Trump's 'Buy American, Hire American' Policies Undermine U.S. Competitiveness

President Trump thinks his “Buy American, Hire American” policies improve America’s ability to compete. In fact, they undermine it.

This week, Trump made rules governing bidding on U.S government business more stringent, signing an executive order demanding that 75 percent of the value used in any components sold to the federal government be sourced in the United States, up from the 50 percent required previously.

But if top-down economics was effective, the Soviet Union would have won the Cold War. The United States prevailed largely because it had a far superior ability to create wealth. That is not based on cheap nationalism. Rather, it is based on the capacity to develop and build ideas that attract capital, promote growth and make the world a better place. Entrepreneurs are rewarded for their ability to provide people something they want or need, not something that will please a panel of bureaucrats.

U.S companies often must bear higher labour costs than other countries, driving up the price they would have to pay if compelled to source domestically. Apple iPads sourced top-to-bottom in the United States would cost about three times as much as they do, leading to depressed sales and the loss of about 60,000 jobs.

But the real price is beyond that. Companies forced to meet such standards would find it difficult to launch new products. Americans would not have access to iPads at any price, along with everyone else, because development of the iPad would have been choked off in its infancy.

Moreover, “Buy American” policies stream companies into sucking off government’s teats, dampening entrepreneurship by encouraging companies to compete for one customer - a government procurement official. For example, when Trump initially launched his “Buy American, Hire American” policy, he invited 50 “exemplary” companies to take part in a White House ceremony. Turned out that about half of the companies received federal, state and/or local subsidies worth about $600 million. If all you are doing is taking money out of one pocket and putting it into another, you’re not getting ahead - just running in place. And if you give people a narcotic, it doesn’t take long for them to be addicted to it.

By steaming companies to seek government largesse, you are simply inflating prices at the check-out stand, only to lose jobs on the production line.

Under Buy Domestic policies, a form of Gresham’s Law takes hold, with bad practices pushing out good ones. State capitalism very soon becomes crony capitalism. Because companies focus on government purchasing, lobbyists pursuing legalities become more important than engineers developing better products and better ways of making them. Instead of entrepreneurs competing on the basis of the quality of their ideas and their ability to pull them off, centre stage is taken by faux capitalists seeking government favours. Instead of being focused on the needs of people, businesses become distracted by the desires of government. Instead of consumers making decisions based on their wants and needs, virtual commissars do - with little or no basis of determining what people actually want and how much they value it.

The best way to ensure the wealth of the American people is for them to buy what they need from the people who are best at providing it. And, not surprisingly, the best way to ensure Americans can compete is to require them to compete.