President-elect Joe Biden’s “Buy American” proposals have been attacked by the usual suspects committed to free trade at any cost. While the devil will be in the details, as a general matter, the critics are wrong.
By this point, it should be uncontroversial that U.S. global trade policies in the past two decades have significantly harmed millions of Americans and their communities. Economists have documented how competition from China alone significantly damaged the economic well-being of Americans, costing millions of jobs and pushing standards of living down for those who were hit hardest. It is surely no coincidence that median household income in the United States stagnated for 17 years between 1999 and 2016, during which time China’s entry into the World Trade Organization made it a global manufacturing superpower. Research has also suggested that this decade-and-a-half war on U.S. jobs was an important reason why President Donald Trump won in 2016.
Biden’s Buy American plan is a modest attempt to reverse some of these trends. Among its many components, Biden has pledged to use taxpayer dollars to buy goods made in the United States rather than elsewhere. He reiterated that pledge Monday, saying, “No government contracts will be given to companies that don’t make their products in America.” That won’t suddenly bring manufacturing back from overseas, but it will have an effect on the margins. Just as important: It sends a signal to U.S.-based companies that they need to balance political concerns and cost when making decisions about where to locate factories.
This is crucial to rebuilding the implicit social contract Americans have with each other. U.S. firms and workers have traditionally benefited together from economic growth. But the rapid outsourcing of U.S.-based jobs, coupled with the rapid insourcing of foreign workers, have severed that link for too many of our fellow citizens. This in turn leads to justifiable resentment as well as isolationist and extreme nationalist tendencies. It also provides more fuel for socialists who argue that capitalism itself needs to be restructured. It’s simply not politically tenable in a democracy for a growing percentage of Americans to believe that the political and economic systems don’t care about their well-being.
Critics will contend that measures such as these are “protectionist” and will decrease overall economic growth. Let’s grant that for the sake of argument. So what? Modern governments have long sanctioned economic interventions that reduce economic efficiency in the name of social cohesion.
There is no theoretical difference between “free trade” and “laissez-faire” economics, which perhaps is why those who most fervently believe in the latter more stridently argue for the former. Fortunately for all of us, we have long since left a pure interpretation of free markets behind for the more stable and equitable mixed economy all free nations now enjoy.
The real objections to Biden’s ideas come down to a simple question: Are the benefits worth the costs? Buying American will surely cost taxpayers more for the same goods. Will we get extra U.S.-based jobs or simply funnel more money to producers who would have received the contracts anyway? Will firms that want to do business with the government bring manufacturing jobs back to the United States, or will they qualify for government contracts with clever accounting tricks that artificially shift the locus of production to U.S.-domiciled companies from foreign subsidiaries? Americans need to get something of actual value for the cost incurred to make Biden’s initiative worthwhile.
Foreign policy concerns also need to be weighed. The United States must keep its closest neighbors, Canada and Mexico, firmly in its economic and political orbit. The free trade agreements between the three countries, first NAFTA and now the USMCA, help to do this by sharing U.S. economic growth with these nations. “Buy American” has to be interpreted in a way that won’t run afoul of these measures and doesn’t impact Canada’s or Mexico’s economies too much. The alternative would be for those nations’ leaders to seek trading partners elsewhere, especially by building economic ties to a Communist Chinese government that would be eager to weaken U.S. global influence. An extra 200,000 U.S.-based manufacturing jobs would not be worth seeing Canada or Mexico shift toward the nascent Chinese empire.
Those concerns, however, are practical. The theoretical issue at stake — whether national interests should take precedence over purist economic principles — is the primary matter. On this, Biden and populist Republicans raising similar concerns have it right.
Olsen is a senior fellow at the Ethics and Public Policy Center and columnist for the Washington Post.