Protectionism vs Why buying locally makes you wealthy

Last updated on March 25th, 2018  

There are many benefits to free and fair trade. But the benefits only occur when the trade is actually free and fair. And even then the benefits can still fail to happen.

The United States has not had free or fair trade with the rest of the world for the last 40 years. This lack of free and fair trade has been imposed both by the US itself through regulations and by foreigners via tariffs and other trade practices.

Every country of the world has erected advantageous trade policies against the US over the last 40 years and the US has just sat by being exploited and playing the fool.

Interestingly only US citizens think in terms of “fair” when it a comes to trade. Everyone else in the world thinks in terms of “advantage”.

It is mistake to think this “trade war” you hear about from the media has just started. The trade war started 40 years ago and the US has been losing ever since.

So what is “protectionism” and how does it benefit (or not) a country?

“protectionism” is at its core “buy local”

People use the word “protectionism” with a little or a lot of a negative connotation.

You can in fact immediately see the propaganda at work via the word “protectionism”. When someone calls your trade policy protectionism they are assigning an evil intent to your behavior. This allows you to identify people who are actually propagandists for the other side.

Every time you read the word “protectionism” you know the author is a shill for people exploiting Americans for their own gain.

If they were honest brokers of information they would call protectionism by its real name which is “buy local”. A much more positive sounding name which much more accurately describes the goal of trade policy.

Why is buying local a good thing?

You will hear people talk about “comparative advantage”. What this means is that it is best overall for the party that is most efficient at producing a good to produce it.

However this only works, in theory, with free and fair trade. Not with the system as it exists today. And even with free and fair trade comparative advantage can be comparative disadvantage as I will show shortly.

Let us look at a simple existing tariff:

* Auto Import Tariff: US 2.5% vs EU 10%
* Auto Import Tariff: US 2.5% vs China 18%+

I am not certain on what basis the above can be considered fair.

I also have no idea how changing that to:

* Auto Import Tariff: US 10% vs EU 10%
* Auto Import Tariff: US 18%+ vs China 18%+

can in be considered a “trade war” or “unfair”.

Do the people of the EU or China consider their current tariffs against US produced autos “unfair”?

No they do not. Only Americans are foolish enough to think in terms of “fair” when it comes to international trade.

So how does buy local solve problems?

“reduction to the absurd” is a form of reasoning that makes clear what is happening in complex situations. There is actually nothing absurd about the process. It is just the name of this tool or method of reasoning.

In a “reduction to the absurd” analysis one simply assumes the two extremes of a problem. That is one considers what if everything was one way or what if everything was the other. What would the outcome be in the two situations?

In our case, we are going to ask what happens when Americans buy 100% of their cars from US manufacturers verses what happens when Americans buy 100% of their cars from foreign manufacturers.

Now you need to look past the use of the word absurd. The analysis will end up being quite rational and will effectively describe not only what is going on, but what you see going on around you.

First we are going to look a single American buying a single car.

The effects of buying a US made car vs a foreign made car

I am going to assume a US built car made from US materials verses a foreign car made from foreign materials.

The following numbers are just to make the effects clear. The real numbers will bring about the same conclusions.

When you buy a US made car for $25,000 the following happens:

* The US auto assembly worker gets a job assembling cars
* The US steel worker gets a job making steel
* The US mine worker gets a job mining ore for steel

Let us assume that each of those workers get $1000 from your car purchase.

You might be thinking that there are too many workers for them to each get $1000 from your car purchase. For this part of the discussion why not just consider that there is one auto worker assembling your car? And one steel working making the steel for your car, and so on. You can think of them sitting around in warehouse until you or someone else shows up to buy a car from them.

* US auto worker gets $1000
* US steel worker gets $1000
* US mine worker gets $1000

Lots of the money that you pay for your car goes to workers in other industries too, but we are just going to focus on these three.

So what do these workers do with this money?

They spend the money on food, housing, energy and other items:

* The US farmer gets a job producing food
* The US construction worker gets a job building housing
* The US energy industry worker get a job producing energy

Let us assume each worker get $100 from the purchases of the auto, steel, and mine workers (who are spending the money they made from your car purchase).

* US farm worker gets $100
* US construction worker gets $100
* US energy worker get $100

So what do the US farmer, construction worker, and energy worker do with the $100 they each get?

Like the auto, steel, and mine worker they spend their money on food, housing, and energy among other items.

There is also an interesting multiplier or circular effect because these workers also spend some of their money buying cars which start the cycle of money flowing through the economy all over again.

There is one more thing that happens to the money. Some of the workers save some of the money and invest it.

Ultimately investment dollars go into various businesses.

Thus businesses, new and old, get investment dollars that they can use to build new businesses, to innovate, to create new products, to create more efficient processes and to lower the cost goods. That means the workers in the investment industry and those new businesses get jobs too.

All of the above is called the “multiplier effect”.

In summary, when you buy a $25,000 US made car:

• the car manufacturers gets $25,000.
• The auto, steel, and mine workers get $1000 each,
• the farm, construction, energy  workers get $100 each.

The whole process goes in a giant circle because the farm worker saves up his money and buys a US made car starting the whole process over again.

All this money and employment is flowing through the US economy providing jobs and income to US workers.

Using the model above your car purchase creates 25,000 + 3*$1000 + 3*100 worth of “economic activity” within the US.

That “activity” represents jobs for you and your fellow citizens and $28,300 worth of economic activity.

So what happens when you instead buy an imported car?

* the US auto worker gets $0
* the US steel worker gets $0
* the US mine worker gets $0

* The US farmer gets $0
* The US construction worker gets $0
* The US energy industry worker gets $0
* The US entertainment industry worker gets $0

* The US investment industry worker get $0
* US businesses get $0

They all sit in the imaginary warehouse mentioned above and get nothing.

In fact, not only does the US worker get $0, the US worker loses their job.

* the US auto worker loses their job
* the US steel worker loses their job
* the US mine worker loses their job

* The US farmer loses their job
* The US construction worker loses their job
* The US energy industry worker loses their job
* The US entertainment industry worker loses their job

* The US investment industry worker loses their job
* US businesses get $0 and close down or move abroad.

The imaginary workers are not even sitting in an imaginary warehouse. They do not have jobs. They do not exist. Not even the warehouse exists. The jobs and the warehouse have been shipped abroad.

The last point is very important. If you send your purchases abroad industry has little choice but to move to where you are sending your money or to close down.

So what happens when millions of Americans buy their cars locally or abroad?

The US consumer bought 17.5 million light duty vehicles, I will call them “cars”, in 2017.

And let us assume each car was purchased for $25,000.

If the US consumer bought all their cars from US manufacturers that would be 17.5 million times $25,000 or $437,000,000,000 or about 1/2 a trillion dollars.

Since numbers like trillions and billions are hard to comprehend let us look at those numbers in a different way.

There are roughly 125 million full time workers in the US.

So 1/2 trillion dollars divided by 125 million workers is $3500 per worker.

Because you and your fellow Americans choose to buy US made cars every single US full time worker (including you) get $3500 in income.

If you and your fellow Americans instead choose to buy foreign made cars, every single one of the 125 million full time works gets exactly $0 (including you).

This same economic effect happens with every product that you might buy: Washing machines, dishwashers, refrigerators, air conditioners, shovels, napkins, coffee cups, everything.

When you buy foreign goods 
the US economy and workers get $0.

Now using the reduction to the absurd method, what happens if the US consumers buys everything locally or everything from foreign manufacturers?

If the US consumer were to buy absolutely everything from foreign manufacturers this would happen:

* all US auto workers lose their jobs
* all US steel workers lose their jobs
* all US mine workers lose their jobs

An so on down the employment chain. Everyone loses their job. And this is exactly what has been happening over the last 40 years.

And what happens when everyone buys locally?

Everyone gets a job, everyone has money to spend.

Buying locally is a big win even if locally made products are more expensive that foreign made products

Think back to our US workers and their and your income.

If we all buy locally, paying say 20% “extra”, all that money still flows in the US economy. You and everyone still has a job and still have money to spend.

When the dollars go abroad for foreign goods at a lower price, you are unemployed. You have no money. You are on welfare.

So which is better? Paying 20% extra for goods or having no income and being unemployed?

In fact the number 20% is just a random number I pulled out of hat. The number could easily be 50% or 100% and the argument holds up just as well.

This works because the US economy is still large and very self sufficient. If an economy can supply all its own needs it does not matter if its own products are more or less expensive than foreign goods.

However if your economy is small and not self-sufficient or self-supporting it **does** matter how much your products sell for. And this is why the smaller foreign economies fight so hard to maintain their advantageous trade policies and tariffs.  And why they are so happy that Americans are fools.

This is also why that if the US increases its tariffs and drives the US consumer to buy locally it is a win-win situation for the US consumer. The losers are all the exporters to the US. But… but … but … say all the media outlets and even the politicians…

Think back to the small warehouse with the small group of workers. If you buy from them we all have jobs and income. If you buy from abroad you, me, and them have nothing.

At this point people will throw up the “comparative advantage” argument again. The one that says overall it is best to buy at the lowest price.

The fallacy of comparative advantage

The fallacy of comparative advantage is that if you do not have a job, you cannot buy at any price. The comparative advantage argument does not apply if you have no money.

The only way you are going to get  money is to have a job and this requires that US consumers buy US made goods. Comparative advantage is irrelevant.

Another argument you will hear is “what do the foreigners do with money they get from the US consumer?”

Others will tell you they buy US goods and thus buying their goods is not a bad thing.

Well, you just have to look at the US trade deficit to know that they are not buying US goods with the money they get selling to Americans.

Another argument you will hear is that some places in the production chain are more “profitable” than others. When trading with partners, they say you should focus on the most profitable parts of the transaction. For example, refined products rather than raw materials. This is simply another form of the “comparative advantage” argument.

The comparative advantage argument always falls to the reduction to the absurd argument.  And comparative advantage is worthless to someone who has no money.

If no one is buying US goods, the US consumer has no money to buy anything.

Buying locally is always better for everyone even if the foreign goods are cheaper

Manufacturing did not leave the US because the foreigners do a better job of making goods.

Manufacturing left the US because:

• US policy makers made US manufacturing more expensive and at times impossible via regulation
• Foreign countries made their products cheaper through subsidies and fewer regulations
• Foreign countries made US products more expensive through tariffs (both hidden and not hidden)

However, in the end the US consumer has all the power. The US consumer can fix all the problems by simply buying locally. And this is why the US will win any trade war. The US is self-sufficient and can supply all its own needs if it chooses to do so.

In fact the power and advantages of buying locally is known to everyone in the world except the US consumer. I wonder why this is?

I see in the media and via our politicians endless obfuscation (lying) about what is going on. No one in the world except the US consumer believes these lies.

In the end the US consumer can fix all the problems by simply buying local.

Why are the politicians and the media lying?

We have to fall back on a tool called “cui bono?”, or “Who benefits?” or “Follow the money”.

Those who benefit are the foreign countries, foreign manufacturers, foreign interests, foreign citizens, and, here is the key, “US citizens with foreign interests”.

Driving money abroad benefits all those groups.

(remember buying cheap foreign goods is not a benefit to you if you do not have a job and you have no money)

We would actually expect all the foreign manufacturers, foreign countries, and foreign citizens to be self-interested and thus the policies they make are not technically bad, just self-interested or focused on their own advantage. It is hard to complain about that.

But who are the US citizens with foreign interests and what are their motivations?

One group is the main stream media – they are simply paid to present propaganda that keeps Americans buying foreign goods.

Another is US politicians – through bad US trade policy or inaction the politicians, their friends and family benefit.

Regarding US politicians all you have to do is look. Look up your local representative and check out what kinds of businesses their family members are involved in. They will invariably be businesses with direct or indirect foreign interests. You are simply being sold out to foreign interests or domestic businesses with foreign interests by the very politicians you elect to represent you. Or simply look at what the politician did after they left office. You will find them on the boards of businesses with foreign interests. In exchange for selling you out while they are in office they get jobs in the very organizations they sold you out to when they leave office.

It is hard to stop politicians from selling the people they represent out to foreign interests. Especially the quid-pro-quo of getting an industry “job” after leaving office in exchange for selling you out while in office. The best solution I can suggest to this problem is to vote for people who are as far removed  from foreign interests as possible. And that means voting for independents with no ties through family or associates to any foreign interests. The entire existing system has been taken over by people who are there to make money directly or indirectly by selling you out.

You also have to stop paying attention to the media that is foreign controlled, which is basically all of it. They are simply playing you for a fool and assisting the politicians and foreign interests in selling you out and taking your wealth.

So in the end what can you do

The single most import thing you can do is to buy locally. This is the only factor that really matters. And it is entirely effective. All the problems will simply disappear if you do this one thing.

Two, vote out your incumbent representatives. They are now and have been actively selling you out for decades. Vote in independents.

Three, close your bank account at the big 5 banks and open a new account at a regional bank or credit union.

Buying locally, or Buying American from American companies, can be hard to do as identifying locally produced goods is rather hard. Is it clear to you why this is? Again it is those working hard to sell you out to foreign interests for their own gain that are making it difficult for you to find locally produced goods.

I am working on fixing this last problem. Part of the solution was writing this article to help you understand what is going on. I am working on other ways to fix the problem too. I am working a chartering a credit union with the buy local concept behind it. And I am working on a decentralized purchasing system that will allow to you identify and purchase locally produced goods easily.

In the mean time, buy local from American companies.

If you are not a US citizen, by all means and for all the same benefits described in this article , you should buy local in your own economy.  Of course, you are already doing that.

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