Buy American

In recent years the U.S. government has become more protectionist (protecting its domestic firms from foreign competition). Last year it even provided billions of dollars to subsidize chip production and other designated products in the U.S., an example of industrial policy (state directed development). The CHIPS Act passed last year will shell out over $200 billion over the next five years to subsidize domestic chip production.

To add insult to injury, the so called “Inflation Reduction Act” may violate World Trade Organization rules: “We have concerns about a number of discriminatory elements in this Inflation Reduction Act which puts requirement for local content, for local production,” Dombrovskis, who also is a European Commission vice president, told Bloomberg in Prague.” EU Is Assessing If US Inflation Act in Breach of WTO Rules – Bloomberg Did we really think that we could cheat and Europe and the rest of the world would just roll over and play dead.

President Biden has proclaimed that these expensive policies are needed to create jobs in American. This is bazar given that we are currently suffering from a labor shortage.  Manufacturing output in the U.S. is at an all-time high. U.S. employment in manufacturing has gradually declined in recent decades because our workers have become more productive. But that is surely a good thing, resulting in an increase in our standard of living. President Biden has taken steps to lower our standard of living in order to create American job. Take a deep breath. If we don’t significantly increase legal immigration, you can count on the continuation of long waits on the phone to talk to a real service person.

Where does the “Buy American” impulse come from? It seems that some people see American nationalism as keeping everything at home whatever the cost, while I see it as enjoying the fruits of our largely free society to work and innovate and flourish as we each see fit for the benefit of all.

Several years ago, Ito and I celebrated the 4th of July at the American Embassy in Roma at the invitation of our friend David Zimov, at that time Counselor for Economic Affairs at the U.S. Embassy in Rome. It was really a fun event overflowing with hot dogs and hamburgers. While listening to the Marine Band and waving the little American flags we were all given, I noticed that the flag had been Made in China (clearly tagged). I am guessing that the American nationalists I referred to above were appalled. I, on the other hand, was grateful that my tax dollars were being spent as carefully and wisely as possible—on this occasion at least.

Author: Warren Coats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.

2 thoughts on “Buy American”

  1. Hello Warren, thanks for another amusing (if funny) write-up. I could hear the same argument made by you 30 years ago. Probably, I agreed with you then – but the world has changed, some economic trends failed, old policies had to be changed – and even you and I have changed and need to accept that not all our business school-taught theories worked or did for a little while only.
    Sadly, global trade – an otherwise wonderful social-economic theory on paper, did not work as intended. It had nice ideals such as improving the lives of everyone around the world, but it did not fulfill the purpose of creating wealth for all – and worse yet, it accentuated poverty and inequality including in the US. The current expensive policies passed by this Administration (namely, IRA – inappropriately named, and CHIPS act) are desperately needed, and they are paying-off already. They are building local capacity in important industries. Many of my South Korean technology clients are moving their new technology and climate change products manufacturing lines to the US to capitalize on IRA funding. HOORAY!

    In the past four years, due to the paralization of Asian manufacturing lines (COVID-19 related), we did not find solar panels nor CHIPS nor construction materials, nor medicines, etc., in the US. Distorted examples of this were that I sold my antiquated refrigerator and old car for more money they were ever worth. IRA and CHIPS are not the silver-bullet but a confirmation that Globalization did not work, and we lost the manufacturing edge ever built in 1950s, 60s. Yes – it may have worked for you and I but has made our neighbors poorer and our living unsafe. The pandemic taught us that we must keep some of these industries locally – it is of national security interest and economic growth priority.

    Made in America is not the solution to all our maladies but a confirmation that the US cannot longer rely on being a 100% service economy. We need local job creation to stabilize the country and resume growth. We MUST NOT rely on importing goods from China and the Arab countries anymore. The little Chinese-made flags you wave in Rome could have been made in Columbus, Ohio or Baltimore, Maryland. Analyze those places today.

    Unfortunately, we have not learned a lesson yet: GIFTING MONEYS to countries around the world is not going to buy us their LOYALTY in the long-term. I find it nonsensical we send a smart VP to poor countries to buy their “political support”. It never worked for the US. It will never work.

    As a proud naturalized American, I still subscribe to the old American ways: forging mutually convenient commercial relationships by investing US capital and/or US expertise in US controlled industries and fomenting commerce abroad. Making profitable US joint ventures with bright local investors has always last longer and fomented healthy and lasting US relationships with other countries. That is the “twofer” that has always worked for the US and worked for developing countries.

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