What Does ‘Buying American’ Even Mean?

Last year, I decided to treat myself to a set of really good wrenches. After a lot of research, I narrowed my list to three manufacturers that, while not widely known, got rave reviews on obscure forums where professional mechanics gather. Then I noticed that one, Wright Tool of Ohio, makes all of its tools in the US, using only American steel. Motivated not by patriotism but more by plain hometown spirit, I made my choice: Of course I would “buy American.”

It felt good to do that. And I’m hardly alone in that feeling. Americans like to support American industry. Polls indicate that about two-thirds of Americans would pay more for US-made products over imports. Why? Largely because American shoppers have long believed in the superiority of American quality, in supporting American industry, and in the idea that “buying American” promotes American jobs.

This “Buy American” bias has long driven American policy. The country’s first president deliberately chose “homespun” fabric made in America, not imported from England, to wear at his inauguration in 1789. Nearly 228 years later, America’s 45th president promised at his inaugural address in January 2017 to “follow two simple rules: Buy American and Hire American.” President Donald Trump’s administration has followed through on that vow, issuing a “Buy American and Hire American” executive order and imposing tariffs on imports with the explicit goal of promoting US manufacturing and jobs.

Whether the tariffs will achieve their goal is unclear. Tariffs that make imports more expensive also make domestic goods (and American exports) more expensive. Policies that protect jobs in one domestic industry hurt workers in others. Even the seemingly airtight “Made in the USA” label leaks around its edges: Fakes abound, cheaters go unpunished, goods assembled elsewhere of US-made parts get treated, arguably unfairly, as imports.

As globalization leads the economies of individual nations to become ever more inextricably intertwined, it’s particularly hard for shoppers to clearly and decisively support a single country with their purchases.

Given that, the seemingly simple decision to “buy American” becomes complicated.

Trump’s trade policy (as reported in The New York Times, Wirecutter’s parent company) is intended to encourage domestic industry by making imports more expensive through tariffs. But the line between “imported” and “American-made” has slowly disappeared to the point of near-invisibility in the past half-century. Thanks to free trade, “products are no longer made in one country and sold in another, but are rather made in the world,” said Robert Z. Lawrence, professor of international trade and investment at Harvard Kennedy School.

He pointed to cars as an example. “What happens is, components are made in a variety of countries and then assembled in other places,” Lawrence explained. “American” automobile parts are made all over the world (including in the US) and compiled into sub-assemblies, like transmissions, elsewhere (often in Mexico). Finally, these sub-assemblies are often, but not always, gathered in the US or Canada for final assembly into vehicles. The American Automobile Labeling Act requires all automakers that sell in the US to list their vehicles’ percentage of US/Canada- and foreign-produced parts. It’s fascinating to read the complete AALA report (PDF). Ford’s most-American-made vehicle, the F-150, to pick an iconic “domestic” model, is just 56 percent US/Canadian. The Honda Accord, to pick an iconic “import,” is 65 percent US/Canadian.

The same process cuts the other way, and across industries. Bryan Riley, director of the conservative National Taxpayers Union Free Trade Initiative, gave the example of smartphones. “People see ‘Made in China’ and think we don’t make anything anymore, even though most of that iPhone isn’t made in China. They do the final assembly, but the know-how and most of the parts come from other countries, including the United States…. It’s no longer 1950, where you can look at something and it’s made in the US, or it’s made in Germany, or it’s made in Japan.”

Speaking of “made in”: “Made in the USA” labels are a guideline, not a guarantee. The Federal Trade Commission has extremely detailed rules for what qualifies as an American-made product—one that can legally bear the “Made in the USA” label (or language or imagery that suggests it). Qualification boils down to this: The product has to be “all or virtually all” made in the USA, with foreign-made components comprising a “negligible” proportion of the total. This distinguishes “Made in the USA” from another common designation, “Assembled in the USA,” which usually indicates that the components are substantially made abroad and put together in the US.

But the label does not guarantee that a product is, in fact, made in the USA. The FTC does not approve its use; that decision remains with the manufacturers. Unscrupulous manufacturers can and do use the label falsely, betting that they’ll get away with it. There’s little risk in doing so: As The New York Times reported in March, even when cheaters are caught, the FTC often lets them off without so much as a fine. (Ironically, the strict rules also cause some manufacturers to err on the side of caution and not use the label even though their products appear to meet the guidelines.)

In short, “buying American” is not as simple as buying things with a “Made in the USA” tag.

Rather, much of “buying American” comes down to trade policy, and as such is a political rather than an economic position. We talked about it with Dana Frank, professor emerita in history at the University of California Santa Cruz and the author of Buy American: The Untold Story of Economic Nationalism, originally published in 1999. The Trump administration’s focus on protectionism brought the book new attention. When we spoke, she emphasized its main argument: That “Buy American” has always been a slogan of nativist movements. “What ‘Buy American’ does is it sets up workers in other countries as our enemy,” she said, “when we should be thinking of them as our allies.”

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“Made in the USA” labels are a guideline, not a guarantee.

Frank argues that there have been three waves of Buy American–ism: First in the early 20th century, led by newspaper magnate William Randolph Hearst, against the “yellow peril” of Japanese foreign labor; next in the 1970s and 1980s, against Japanese automakers; and today under the Trump administration’s protectionist, pro-tariff policies targeting Chinese and other imports.

Economists are well aware of the politics of protectionism. “The sexy thing to do is to find someone to blame,” said Lawrence. Clearly there’s political appeal in these policies—but how do the affected manufacturers feel about them?

Recent evidence suggests many American manufacturers don’t want “Buy American” protections. Protectionism is “not being driven by the industry,” said Riley. “It’s being driven by the administration.” Lawrence was blunter: “Play in your mind what’s going to happen if you start to screw around with the supply chain and you put a tariff on these intermediate inputs, some of which cross the border two or three times before the final good emerges. This is why the Trump trade policy is hugely disruptive.”

Many business leaders oppose tariffs for that reason. In June, the leaders of more than 300 US companies, including electronics retailers, fashion brands, and streaming media services, testified before Congress, arguing that additional tariffs on Chinese goods would undermine their businesses by increasing their costs. Those companies followed the semiconductor industry voicing its opposition in July 2018, US automakers and suppliers uniting against tariffs in March 2019, and the apparel and footwear industry announcing its opposition in May.

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Many American manufacturers don’t want “Buy American” protections.

The most common argument for tariffs and other “Buy American” policies is that they’ll help American workers. Within the industries protected by narrowly targeted tariffs, that may be true. For example, the Trump administration’s 2018 tariffs on imported steel and aluminum led to an immediate addition of several hundred US jobs in each of those sectors, according to industry representatives. The AFL-CIO, the largest federation of American unions, supported the metals tariffs as “good for working people.” The United Auto Workers gave tentative support. The Teamsters fully supported tariffs.

However, these same tariffs may reduce employment in other industries. Some economists estimated that the tariffs would cost upwards of 100,000 jobs in downstream industries that relied on aluminum and steel, because the higher cost of the metals would reduce profits, limit job growth, and potentially necessitate layoffs. From a purely economic perspective, the high cost of tariffs means they’re inefficient as job-makers. In the worst-case scenario, as Eric Boehm of the libertarian Reason magazine calculates, the aluminum tariffs created just 300 jobs at a cost of $690 million, or $2.3 million per job.

And the benefit of tariffs can be fleeting even in the industries they’re designed to boost. US aluminum-production jobs are actually down over the past year. While I was writing this article, U.S. Steel announced that it would be idling two of its US blast furnaces, and another one in Europe, in response to an anticipated domestic and international glut of steel production.

Seeing the mills shutting down calls to mind a popular but outdated vision of American manufacturing: that it means steel, coal, and cars, concentrated in Pittsburgh, Appalachia, and Detroit, respectively. It’s true that these jobs were once a ticket to upward mobility and middle-class earnings. But automation has eaten away at those jobs (even as US manufacturing output has held steady as a fraction of GDP). Today, Americans who might once have worked in a factory are instead concentrated in service jobs such as retail, home health care, and construction. Instead of goods, American workers are “making” services—because that’s what Americans are buying. And they’re working nationwide.

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Ultimately, investing in “Made in the USA” means investing in education.

“If you’re building a house, you’re building it in a place—these jobs don’t migrate,” said Ileen DeVault, professor of labor history at Cornell University. “Home-care workers, again, it’s something that you can’t ship overseas…. We’re not going to send all of our elderly to India.”

“You see over time that as the United States has become wealthier, and as goods have become cheaper, our spending on goods has fallen,” Lawrence said. That’s unexpected: According to standard economic theory, cheaper goods should mean more goods being purchased. But instead, said Lawrence, “In 1970, Americans spent about half of all their consumption spending on goods. Today, it’s under a third. Rich people, they want a psychiatrist, they want a tax consultant, they want a personal trainer. Those are services.”

So how should Americans support growth and opportunity for the people working in those fields? Ultimately, investing in “Made in the USA” means investing in education.

Many of the industries where the US remains strong are high-tech: aerospace, computer hardware, telecommunications, chemicals. Traditional blue-collar industries, such as auto making and mining, are also increasingly reliant on technology. “If we look at the mix of workers who are employed in manufacturing, we find increasingly it’s college-educated workers who are being demanded,” said Lawrence. In this view, trade policy is the wrong tool for rebuilding American manufacturing jobs. “The key is education. The skills being demanded are greater and greater. The long-run solution has to be heavy emphasis on skills acquisition—to provide workers that actually can work in the jobs that are becoming available.”

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