The Theory of Comparative Advantage

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Buy American. In recent years, and especially since the recession, this has been the mantra of ‘patriots’ across the nation. The recent jobs bill that went through Congress may even have subsidies to encourage it. But what effect would buying products made in the United States really have? Would it create jobs for Americans? Would it save the flailing auto industry? Or would it ultimately hurt our economy? According to the Theory of Comparative Advantage, the latter could be true. Rather than only buying merchandise from the US, we should refocus our workforce towards industries in which we have an advantage and trade for products created abroad. This is the only way that our global economy can flourish in the long run.

Why does buying American sound so attractive? The most common and convincing argument is that it will create more jobs for Americans. An estimated 8.4 million jobs were lost between the beginning of 2008 and the end of 2009. It stands to reason that if we bought more domestic products, our economy would grow and we could create jobs. Furthermore, if we bought more of our own goods, we could save failing sectors such as automobile manufacturing. This industry employs hundreds of thousands of people, many of whom have become highly specialized workers. This is an enormous investment in human capital that would simply be wasted if they were forced to learn new skills.

Finally, there is our trade deficit. In 2009, we imported $1,455-billion-worth of goods while only exporting $995-billion-worth. In effect, we siphoned almost half a trillion dollars from our economy and distributed it around the world. If we could import fewer items and produce them locally instead, we could reduce the amount of capital that is mo...

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...tries where low labor costs give them an advantage over other locations. Because minimum wage is so relatively high in the United States, the costs associated with making things like clothing, electronics, and toys would skyrocket if they were created here. In turn, the price that American consumers pay for them would go up and fewer people would be able to afford them—lowering both the economy and the standard of living for millions of Americans.

So what can we do? Buying American-made products would likely help with the immediate recession by creating more jobs. But, in the long term, it will damage our economy badly. The rest of the world needs us to once again provide a solid financial backbone, and we need them to produce the tools and merchandise that we enjoy so much. In short, ‘buying American’ is only mortgaging our future. Trade is the route to salvation.
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