There are so many things that make sense, sound true, and are absolutely, demonstrably false.
“Since bleach is a great cleaner, and ammonia is a great cleaner, mixing them together makes an amazing cleaner.”
“I’m from the government and I’m here to help.”
“If you want more American jobs you have to buy American.”
This makes sense and sounds true. If you buy more American-made stuff, you increase demand for American-made stuff. If demand for American-made stuff increases, production will also increase. If production increases, companies will have to hire more Americans to make the stuff.
And yet. There isn’t a lot that most economists agree about. But there is near consensus in the world of economics, even among the fringe groups, that international trade has increased the number of American jobs on net.
Perfectly logical, sane thinking can still take you to the wrong conclusion if you don’t take all the facts into account. It’s true that flipping the light switch up turns the light on 99% of the time. But what if the light switch is broken, or installed incorrectly, or the light bulb has burned out?
Let’s explore some relevant facts that are often ignored in the debate about how global trade impacts American employment.
1. Global demand matters too
Americans aren’t the only people buying American-made stuff.
And unfortunately, there is no way for the government to encourage Americans to buy American-made stuff without incentivizing other countries’ governments to encourage their citizens to buy stuff made in their country.
Sure, if you buy more American-made stuff, you increase demand for American-made stuff among Americans. But you decrease demand for American-made stuff from the rest of the world. And, last I checked, the rest of the world was bigger than America. So you’re just putting a hard cap on demand for American-made stuff. That doesn’t create jobs.
At the company I work for, we get paid when people click the links on our website. Around a fifth of the people who visit my company’s website live outside the US. Let’s just say that 500,000 people per month visiting my site from abroad. If we start a trade war, we lose those 500,000 visits and hope that 550,000 Americans stop using websites owned by companies outside the US and use us instead. But what if there aren’t 550,000 Americans who had been using foreign-owned websites?
2. Prices rise first
“If demand for American-made stuff increases, production will also increase.”
When demand increases, supply always takes a minute to catch up. You’ve got to build factories, hire workers, find supplies, etc. All that takes time. What happens in the interim? Prices increase.
That’s why any time imports decrease prices rise, and any time imports increase, prices fall. It’s simple supply and demand.
3. Demand for stuff doesn’t always translate into jobs
“If production increases, companies will have to hire more Americans to make the stuff.”
Not so fast. While this makes sense in theory, it’s not actually true in practice. And the reason is that American businesses have figured out how to make more stuff without hiring people. Manufacturing output is actually higher today than it’s ever been. Americans make more stuff, and send it abroad, than ever before. And yet manufacturing employment is down, down, down. How? Robots.
Automation is eating American manufacturing jobs.
Makes sense. Isn’t True.
It’s true that if you want more American jobs you have to increase demand for American labor. But the largest pool of untapped demand for American labor lives outside America’s borders.
Other countries will respond in kind to the US shuttering proposed trade deals, withdrawing from trade agreements, and putting tariffs on imports. So “buy American” policies will unfortunately do nothing to save American jobs. Instead, they will do three things:
1. Reduce global demand for American-made stuff
2. Make the stuff we have to buy more expensive
3. Further incentivize American companies to invest in technology to automate production
Let’s talk about me again for a second. If you add up all the Americans who use foreign-owned competitors you still get a lower number than the number of foreign visitors to my company’s site. Suddenly “buy American” means “No raise for Cathy.” We’ve just screwed ourselves out of the traffic we had been getting from abroad for absolutely no benefit.
Bleach is a great cleaner. Ammonia is a great cleaner. Mix them together and say goodbye to your lungs. The government is trying to help with “buy American” policies. But the result will be anything but helpful for American workers.