The fallacy of "Buy American!"

“Outsourcing is evil. Buying foreign made products is unpatriotic!” This line of economic reasoning leads us to protectionism, the idea that government intervention is required to ‘protect’ American businesses from the ravages of cheap labor overseas. American businesses certainly profit from protectionist policies, they are able to keep prices artificially inflated once outside competition is neutralized. The American consumer, however, suffers from this particular economic idea.

As consumers, we suffer higher prices. Higher prices that are the deliberate result of protectionist policies. An excellent example of this is the American steel industry. The US government enforces tariffs on foreign steel in order to protect American steel companies. Who benefits from this policy? Well, the steel manufacturers certainly do, with the neutralization of price differences of foreign steel, American producers are spared the trouble of improving their processes to match the productivity of foreign producers. The government also benefits, they are taking in money via the tariffs as well as votes for any elected officials involved with the tariffs. Absent the tariffs, steel would be cheaper and so would any product that makes use of that steel. In effect, the concept of ‘Buy American’ is one that benefits the few at the expense of the many. Additionally, artificially high prices retard economic growth by tying up resources that could be utilized for other ventures.
Many will argue that lower wage rates in foreign countries offer an unfair advantage for the producers in those countries and that protectionist policies are a way of counterbalancing said advantage for American business. The interesting subtlety about this notion is that outsourcing actually makes us more productive as a whole. Due to the remarkable economic growth in America, American workers are generally more productive than our foreign counterparts. This means that American workers earn a higher wage rate due to a larger, or more refined, set of skills. However, while wage rates rise, the value of menial labor does not. A product is not magically made more valuable because the worker was paid more for producing it. By outsourcing the particular labor that nets negative revenue to lower wage labor in other countries, the higher productivity labor in the US is freed up for other endeavors that will make more efficient use of the effort. In addition, outsourcing gives us consumer goods at a lower price, which frees up more of our resources, as consumers, towards achieving our individual desires. Outsourcing is an important concept for economic development. It enables further division of labor, which is the only way we, as a society, advance economically.
The American consumer is not the only one to benefit from outsourcing. The workers hired to complete the outsourced work benefit as well. You and I might scoff at anything less than minimum wage, but for many people around the world even $2.00/hr is a significant amount of money that will greatly improve their standard of living.

Inherent corruption is another problem with the idea of protectionism. Lobbyists spend billions every year trying to get government protection for their particular industry. Always, of course, for the good of the consumer. The centralized power to decide what products should cost will inevitably lead to corruption. The person making the decision has interests and lobbyists will leverage those interests to gain an advantage for their industry, almost always at the expense of the consumer.

Let’s assume, for a minute, that the protectionist idea is a good one. If that’s the case, why don’t we enforce tariffs between the States? Using protectionist logic we see that it’s detrimental to allow other states to purchase agricultural goods from Nebraska at their current price levels. It’s also not fair to the agricultural businesses in said states! What if they don’t have the available land or soil quality necessary to produce the goods at a decent price? Obviously, the federal government should impose a tariff that raises the price of all agricultural exports from Nebraska. With those tariffs in place, we can expect economic prosperity and a level playing field; with the exception of the consumer who now has to pay more for food.