, “virtually all cars manufactured in Brazil are flex-fuel” (Forero), meaning they can run either on ethanol made from locally produced sugar cane or on regular gasoline. This policy has been effective, popular, has “kept 200 million tons of greenhouse gases out of the atmosphere” (Forero), and has boosted GDP by creating jobs in the sugar growing and processing business, as well as in the automobile manufacturing businesses. In the UnitedStates, however, out of 239.8 million cars, only about 8 million cars run on alternative fuels (Tencer), and while this number is increasing, the incentive for innovation among domestic manufacturers such as Ford, remain low. Some people argue, however, that when the economy is down, the best thing the government can do is to stimulate economic growth by investing in domestic companies. From this perspective, buying American, whether by the government or by the private sector, boosts the American economy and is good for American economic growth (New York Times). Buying only American products with this in mind makes sense, especially when taken into account the fact that it’s not entirely necessary to buy many raw materials, such as steel, from other countries when we can supply those materials ourselves and keep money within the American economy.

In terms of government policy, there is a “protectionism” stigma that prevents the government from ordering a complete stop to purchases of foreign goods (New York Times), and the basic argument in terms of the World Trade Organization is that protectionism can be good in some cases, such as when a new country is trying to build its economy,or when a country’s economy is very low and the government is trying to boost it by subsidizing struggling industries. By ensuring specific protectionism allowances that can be adapted to change and growth over time, we can make international trade agreements more legitimate, respected, and controlled. Some also argue that buying domestic goods could help us balance world trade, and that buying American is patriotic because it is beneficial to our domestic economy. Buying American not only directly benefits Americans, but also benefits society as a whole because taxes from American goods go toward benefitting our country and can help us get out of debt. While this sounds quaint and easy, it is not the full story. Because domestic products are not always the best choice in terms of quality and overall cost, buying domestic products simply out of patriotic loyalty is not a good enough reason. Instead, American consumers need to be demand that their domestic companies and producers manufacture in more economical, efficient, and environmentally-friendly ways. Because many American products are not currently being produced as well as foreign-made products, buying only American products wouldn’t save as much as it would cost, and in many cases, it would mean subsidizing inefficient production and inhibiting innovation by taking away the incentive to do so.

Buying only domestic products in very isolationist and inhibits global collaboration. We live in a global society with a global economy, and as such, it is more beneficial to countries the world over to work with, instead of against, each other. Furthermore, because so many countries’ economies––America’s economy in particular––are so inter-connected, many countries, particularly in the developed world, have become dependent on goods and services from outside their own borders. Cutting off trade of monetary and human capital (products and knowledge) would mean a global slow-down of production and innovation that would ultimately be bad for everyone. There are, of course, potential benefits to buying only domestic goods, such as an increase in GDP, and the fact that the money circulating in the economy would stay in America (Degreecouncil.org). Buying products from American companies means more money for employers, and thus for employees. More money going into domestic companies means that those companies are more likely to invest in America because they perceive an influx in the demand for domestic goods and a swell in the economy. Furthermore, taxes from wealthier American companies would mean more money going toward government agencies like police and firefighters, who would in turn spend more money buying American goods. In economic terms, this is called the ‘magnification of the dollar’: one dollar, because it is spent many times, actually has the effect of much more than a single dollar on the overall economy, because so many goods are created and consumed for that single dollar that, as it changes hands, its effect increases in value. All these things lead to an increase in GDP. Bigger GDP means a better economy, a stronger country, and wealthier citizens. Wealthier citizens in turn are more likely to become more educated, and a more educated populace means a more educated labor force. A more educated labor force in turn creates better and more efficient production in the workplace, making American companies more profitable, and creating more economic growth. Additionally, more economic growth and profitable companies that create jobs means that many more people would have the opportunities and resources to lift themselves out of poverty.

Are there any downsides to all this? Buying only domestic products would mean cutting off foreign trade, which would lead to embargos on our products, which would in turn effectively close our export market, meaning that there would be no foreign wealth flowing into our economy. In fact, this situation is not merely hypothetical. Congress passed the Smoot-Hawley act, which significantly raised import duties on foreign goods, forcing American companies to only buy from American producers. Because of its isolationist policies, the Smoot-Hawley tariff act resulted in an exacerbation of the already unprecedented down-turn of the economy of the Great Depression (Encyclopedia Britannica). Additionally, if what consumers are concerned about when deciding whether to buy domestic or foreign products is GDP, it’s important to remember that there are more measures of a country’s wealth than GDP. As Robert F. Kennedy put it, GDP has a habit of not measuring “that which makes life worthwhile” (Rampell). GDP does not measure things like the amount of leisure time people have, the amount of pollution economic growth causes, and it does not necessarily reflect the quality of life of a country’s citizens. In response, China has begun measuring “green GDP” (Rampell), which takes into account environmental impacts of production. Other proposals for measuring a country’s wealth have included the ‘index of sustainable welfare’, the ‘genuine progress indicator’, and the ‘happy planet index’ (Rampell).

Though there are potential benefits to the overall economy from only buying domestic products, these benefits are outweighed by the costs of isolationism and a lack of foreign competition. Because American-produced goods are often much more expensive than foreign-made goods, and because the median American income does not allow for Americans to continue purchasing the products that they consider essential for maintaining standards of living if they bought all of those products from domestic companies, buying only domestic products can lead to a decrease in both wealth and quality of life for Americans. Buying domestics goods over foreign goods simply in the name of patriotism means that consumers are paying more for the same products produced in countries such as China or Japan, and often might be paying more for the same products that are produced with worse resource allocation, more environmental impact, and have lower quality. Without foreign competition, domestic companies lose the incentive to innovate, lower prices, and make more with fewer resources. One of the most serious consequences of buying only domestic products, however, is the retaliation the U.S. economy would suffer from the rest of the countries who buy our exports, trade information and services with us, and come to international policy agreements with us in a peaceful manner. If the United States ceases importing products in the name of buying from our own domestic companies, we cannot realistically expect the rest of the world and the World Trade Organization to not place embargoes on our exports. A policy of buying only domestic products is an isolationist policy and will only cause problems for us. Far better for the UnitedStates and for American consumers is to purchase American goods when possible, but to purchase foreign goods when they are cheaper and/or produced with better resource allocation. If the UnitedStates discontinues collaboration with foreign producers, we will be cut off from the rest of the developed world. The isolationist policy of solely buying domestic goods is not worth the trouble it would cause.

Works Cited

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Degreecouncil.org. "Pros And Cons Of Buying American Products." Pros And Cons Of Buying American Products. degreecouncil.org, 25 Nov. 2013. Web. 20 Mar. 2014.

Forero, Juan. "Brazil’s Ethanol Sector." Washington Post. The Washington Post, 03 Jan. 2014. Web. 20 Mar. 2014.

Kavoussi, Bonnie. "Average Cost Of A Factory Worker In The U.S., China And Germany [INFOGRAPHIC]." The Huffington Post. TheHuffingtonPost.com, 08 Mar. 2012. Web. 20 Mar. 2014.

New York Times. "That ‘Buy American’ Provision." Room for Debate That Buy American Provision Comments. The New York Times, 11 Feb. 2009. Web. 20 Mar. 2014.

Rampell, Catherine. "Alternatives to the G.D.P." Economix Alternatives to the GDP Comments. N.p., 30 Oct. 2008. Web. 20 Mar. 2014.

Tavernise, Sabrina. "U.S. Income Gap Rose, Sign of Uneven Recovery." The New York Times.The New York Times, 12 Sept. 2012. Web. 20 Mar. 2014.

Tencer, Daniel. "Number Of Cars Worldwide Surpasses 1 Billion; Can The World Handle This Many Wheels?" The Huffington Post. The Huffington Post, 23 Aug. 2011. Web. 19 Mar. 2014.

Encyclopædia Britannica. "Smoot-Hawley Tariff Act." Encyclopedia Britannica Online. Encyclopedia Britannica, 12 Jan. 2014. Web. 19 Mar. 2014.