Among the top 10 goods or services that are imported into the United States, electronic equipment rank the highest with phone and system devices topping the list. Electronic equipment makes up 14% of the total US imports and is therefore in very high demand in the US market. At the same time, Japan oil imports form 23.3% of their total imports (Ackerman, Ishikawa, & Suga, 2007).
The concepts of absolute and comparative advantage in international trade dictate how countries utilize scarce resources to produce goods or services. It is not economically viable for the United States to produce all the goods and services it requires as these goods require varying conditions of climate, raw materials and even politics involved. In this instance, the varying ability in producing electronic equipment between Japan and the United States forms the basis of absolute advantage. It would be wise for Japan to import oil from the United States because it has an absolute advantage in production of the product at the same time the United States should import electronic equipment from Japan because of its superior absolute advantage in production of the product
Of course, both the United States and Japan can produce electronic equipment, but Japan can produce affordable higher quality equipment than its counterpart. Along the same line, comparative advantage is the ability of a country to produce a certain good at a lower opportunity cost than another (Costinot, Donaldson, Vogel, & Werning, 2015). In this context, the result of Japan and the US trading will benefit both countries as they will receive a price that is lower than the opportunity cost of producing the goods. It is for this reason that countries specialize in producing goods that their resources are suited best for.
The “Buy American” campaign implies that Americans should buy their products and services to create more jobs. This economic voodoo campaign is designed to fail right from the start for ignoring basic economic principles. The buy American campaign would increase the demand for locally produced goods thereby ignoring cheaper imports. Because of the increased demand, suppliers would increase, and the equilibrium price would be relatively higher than the international price because of the high cost of production. The argument lies in the fact that when we buy a locally produced product expensively, the American will have to contend with buying very little or less of something else due to the budget constraints (Fenwick & Wright, 2000).
(Norman & Venables, 2015) Senior economists at the Hoover Institution accorded that the campaign would cost the American many jobs and makes the United States poorer in the long run. From an economics standpoint, it is reasonable to purchase goods and services from where they are produced the cheapest. Consequently, the American will free more of their resources, which can be used to purchase other specialized goods whence jobs would be created. In this respect, it should be noted that every time we use fewer resources to import a product from abroad, the resources could be put to use by producing other goods and services and create employment for the locals. Venables continues to argue that the Americans should adhere to Henry Hazlitt’s lessons of overlooking the immediate beneficiaries of such transactions because in the long run they would be doing the opposite of what they intended to do.
References
Ackerman, F., Ishikawa, M., & Suga, M. (2007). The carbon content of Japan-US trade. Energy Policy, 35(9), 4455–4462. http://doi.org/10.1016/j.enpol.2007.03.010
Costinot, A., Donaldson, D., Vogel, J., & Werning, I. (2015). Comparative advantage and optimal trade policy. Quarterly Journal of Economics, 130(2), 659–702. http://doi.org/10.1093/qje/qjv007
Fenwick, G. D., & Wright, C. I. (2000). Effect of a Buy-National Campaign on Member Firm Performance. Journal of Business Research, 47(2), 135. http://doi.org/10.1001/jama.302.3.340
Norman, V. ., & Venables, A. J. (2015). \International Trade, Factor Mobility, and Trade Costs. Economic Journal, 105(433), 1488–1504. http://doi.org/10.1126/science.151.3712.867-a
