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        Try to Buy American, because we have a problem.  In the face of continued massive yearly merchandise trade deficits, $815 billion, this ought be the intent of every American consumer.  I say Try because of the sad reality of the American economic landscape.  It is now a practical impossibility to "Buy American" (made in America by an American owned company) across a broad range of categories.  

        The long standing U.S. policy of unilateral free trade, the persistent onslaught of foreign competition in autos, consumer goods, and machine tools, the transfer of production to and out-sourcing from foreign countries by U.S. corporations, the thousands of takeovers of U.S. corporations by foreigners since the mid 1980's, and of course, CHINA, have all wrecked havoc on the American manufacturing sector and served to significantly cloud the economic landscape in America.   There are a broad range of consumer and capital goods that are no longer even manufactured in the U.S., or supplied by U.S. owned corporations.  So, today in America it is not easy to buy American. 

        The best indicator of our collective appetite for imported goods is the merchandise trade deficit, released monthly by the Census Bureau.  In 2007 the U.S. merchandise trade deficit came in at $815 billion, equaling a 7 percent of the nation's real gross domestic product (RGDP).  Imports of goods for 2007 totaled $1.96 trillion reaching a record 16% of RGDP. 

        In 2007, China was once again the stand out country.  Our merchandise trade deficit with China reached $256 billion, another new record.  For the seventh year in a row China is atop Japan as the country with whom we run our largest merchandise trade deficit.  The top five countries the U.S. ran merchandise trade deficits with in 2007 are;  China ($256b), Japan ($83b), Mexico ($74b), Canada ($64b), and Germany ($44b).  These five countries account for 43 percent of the total annual US goods deficit.  The top five end-use categories, accounting for 65% of our total trade deficit, are:  capital goods, industrial supplies, consumer goods, autos and auto parts; food/feed/beverages.

        As a nation we seem to have become complacent towards the trade deficit.  As long as foreign nations/corporations, from whom we import so much, continue to be willing to finance our trade deficit by re-cycling their profits from exports to the U.S., back into U.S. assets (note the tradeoff), the potential near term problems associated with big trade deficits are mitigated.  

       Even so, there is very little that is positive about the ever growing merchandise trade and current account deficits we are running.  Most economists, including former Federal Reserve Chairman Alan Greenspan, have indicated a trade deficit of the size we are running is unsustainable and an undesirable outcome.  In national income accounting, net exports (trade deficit in our case), have and will continue to represent a cut of over nearly 2 per cent off quarterly growth as measured by gross domestic product (GDP).  

        Neoclassical economic theory suggests that for an economy the size of ours, with the dollar serving as the world's reserve currency, a merchandise trade deficit may be unavoidable.  However, the magnitude implied in theory is dramatically less than the size of the trade deficits we have been running for the past 15 years.  Frequently cited reasons for our growing trade problems have included: our dependence on imported oil; competitiveness problems; an education system in decline; the transfer of production overseas by U.S. owned companies; foreign trade barriers to U.S. exports; and a stated strong dollar policy throughout the 1990's.  

        What is often missing is a discussion about the development of the seemingly unconscious consumption behavior of many American's today.  The reflexive consumption of imported products driven by perceptions of quality differentials, marginal price differentials, implied social status, or convenience without consideration of a domestic substitute.  Daily casual decisions which impact on the ability of U.S. owned corporations to compete effectively against foreign rivals, or on each other as workers, and so therefore on the general well being of the national economy.   It is the largely complete acceptance on the part of many American consumers of a basic tenet in neoclassical economics, the rational pursuit of self-interest. 

        Neoclassical economics holds that everyone, individuals, firms, or states, consumer and producer alike, is assumed to act rationally and in pursuit of their own self-interest.   The behavior of the rational economic actor facilitates economic activity that maximizes wealth on a global basis.  To the neoclassical economist there are no national borders.  In the context of free trade (which we do not enjoy), neoclassical economic theory ensures competition, maximizes consumer choice, reduces prices, and facilitates efficient use of the world's resources.  Trade patterns will be determined by the principle of comparative advantage based on national endowments of land, capital and labor.  

        However, the assumption of no national borders (free trade) misses the importance of differing domestic political/economic systems on consumption and production internally, and therefore on trade flows.  Since the early 1990's, in the face of persistent and growing U.S. trade deficits, serious questions have been raised about the elasticity of the concept of comparative advantage.  Suggesting that perhaps other factors, beyond the natural endowments of land, capital, and labor, have an impact on trade flows.  Other factors like, historical accidents, government policies, and cumulative causation (Gilpin '01).  The concept of comparative advantage has been stretched and is being replaced by a new theory of competitive advantage.  

        Competitive advantage is a key principle of a new trade theory called "strategic trade theory" (STT).  It attempts to incorporate an appreciation for imperfect competition, economies of scale, economies of scope, learning by doing, the importance of R& D, and the role of technological spillovers (Gilpin '01).  STT assumes certain economic sectors are more important than others for the health of the overall economic health and national security and therefore warrant more and wider support from government and labor. 

        For most of the past 35 years the U.S. has been attempting to compete internationally based on neoclassical free trade theory against Japan, Germany, the Newly Industrialized Countries of the Pacific Rim, and now China, all of whom engage in trade policy more closely associated with Strategic Trade Theory.  The playing field has been uneven for many years now and consequently we haven't done very well in the competition.  Therein lies the problem.     

        Free trade theory assumes when domestic producers are confronted by foreign competition they will compete, presumably with the intent of not losing.  Well, what if domestic producers can't compete.  Or, what if domestic producers simply choose not to compete.  Our record over the past 35 years is not impressive.  In one sector after another; photo imaging, apparel, steel, electronics, household goods, manufacturing generally,  American companies were confronted with foreign competition and lost.  Having either failed in their attempt to compete, or simply having decided not to compete, and instead exited the sector turning themselves into service companies.  In many ways our focus on the consumer and short term moves in share prices has been no match for our foreign competitors focus on the producer and market share.  

        If the federal government isn't going to level the playing field for U.S. multinationals to compete in order to help ensure continued economic gains and national security for the nation in the decades ahead, perhaps individual consumers can play a role.  Try to Buy American.  It's not easy, and if you haven't been paying close attention, it's not easy to know which popular American brand names are still owned and controlled by Americans.  Or, for that matter which products are still made in America.  But, with a little extra effort, it can be done.    

        Increasingly, the debate over buying American comes down to the issue of domestic content.  Across a broad range of products, particularly the automotive, computer, and electronics sectors, many U.S. consumers ask,  "what difference does it make if I buy an American brand, or a foreign brand, when many or most components in American products are made overseas anyway?"   It's a fair question, and indicates the degree of globalization that has overtaken American.  But, assuming products sold by U.S. owned companies are perfect substitutes for products sold by foreign owned companies, the American consumer should focus on control of the profits generated by each sale, buy the American brand, and keep that control right here at home.    

        Profitability is what allows for investment in R&D, product innovation, wage increases, and physical expansion.  Profits accrued by a U.S. owned company as a result of consumption of their product will likely benefit our domestic economy.  On the other hand, profits accrued by a foreign owned company through sales in the U.S. will likely benefit the home economy of the foreign company.  In the absence of any other criteria, control of profits is a sufficient basis on which to choose the computer, the automobile, or whatever which is made by the U.S. owned company.  

        Why not support the home team?   Engage in a little economic nationalism.  Take pride in our emblematic private industrial organizations.  Economic nationalism isn't a bad thing. 

      Our individual consumption behavior has real implications for all the rest of us.  We should think for a moment before we buy.  Take some time before a purchase to discover and consider the origin of manufacture.  Discover if there is a domestic branded alternative to the imported product.  On the margin, give the benefit of doubt to the domestic branded product.  A revival of economic nationalism will help reduce the record trade deficits, provide a strong base for U.S. owned corporations to compete more effectively against their foreign rivals, and underpin the proper environment for growth in GDP.  

          It is difficult to argue against the theory of free trade and the rational pursuit of self-interest.  But, as we have seen in so many instances through time, theory and practice often diverge significantly.  What happens in practice so often is an overshooting of what theory holds.  The trade data year after year seems to suggest that consumer behavior in America is overshooting the theoretical bounds of free trade and the pursuit of self-interest. 

     Admittedly, US trade policy as practiced since the mid 1960's has provided American consumers the enjoyment of relatively low prices and wide ranging choices across a broad range of consumer goods.  But, those benefits have had and will continue to have obvious costs.  Millions and millions of manufacturing jobs have been lost (3 million since 2000), thousands of U.S. companies worth trillions of dollars have been taken over by foreign corporations, and foreign ownership of U.S. financial assets continues to set records; 28% of U.S. equities, 48% of U.S. Treasuries, and 45% of U.S. Corporate bonds are owned by foreign nationals.  

        We, all of us American citizens, have a trade problem on our hands.  Absent bold leadership at the national level, the best you and I can do, for our future national security and economic well being, is to focus on this simple phrase: Try to Buy American.        

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