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Trump’s tariffs are just a big ‘Buy Local’ campaign

John Phelan

“Our trade deficit ballooned to $817 billion,” President Donald Trump said during a speech to steelworkers in Granite City, Illinois, last week. “Think of that. We lost $817 billion a year over the last number of years in trade. In other words, if we didn’t trade, we’d save a hell of a lot of money.”

At the core of this argument is that idea that the deficit in the goods trade – the difference between the amount a country’s citizens spend buying goods from abroad and the amount they make from selling them abroad where the purchases are more than the sales – represents ‘lost’ money which hurts us economically. Policies like the $34 billion worth of tariffs slapped on imports from China recently are intended to prevent this supposed loss of money and “bring jobs and industry back onto American shores.”

President Trump describes this stance as “America First.” But he could just as well say “Buy Local.” After all, in terms of the economic logic, Trump’s trade war is just a big “Buy Local” campaign.

Think of the arguments used by ‘Buy Local’ campaigners. They say that when you take your money and spend it elsewhere that is a loss to the locality in question. The same goes when you shop locally but at a branch of a company headquartered elsewhere. If that money was spent locally or at locally owned businesses, it is argued, it would generate more jobs, income, taxes and all the rest in that locality. In exactly the same way that Trump argues that America is impoverished by its trade deficit with China, so do the ‘Buy Local’ campaigners of St. Paul argue that their city is impoverished by its trade deficit with Woodbury. “St. Paul First” or “Midtown First” would be appropriate slogans for the ‘Buy Local’ movements there.

Adam Smith wrote “The Wealth of Nations” in 1776 partly to refute the fallacies of the Mercantilists who believed, as do Trump and the Buy Local campaigners, that trade deficits are “lost money” that leave you worse off. In fact, as Smith pointed out, the point is not to simply accumulate money balances, rather “Consumption is the sole end and purpose of all production.” In 2017, we in America consumed $600 billion more stuff than we sent to the rest of the world for it to consume. In this sense, the trade deficit is a good thing. It is not “lost money” but gained consumption.

If tariffs force American consumers to buy domestically produced, more expensive versions of what they were buying from abroad then they will, in fact, lose them a hell of a lot of money. And the same goes at the local level. If a Bloomington resident buys the more expensive product of a Bloomington owned and located business rather than the cheaper product of a business in Maplewood or one headquartered in Bentonville, Arkansas, then they will have less money to spend. Their consumption, “the sole end and purpose of all production,” will be reduced. They will be worse off.

Trump’s trade policies have drawn much criticism from economists, much of it justified. But they are no more economically illiterate than a ‘Buy Local’ campaign. After all, that is exactly what it is. 

John Phelan is an economist at the Center of the American Experiment.

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Comments (6)

  1. Submitted by Patrick Tice on 07/31/2018 - 11:58 am.

    A Trump supporter who has read Adam Smith

    …much less even heard of him is a rare bird indeed.

  2. Submitted by Noel Martinson on 07/31/2018 - 04:44 pm.

    Not so fast

    While there may be a few macro-economic similarities between tariffs and “Buy Local” there are many significant differences. “Buy Local” is a request to the consumer to use their judgment to consider other factors and not just go with the cheapest price. Worker safety, environmental care, fair wages, ownership models or knowing the character of the producer are just a few of the considerations a purchaser may wish to make when voting his/her dollars for consumption. The tariffs we are seeing do not give the consumer any choice at all in the matter. They are the executive orders of a single individual who is chasing what most economists consider to be an economic bogeyman.
    But an even more significant difference between tariffs and “Buy Local” is at the micro-economic level. By spending money locally it has the chance to get used several times in a region before moving on. By terracing the economic flow the local yields are increased as opposed to just letting it run straight to the sea. Tariffs do very little in terms of such terracing except perhaps at a national level. And multinational corporations will simply realign their operations across several countries to minimize the effects of tariffs by anyone country. The “Buy local” movement provides a very different kind of incentive to these same multi-nationals..

  3. Submitted by Harris Goldstein on 07/31/2018 - 08:54 pm.

    So here’s a tariff story

    Talking to someone today who builds outdoor cedar furniture. Back in 2017, Trump instituted a 20% tariff on Canadian softwood (including cedar). That drastically cut back on imports. But the price of domestic cedar went up to match the price of Canadian lumber with the tariff. So his costs went up and his sales went down.

  4. Submitted by Robert Moffitt on 08/01/2018 - 09:32 am.

    Buy American, pay more

    Since the tariffs on imported steel went into place, the cost of USA-made steel increased, too. This has already led to layoffs and higher consumer prices.

    No one wins a trade war.

  5. Submitted by RB Holbrook on 08/01/2018 - 03:05 pm.

    Congratulations Are in Order

    The piece starts out talking about Trump and his tariffs, then makes an abrupt and nonsensical shift to snarking on a supposed bit of liberal orthodoxy. His snark is completely off target. There is a gratuitous reference to a Famous Dead Author, which manages to oversimplify that author’s most famous work. The piece then closes with an implicit taunt that the author is SO much smarter than the rest of us.

    Yes, I think we have hit peak Center for the American Experiment wit this one. They can stop now.

  6. Submitted by Frank Phelan on 08/01/2018 - 04:54 pm.

    Ride The Tiger

    Conservatives were thrilled with the Tea Party in 2010, an operation funded by the Kochtepus. Now that the monster has turned on Dr. Frankenstein, it’s just not as much fun, is it?

    And because Minn Post editors are apparently unconcerned about such matters, again I have to ask how the extreme right wing Center For The American Experiment is funded?

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