“Buy American” one year later

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One year before Trump raised tariffs on hundreds of goods, the White House tried another strategy to reduce import consumption. In April of 2017, Trump issued anexecutive order asking the US government, firms, and citizens to “Buy American.”

The idea was that reducing reliance on foreign goods would bolster demand for domestic substitutes, driving up production and creating new manufacturing jobs.

Early signs suggested no success. Reports pointed out that a variety of government employees wear uniforms made overseas. More famously, the President rolled back his promise to build the Keystone pipeline out of American steel.

Did “buy American” fare any better with everyday consumers?

One place to look for an effect is the automotive industry. The relative ease distinguishing between foreign and domestic brands makes cars a useful testing ground. 

There are a couple of different ways to look for changes in the US car market. One question is simply: have Americans stopped buying as many foreign cars?

The answer to this question is yes, but with an important caveat.

It's true that foreign autos’ combined market share has fallen in recent years. It January of 2015 it was 26 percent. By July 2018 it was 22.5 percent.

However, that 3.5-point drop is actually nothing new. It’s entirely consistent with recent history. Retail sales of foreign brands has fallen 8 percent since the start of 2012.

 
 

Unsurprisingly, the volume of units sold has also dropped over the last 6 years. 

As a result, it’s difficult to say that any recent decline foreign car buying was the result of Trump’s policies (or his rhetoric). The downturn began years before the 2016 campaign season. 

 
 

Sales figures are just one way to look at car markets. A separate question is: did imports go down?

According to US Census Bureau data, automotive vehicle imports remained remarkably steady from 2015-2018, the period where we would expect to see an effect from either Trump's rhetoric on the campaign trail or his executive order.

The average monthly change in imports was only 0.3% over this period. And, import volumes were almost exactly the same in June '18 as when Trump took office.

 
 

Note that consumer goods imports are also relatively steady over this same period. Car imports are not out of step with other products.   

Is this evidence that “buy American” is a failure?

It’s worth pointing out that, while there are good reasons to think that cars should be sensitive to calls to "buy American," automotive import data can be slightly misleading. That's because of the globalization of car production.

Having an American name brand no longer means that a vehicle was made in the US. In fact, this was precisely the argument behind Trump’s original plans for a border tax. The White House wanted to discourage US firms – including Detroit automakers – from relying so heavily on production in Mexico.

As a result, import numbers pick up the fact that companies like Ford and GM have parts and assembly plants outside the US. 

Another thing to consider is the relative stability of the industry. Yes, foreign cars are losing market share in the aggregate. However, industry data suggests that individual brands’ market shares don’t change very quickly. Between 2012 and 2017, market shares enjoyed by the top 10 brands in the US barely budged.

 
 

It's possible that these market shares will start to shift. However, recent history suggests that's unlikely.

Finally, what about car exports?

One concern is that Trump's efforts to restrict import consumption will expose US firms to retaliation, limiting export opportunities. Is the US exporting fewer cars to foreign countries?

There are no signs of that yet.

Car exports have been at – or near – historic highs for the last several years. Monthly exports averaged 106,000 units between January 2015 and May 2018. That’s double the average exports over the previous 15 years. 

 
 

Taken together, there’s very little evidence that “buy American” affected car markets. While foreign cars are losing market share, imports remain steady. 

A few additional caveats are in order. As mentioned, the once-clear dividing line between “foreign” and “domestic” cars has blurred over time. Moreover, cars are a large enough purchase that consumers’ decisions may be un-swayed by economic nationalism. When it comes to car buying, price tags may be much more important than patriotism.

Either way, "buy American" doesn't appear to have affected a US industry that's politically salient and, importantly, import-competing.

NOTE: This work extends an analysis of car markets during the 2016 election campaign conducted with Krzysztof Pelc, "Political Rhetoric as Trade Barrier," available here.

 
AnalysisJeffrey KucikTrade, Autos