March 2009 | Commentary | Supply Chain Perspectives

Buy American, Transport American?

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For the past decade or more, conducting business globally—outsourcing manufacturing abroad, shipping through foreign flags, and sourcing parts worldwide—has been the rule, and for many practical reasons may stay the rule. While national borders stay in place for politicians, they have essentially disappeared for the business community.

But the cry to keep business in America is growing loud again in light of the government's economic stimulus plan requiring the use of U.S.-manufactured steel on all infrastructure projects.

The "Buy American" call is coming mostly from some angry union members and patriots with myopic vision and/or short fuses. But test the theory by taking a trip to Home Depot or Walmart and trying to find the American-made products. Talk about a frustrating treasure hunt.

FREE TRADE, FREE MARKETS

The American economy has been principally based upon the concept of free trade and free markets. In most cases, free trade benefits both the buyer and the seller. This is the "law of comparative advantage."

This "law" espouses trade gains by both buyer and seller, even though only one party—the seller—is able to offer a comparative advantage in a deal.

Each trading nation may gain by specializing in its comparative advantage goods, then trading those goods for others. Some, however, see this as a form of exploitation by strong, industrialized countries that may manufacture high-tech, high-profit goods, then trade with a non-industrialized nation for low-tech, low-profit goods. When up against such formidable odds, the concept of free trade shutters.

Trade between almost equal traders of two or more nations can escalate into a trade war. Consider Airbus vs. Boeing—no quarter given, no quarter granted. Europe and the United States may cooperate to a degree on some projects—space exploration, for example—but not go wing-to-wing in building aircraft.

Capitalism's foundation in free trade is fundamentally structured by where the money goes to meet demand, then finding and paying for the resources to meet that demand. In a capitalist exchange, it's the decisions to do or not do business that make economic sense, not who the buyers and sellers are. An "us vs. them" frame of mind is dangerous. Confrontation is the opposite of cooperation. It builds distrust and creates a poor business climate.

WHY BUY AMERICAN?

The first to cry out from overseas about the economic stimulus plan for a U.S. move toward protectionism were the dyed-in-the-wool protectionists themselves, and they are legion. China and several nations in Europe have already responded negatively and vociferously to the stimulus plan's mantra to "Buy American."

If the United States moves to manufacture more and Buy American, it will still be helpless to Ship American globally. Absent the control of a strong U.S. ocean-shipping fleet, expensive air freight is the next alternative.

The romance of sourcing cheap, manufacturing here, then exporting cheap—in a U.S. ship—is an illusion. It holds out impossible promises, promotes a false patriotic stance, and paints a rosy, but non-existent, future.

The United States would do well to not just embrace free trade, but extol it. We can't impose our rules worldwide but we can provide a good example and hope for the best.

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