There is No "Buy American" Solution to Trump's Tariffs

As a result of service in the Arizona State Senate (and the fact that I engage civilly with people I disagree with—well most of the time), I have lots of deeply conservative friends on social media. This has turned out to be very illuminating as I can see the arguments that the White House and its supporters are spinning on Social Media. In the past few days, I have seen one common theme: tariffs are not a problem for Americans since they can simply only buy American products. The image above is a prime example—I saw it repeated across all social media platforms.

Now to anyone who even remotely understands how our economy—and tariffs—work, this is a ludicrous argument hardly worth discussing. But from what I can see, it is an argument embraced by the MAGA community. A lesson of history—which was especially evident during the COVID-19 pandemic—is that even ludicrous arguments need to be refuted.

So why is this wrong? Why can’t consumers avoid tariffs simply by buying products made in the U.S.? First, there are many products that simply can’t be grown in the U.S. If you adopt an “American only” approach, you better not drink coffee, tea or hot chocolate as all can’t be grown in our climate. Hawaii grows some coffee, but not enough for the entire U.S. market. There are other examples as well—bananas, mangos and other tropical fruits will need to be imported, and in the winter, we rely on South America for many common fruits and vegetables. One of the best counter-memes I saw to the image above made this very point:

Second, even if a product could ultimately be made in the United States, it will take time—years—to build new plants in the United States. In addition to acquiring the land, getting the permits, and actually constructing the plant, you also need to build the infrastructure—roads and utilities—to support the new plant. Manufacturing plants often take massive amounts of electricity, which means the local utility will need to build as well. And new manufacturing plants also require state of the art equipment—much of which is now made only overseas.

And the margins for some products are so low that even with tariffs it may never make sense to make int he United States. This point was illustrated earlier this week in a Wall Street Journal article:

Haas Automation, a California-based builder of factory machinery, makes a similar argument. It imports cast iron from China to make the frames for its products. Peter Zierhut, vice president of outside operations for Haas, said the U.S. has no foundries capable of generating the more than 100 million pounds the company consumes each year, and he sees little chance any will return.

Building a new foundry would require hundreds of millions of dollars in investment to turn out a commodity that is worth just a few dollars per pound, he said. Finding workers would be tough as well, he said.

“It just doesn’t seem realistic that cast iron—a super low-tech industry—is going to build their operations in the United States,” Zierhut said.

The bottom line is that if you plan to buy only U.S. products, you better not need to buy a car, refrigerator, washing machine or the hundreds of other durable goods in the near future.

Third, even if you only buy products made in the U.S. there is a good chance that some key component of the product and the Trump tariffs will increase the costs of making the product—resulting a price increase to consumers. Even farming is not immune from this. Potash is an important fertilizer because it is the main source of potassium, and 90% of all Potash used on American farms is imported (largely from Canada). The tariff on potash will increase the cost of farming and ultimately the cost of American grown food in the grocery store. This is true of manufacturing as well— many key raw materials and components must be imported. Noah Smith (whose Substack newsletter I highly recommend) gave this amusing example of a U.S. manufacturer shocked that even his U.S. plat would be hit hard from tariffs:

Finally, tariffs on foreign imports will also cause the price of domestic alternatives to go up as well. Companies that make things in the U.S. are not idiots—they will see the additional cost of foreign imports as an opportunity to raise their prices as well. Marketplace had a good report on this:

Dudley said she’s stocked up on aluminum and has a low price fixed for the rest of the year. But her supplier told her that next time she orders some of that U.S.-made aluminum, prices are going to be higher.

“I’m asking why?” she said. “How are the tariffs on imports going to affect the materials that are actually made in the USA?”

Clark Packard, a researcher at the Cato Institutes, said the answer is pretty simple: U.S. metal makers are raising prices because they can.

“It ultimately comes down to competition, right?” Packard said. “By raising prices of foreign steel and aluminum through tariffs, domestic producers are given a sort of green light to raise their own prices.”

This is confirmed by our experience with the 2018 tariffs on steel and aluminum. In the first month after the tariffs were imposed, U.S. manufactured steel and aluminum prices increased 5% and 10% respectively. While the prices went down after a while, U.S. steel prices still tracked the price of tariffed steel and aluminum. The tariffs still resulted in a higher price for U.S. made steel and aluminum than would have been charged without the tariff.

The lesson from all of this? Even if you strive hard to only buy American-made products, you will see the price of the goods you buy go up. There is no safe harbor.