So here’s a quandary – You’re out shopping to replace something in your life or to add something to your personal inventory. Do you buy that “whatever” that’s made overseas or a similar “whatever” that’s made here in the US? With Amazon Prime Days upon us there are more thoughts on retail spending than usual. If you are following the news on topics other than politics, you might have run across some articles about the shift our economy is taking towards protectionism. What does that mean exactly?
At its core, protectionism is a political policy that advocates purchasing something made domestically over something that is imported. That could be something that you or I are purchasing for ourselves or it could be something that our manufacturers are purchasing to build the “whatever” that they are then going to sell us. A good example of this is the recent push to encourage purchasing electric vehicles made, primarily, in the US. Under the new policy, you could get a federal tax credit as long as the car you are purchasing meets certain requirements, one of them being that the car needs to be made (predominantly) in North America.
Protectionism can also take the form of a surcharge or, to use government-speak, a tariff. This surcharge is added to the cost of something made in another country once it hits our shores and goes up for sale. One scenario might look something like this: Say we’re having a disagreement with France and want to encourage US citizens to purchase domestic cheese. We would put a tariff (surcharge) on that round of brie and perhaps provide a little subsidy for those Wisconsin cheese manufacturers who are making what they call brie. The goal here would be to discourage people from purchasing the more expensive imported (totally delicious) cheese while encouraging those same people to pick up a domestically produced brie for their next little get together. That’s a small example. A much larger example would be a tariff on imported steel. For many years, China has been accused of dumping cheap steel into the US markets, undercutting our domestic manufacturers. Putting a tariff on those imported steel shipments makes that Chinese steel cost roughly the same (or perhaps more) than the domestic steel, hopefully encouraging manufacturers to purchase home-grown metal.
This pushmu-pullu strategy can apply to anything. There is virtually nothing that the US makes that isn’t made someplace else as well and there are some definite pros and cons to the idea of trying to promote the domestic supply chain. On the one side, encouraging people to make “Made in America” purchases helps our economy. The flip side to that is that our manufacturing costs are higher than many other countries so what you pay for that “whatever” is going to be higher, which may or may not work in your budget. Turning that on its head, NOT buying that “whatever” that’s being manufactured in some other country doesn’t help pull those workers out of poverty. For reference, the average minimum wage in China is about $3/day compared to the lowest minimum hourly wage in the US of $7.25 (not coincidently, many of the same states with the lowest hourly wage are those with the highest rates of child poverty but I don’t get to make policy…. Or slap politicians upside their heads….).
In a little lesson in irony, the US provides more assistance than any other country on foreign aid (although it’s a smaller proportion of our GNP than most other developed countries) so here’s the dilemma – we can endorse protectionism and buy more domestically, which will suppress the income of some foreign countries who we will then send money to in the form of foreign aid to help their population make meager ends meet. Of course, we don’t spend a particularly large percentage of our total budget on foreign aid so we’re not talking a huge amount of money, relatively speaking (we spent about $70 billion on foreign aid in 2022, about 1% of our budget and the equivalent of a rounding error…).
Going back to the pro side of things, there’s a chance that the quality of the “whatever” you purchase that was made domestically is of a higher quality than something purchased overseas where the quality control standards are lower or potentially nonexistent. To throw a con against that pro, let’s go back to that delicious creamy brie. What if France got its nose out of joint about our tariffs and started putting tariffs on whatever it is that we might be exporting to them (mainly energy-based products and medical devices). Now our manufacturers will take a hit as will our economy.
To throw yet another factor into the decision-making paradigm, that cheaper “whatever” often needs to be shipped from someplace far, far away and the price rarely takes into account the environmental impact of that travel. Sure, it might be cheaper to manufacturer but if it had to travel 5,000 miles (probably by at least a couple of trucks and a boat), is it really cheaper?
I’m of mixed feelings on protectionism – I live with a pretty structured spending plan, so I get the importance of watching costs. On the flip side, let’s be serious, there are some things that other countries do better than we do. In closing, I came across this quote and thought it remarkably pertinent for the last couple of weeks: “I spent the whole morning building a time machine – that’s four hours of my life I’m definitely getting back” – Olaf Falafel at the Edinburgh Fringe Festival. (Well, it made me laugh…)