Nationalist trade agenda is producing little but costing a lot
President Trump’s “Buy American” campaign is having a bad month. Ontario legislators just introduced a bill authorizing trade retaliation against any U.S. state that adopts Trump’s “Buy American” policy.
This is just the latest roadblock facing “Buy American," and it reveals just how difficult it is for economic nationalism to work.
Last year, Trump signed an executive order encouraging U.S. government, firms and citizens to reduce their dependence on foreign goods. It was the fulfillment of his campaign promise to put “America First.”
The logic goes like this: “Buying American” will spur demand for domestic goods, thereby bolstering U.S. production and creating jobs while lowering the trade deficit.
But economic nationalism creates an inescapable tension. It pits ideology against simple pocketbook economics. The question is, are citizens willing to pay more for their everyday goods? The answer appears to be no.
New research shows that key U.S. import markets haven’t budged since Trump took office. This includes the automotive industry, which has traditionally been at the center of debates over foreign vs. domestic consumption in the U.S.
Car imports exhibited no noticeable change over the last year, even in states Trump won in 2016. The same is true for imports of other consumer goods. U.S. citizens simply don’t appear to have been swayed by the nationalist rhetoric.
In fact, the opposite might be true. The current “Buy American” campaign could be contributing to an unexpected spike in imports. Many U.S. firms rely on foreign inputs to fuel their own production processes.
Those firms took Trump's threats to increase import barriers to heart, and they have been hoarding the foreign goods they need to keep production going. Steel is one of those goods, which is why the trade deficit in steel has risen significantly since Trump came into office.
If U.S. citizens and firms don’t seem to be paying much attention to “Buy American,” it’s probably because the government isn’t setting an example. This winter, news emerged that uniforms for the Transportation Security Administration and the Secret Service were made in Mexico.
Last year, the White House admitted that the Keystone XL pipeline — a project already mired in controversy — will not be built entirely out of U.S. steel, contrary to Trump’s promise. Doing so proved too difficult.
As one of the American companies involved in the pipeline construction explained, the idea was "well intentioned," but it would "severely delay project schedules, drive up costs, decrease availability and lower quality."
Overall, then, “Buy American” has been met with little success among any of its three targets. Citizens, firms and the government itself have openly flouted the executive order, opting for lower prices over ideology.
Despite the fact that “Buy American” has amounted to mostly empty rhetoric, it has nonetheless generated considerable international backlash.
Most recently, Ontario Premier Kathleen Wynne raised the prospect of retaliation against any "Buy American" provision, vowing Ontario would “not roll over” on U.S. protection. The move is primarily a response to New York State’s “Buy American Act," signed last June.
That law, which comes into force this summer, will restrict the materials government contractors can use for state-funded infrastructure projects.
Wynne stressed that she “doesn’t want a trade war” but was left with “no choice.” Hence, introducing legislation that would similarly regulate government procurement in Ontario.
Canada has consistently responded to the United States' past threats. Together with the United Kingdom, it promised to cancel orders of military aircraft from Boeing if Bombardier faced increased barriers.
This back-and-forth comes as tensions between the two neighbors are already high, especially as NAFTA renegotiations reach their delicate final phase. The agreement once looked too big to fail.
Now, frustrations on all sides raise the possibility of dissolution, with Canadian Prime Minister Justin Trudeau stating he would rather have no deal than a bad one. Trudeau’s statement signals growing impatience from a prime minister who previously said Canada would not “walk away” from negotiations.
Economic nationalism is proving a tough pill to swallow — both at home and abroad. Vowing to put America first is one thing, but it seems that neither Trump's base, nor the government itself, is willing to pay more in the name of those ideas.
Yet, that hasn't stopped the U.S.’s trade partners from putting up their guards in response to U.S. threats. Trump's rhetoric has produced little, but it is costing a lot.