The principle of Comparative Advantage

Reading this article makes me think goods (and services) made in the country you reside in benefits the community where local jobs are created. However, in a global economy where goods can be done cheaper in other countries,  there is an opportunity to benefit from having these cheaper goods even though it may result in the loss of some local jobs. The challenge is finding a middle ground where locals can produce goods which do not compete on price and have cheaper imported goods available for those who can only afford them. In the end, isn’t this the concept of comparative advantage?

From TIME Magazine

Is ‘Made in America’ Back In Style?

By KATHERINE TARBOX | February 3, 2012
Simon Willms / Getty Images

SIMON WILLMS / GETTY IMAGES

My grandparents had two criteria for buying a car: It had to be blue, and it had to be American. The last time they purchased a car was in the ’90s, when American car companies didn’t have the best reputations for quality or reliability. When a few members of the family’s younger generation brought up the possibility of my grandparents considering Asian and European makers, it was as if we were suggesting that they commit treason. “We have to buy American,” they said. End of conversation.

 

Living through the Great Depression, World War II, and the Cold War ingrained upon my grandparents and their generation that buying American was just a way of life. You brush your teeth in the morning, and you buy American. That sentiment has slipped in succeeding generations, but there appear to be signs that, to some extent, it is returning.

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A study released last week by J.D. Power and Associates shows a rise in Americans who are loyal to U.S. car manufacturers. According to the report:

“The percentage of buyers who avoided import models because of their origin has increased to 14% in 2012—the highest level since the inception of the study in 2003. Conversely, the percentage of buyers who avoided domestic models due to their origin has declined to 6%, a historically low level.”

Recent figures for car sales seem to indicate that drivers aren’t simply talking “buy American,” but are actually buying American. Chrysler reported a $225 million profit for the four quarter of 2011, capping a year in which the American automaker posted $183 million in net income, versus a $652 million loss for 2010. This was the first profitable year for Chrysler in more than a decade.

The trend isn’t limited to automobiles. Last year, the Harrison Group and American Express released a study indicating that 65% of high-end shoppers now prefer to buy American. It’s unclear whether shoppers are showing a preference for American products because they believe they are of superior quality, or because they feel it’s important to support American manufacturing, or some mix of the two. But most evidence points to the fact that the enormous loss of U.S. jobs during the recession—manufacturing jobs in particular—has been accompanied by a corresponding increase in the compulsion to support American workers by buying American products.

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Or at least companies that still manufacture products in the U.S. want to make it look that way. Tiffany & Co. goes out of its way to advertise that all of its jewelry is made in the U.S. Brooks Brothers is also playing up that “large percentage” of its goods come from American factories. Claudio Del Vecchio, Brooks Brothers’ CEO, told Bloomberg News, “There is a customer that appreciates that the product is made in the United States and is willing to pay for the difference.”

No matter how you feel about buying American, it’s a complicated matter. The vast majority of an “American” car can actually be built in Mexico, or some other country. Many goods we think of as American aren’t actually produced in any capacity in this country. Take the much-coveted American Girl dolls, from Mattel. Well, those are manufactured in China. So the “all-American” favorite sneakers, Converse Chuck Taylor All-Stars. Levi’s are produced in countries such as Cambodia, Turkmenistan, the Philippines, and basically anywhere but the U.S., according to a Main Street article listing products that most people assume are made in the U.S., but actually aren’t.

Buying foreign-made products isn’t entirely bad for the U.S., though. Last summer, the Federal Reserve Board of San Francisco released a study indicating that 55¢ of every dollar spent in the U.S. on Chinese-made products actually goes to the U.S. economy.

For some, that’s just not enough. According to ABC News, almost 10,000 new jobs would be created if each American spent an extra $3.33 a week on “Made in the U.S.A.” products. If Chrysler’s rising profits are any indication, it looks like many Americans are already doing their part.

Read more: http://business.time.com/2012/02/03/just-how-much-does-made-in-america-mean-to-american-consumers-today/?xid=newsletter-daily#ixzz1lYkh5Mk9

One thought on “The principle of Comparative Advantage

  1. Mia says:

    Thank you so much for the post, it was interesting reading.

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