«Buy American provisions can have several advantages. They funnel money to domestic businesses in important industries, theoretically raise the wages of workers in those sectors, and let the government support the development of crucial technology and infrastructure. For example, if the U.S. wants to build an all-electric economy, we probably need to be much more deliberate about creating a stable and thriving market for inputs such as lithium and copper.
But the Buy American philosophy has at least four problems that the White House, Democrats, and all policy makers should think about as they engineer a new industrial policy for the 21st century.
B.A. typically raises costs.
The U.S. should be concerned about building more and building faster. (...) But building certainly won’t get any cheaper or easier if our policies increase the cost of essential materials by making foreign purchases of them illegal. All things equal, buying American might make building in America more expensive at a time when we should be obsessed with reducing costs rather than raising them.
B.A. can make key supply chains less resilient.
Last spring, a bacteria outbreak at a Michigan plant that makes infant formula created a scary shortage. It also offered a lesson on the downsides of protectionism. The U.S. government makes the legal importation of otherwise-safe European formula almost impossible, going so far as to seize shipments at the border. (...) The U.S. should consider “friend-shoring” the production of certain materials—that is, working with our allies to create many nodes around the world so that if one fails, no catastrophe ensues.
B.A. policies can hurt innovation, even if just by accident.
(...) Buy American provisions might send a strong signal to buyers—whatever you do, just buy from one of these few domestic suppliers! - that overwhelms other signals, such as price and quality. As a result, domestic suppliers don’t have to keep up with any innovative wave, and Buy American policies lock parts of the economy into being less innovative.
B.A. hurts global alliances that we should be nurturing.
If the U.S. really is on the cusp of a second cold war with China, we should be focused on building alliances rather than frustrating our allies and trading partners. (...)
Protectionism pushes us in the other direction. When the U.S. imposes Buy American rules, other countries may copy us and impose their own restrictions on global trade. This is why too much protectionism can punish the very people it’s meant to help. Under President Trump, the U.S. imposed import tariffs to protect manufacturing workers who built washing machines and made steel and aluminum. These jobs happened to be disproportionately located in GOP counties. But the policy backfired, triggering retaliatory tariffs in other countries. Suddenly our washing machines weren’t priced competitively for foreign buyers, leading to a sharp decline in U.S. exports. A 2019 analysis by several economists found that the U.S. companies that lost the most business were heavily concentrated in the very same GOP-leaning counties that Trump was theoretically trying to assist.
(...) But in this molten moment for economic policy, as we’re sliding from a neoliberal era into something else, we should be explicit about the trade-offs that come from explicitly protectionist policies. We already know the downsides of a laissez-faire, “build wherever it’s cheapest” regime. Twenty years from now, I don’t want to have to write that the U.S. overreacted to the China shocks by forcibly onshoring the production of goods in a way that made those goods less resilient and ample.»
