When economies are struggling, protectionism seems well-intentioned: By “buying American” we can go back that golden fantasy age when everything was American-made and everyone had a decent-paying job and could afford the latest luxuries. I have some examples that I hope can convince you that freer trade benefits everyone. It’s not completely intuitive; we commonly think that one person is always screwed in a deal; if it’s good for [insert foreign country], it must be bad for America.
Example: “Father & Son” Auto Repair
My dad can make good money restoring antique cars and flipping used cars that need minor repairs. He often relies on friends for manual work and often buys/sells in other states. What if the City of Spring Hill decided that all work must be done by father and son? I could learn auto repair, but I’d be bad and slow at it for a long time. Also I’d have less time to do web programming, which I’m far more efficient at. He could do more of his own work, but it means he’d spend less time researching the market, sourcing parts, and negotiating deals, which are more valuable skills. Both he and I would end up producing less value than we normally can, and both of us would be worse off. The right to “outsource” his labor outside the family is win-win for everyone.
Example: Dr. Fry
Imagine a small town with a woman who’s not only the best doctor in town by far, but also a damn good deep fryer. Since she can cure patients faster than other doctors, she has what’s called a comparative advantage over other doctors. After reasoning that it’s only fair to give other doctors a shot, one day the city decides that she will now work afternoons at McDonald’s. Because of this decision, everyone is worse off: The hospital must now hire another full time doctor just to replace the work she used to do in the afternoon, so not only does the quality of care decrease for visitors after noon, but they all pay more for it, reducing the spending done at other local businesses.
Lesson: It’s always better to allow people or groups with a comparative advantage in a field to do work in that field, because more value can be produced, and this added value ends up benefiting everyone.
Example: The Florida Electronics Boom
The Florida state legislature has decided to boost its economy by requiring all consumer electronics sold in Florida to be 100% “made in Florida.” Let’s first assume we can actually mine all the raw materials we’d need: we’ll need a new mining industry and hundreds of Floridians will now enjoy toiling in mines (“Sunshine jobs!”). But, of course, Floridians can’t work for less than minimum wage, so both mining and assembly labor will be significantly more expensive than in foreign countries, and we’ll end up with TVs and iPhones that very few can afford. When few people buy products, those markets tend to innovate slower if at all, so consumers and programming firms might never enjoy the boom of the “app store”.
Also, some Floridians that have the potential to do more advanced work will end up in the mining and assembly workforces. Basically a lot of people end up working below their potential, producing less valuable goods and services. When less can be produced and less can be afforded, everyone is far worse off.
Is anyone under the illusion that the Western world would be as prosperous without buying foreign oil? Yes, transactions have externalities that need to be addressed, but cheap oil practically built the modern world, and will probably be responsible for ending it.
Can you see where this is headed? The wider your circle of available trading partners, the better the collective society can optimize the use of comparative advantage. Google creates tremendous amounts of value for everyone by well-utilizing the comparative advantage of many of the brightest programmers out there. Providing benefits like at-work day care and gyms not only attracts top talent, but also enables that talent to spend less time commuting and more time creating things.
There’s nothing wrong with “buying American.” There are plenty of products Americans can compete on, and there’s even real value in the backstory of a product (see: the “organic” farm industry), but when someone puts up a fence to prevent trade (or a tariff that eats away the gains of comparative advantage), you want that fence as far away from you as possible, because it’s likely that on the other side are thousands of trades directly or indirectly beneficial to you that can’t be taken advantage of.
Protectionism might be able to raise employment, but there’s a lot more to quality of life than whether or not you’re employed. Even at what we consider disastrous unemployment, Americans mostly still live like kings. The best thing the Western world could do for Haitians is to increase their access to trading partners: build better/more ports and cover the whole island in free wifi. There’s no quick fix to our recession, but I’m convinced that bringing monotonous factory jobs back to America is not the way we’ll do it. The Onion covers the absurdity of this notion perfectly (NSFW language).