Free traders have constantly dismissed “Buy American” advocates, policies, and legislation by claiming that importing products from foreign countries that could be made in America is cheaper for the consumer.
Economic theory teaches that efficiency occurs when products can be made at lower input costs, including labor. Economists say that one way to do this is to offshore manufacturing to lower-labor-cost foreign countries. It is worth noting that free traders worship at the altar of efficiency, regardless of which national economy benefits.
One example of the free trade efficiency argument fallacy can be found in St. Louis, Missouri, although there are plenty of similar examples in other American cities.
St. Louis witnessed a de-industrialization, the loss of manufacturing jobs, and, therefore, the loss of vital tax revenue for public schools and other public outlays in the 1980s. Now that a dozen previously funded schools have closed, many of them are being put up for sale for less than a one-bedroom apartment in New York City.
Federal legislation is now being enacted to divert federal tax dollars to rebuild areas in St. Louis that have suffered from extreme poverty due to the de-industrialization and decline in population that led to the school closures in the first place.
All this calls into question the free trade theory of increased efficiency. Is it really efficient to use America’s taxpayer dollars to fund public schools, close them due to intentional domestic deindustrialization, allow them to decay, and then use even more American tax dollars to rebuild the areas we intentionally allowed to decay?
The answer is “no,” this is not an example of free trade efficiency. In fact, it completely debunks the free trade efficiency argument.
Our founding fathers never intended free trade. That is why the second bill ever signed by President George Washington, after adopting the Great Seal of the United States, was a 5 percent tariff on basically all imports.
This second bill, the Tariff Act of 1789, had two purposes. One was to protect domestic manufacturing industries. The other was to raise revenue for the federal government. Congressman James Madison sponsored the legislation, which the 1st United States Congress passed and Washington signed.
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The vision of our founding fathers to protect American manufacturing so we can compete with cheap imports from non-market and state-run economies like communist China is crucial to our survival as a first-world nation.
Increasing and expanding manufacturing capability in the United States is essential for our efficiency in producing American-made goods for an attractive price cost for the American consumer.
In 1900, Secretary of State John Hay said, “The United States is approaching…a position of eminence in the world’s markets, due to superior quality and greater cheapness of…its manufactures.”
In searching for the failure of our country to invest in essential industries with national security implications, one needs to look no further than the U.S steel industry, which is no recent phenomenon.
Back in November 2015, The Wall Street Journal detailed how the price of U.S. steel declined by one-third from the start of that year. China stepped up its imports by 31% compared to 2014, which had a “negative impact on the rebalancing of supply chain inventories,” according to U.S. Steel Chief Executive Mario Longhi.
In eight of the past ten quarters before 2015, U.S. Steel lost money, including $509 million in 2015. The reason? The free trade efficiency thinking of U.S. legislators and global economists took its toll on American steel manufacturing, and along with it, our ability to buy American.
Foreign countries like China have had a history of flooding our market with their steel exports, which drives down prices, and forces America-based steel companies to cut back on production.
The bottom line is that buying American and import tariffs to protect our U.S. economy are both strategies that complement each other. Import tariffs make American-made goods more competitive and increase demand for them, allowing American manufacturers to take advantage of economies of scale to reduce prices even more as they become more efficient.
Free trade makes our manufacturers less efficient, making it more likely that U.S. consumers will choose a more attractively priced foreign-made alternative. That is the fallacy of free trade efficiency.
Our founding fathers were the original Buy American advocates. They rejected free trade, and so should we.
About Roger Simmermaker
Roger Simmermaker has written multiple books on buying American and trade policy since 1996, and has been a frequent guest on Fox News, Fox Business Network, CNN, and MSNBC. Roger has also been quoted or featured in The Wall Street Journal, USA Today, BusinessWeek, and The New York Times, among many other publications. His new book ” UNCONSTITUTIONAL: Our Founding Fathers Rejected FREE TRADE And So Should We,” was printed in January 2020.
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