Those 'Mexican Jeans' You're Wearing Are Mostly U.S. Made
The battle over NAFTA and other trade issues comes down to two distinct visions of the economy. One is a faded photograph of the world as it once was, in which every product seemed to be made top-to-bottom in a distinct place. The other vision is a video of the global economy as it is today, in which every product is sourced in a wide range of places, with components tied together via cross-border supply chains.
In these dueling visions, the concept of a globalized economy has three major advantages: It is realistic in a world that has taken Adam Smith’s prescription to heart and is building on the advantages of the widest division of labor. It is efficient, taking advantage of differing skills and varying labor costs around the world, and tying them together via improved transportation and telecommunications.
Moreover, the vision of an interconnected global economy that takes advantage of the opportunities inherent in a diverse world is much more productive – and the enhanced productivity benefits everybody. By delegating different tasks to different people in different places, it ensures that everyone can share in the growth of global prosperity – shifting functions to workers in emerging economies who can perform them most efficiently, while freeing up workers in developed economies to perform functions that match their productivity with commensurate financial compensation.
A recent poster of a pair of jeans prepared by the American Apparel and Footwear Association (AAFA) illustrates the point. With side notes pointing out the over 25 U.S. states where various pieces of the jeans are made, it asks: “How American are your Mexican-made jeans?” The answer is: Very.
The buttons, rivets and snaps are made in Kentucky and Georgia. The pockets are made in four southern states. The denim is woven in, and the yarn and sewing thread spun in, in four states. The labels and packaging are made in seven states – in the Midwest, northeast, south, and west coast. The cotton used in the jeans is grown in 17 states, from Virginia to California. This creative AAFA poster doesn’t mention it, but the R&D and design are mostly sourced in the United States, as is the marketing.
Then all of the pieces are put together south of the border, and a label is slapped on that says: “Made in Mexico.” In fact, the label should read: “Made in Mexico – and more than half of the U.S. states.”
NAFTA facilitates that kind of production – and all of the jobs it spawns, including U.S. jobs. The process benefits Americans as well as Mexicans (and Canadians). Some may whine that all the production could be carried out in the United States, and all of the jobs could go to Americans. In fact, if a jeans company attempted to carry out all of its production in the United States, none of the jobs would go to Americans – because the company would go out of business. While companies source production globally to enhance profits and benefit shareholders, in doing so they enhance their own competitiveness and benefit domestic workers. A company that cannot compete cannot hire or retain any workers at all, anywhere.
Many pine for a return to the so-called “corporate national champion” of yesteryear. But one of the problems with the dream is it is just that – a dream. The less idyllic reality was one of corporations that sought to produce as efficiently as possible – and the most efficient way to produce was often the most centralized, with U.S. companies sourcing as much production as possible domestically.
Today, the United States and all national economies in effect still have corporate national champions, but they function differently: Rather than source production in one country, they source it globally. In doing so, they become more competitive – and provide better jobs than ever for those in the domestic economy, while shipping jobs to other economies where usually low-end production can be carried out less expensively.
Both versions of corporations entail the pursuit of self-interest. But as Adam Smith pointed out, individual pursuit of self-interest advances the common good.
The United States, for example, has prospered over the years not so much because its large population has provided a massive base of consumers to buy its goods as a large base of workers to make them. The national market encompassed a deep and wide pool of expertise and experience. If every county in the nation tried to produce for its own inhabitants and control its own market, the United States would not be a wealthy country, just a collection of poor counties. By spreading production over a large country, the U.S. economy minimized costs, maximized efficiencies, and took advantage of a wide spectrum of skills.
Just as the U.S. economy has powered forward by drawing on resources (including human resources) from across the entire nation, it is now advancing further by drawing on resources from around the world. Dividing labor over the widest possible pool of workers is a key ingredient of prosperity. The bigger the pool, the better.