This article previously appeared in the AFA Pacific Northwest Chapter: Come Along Volume 2012 Issue 2 newsletter, published July 23, 2012:
If you had a high school economics course (only 1 in 4 graduates has), you may remember a concept they taught called “comparative advantage”. This term is used to describe the relationship between two or more producers of identical products. A paper mill making newsprint located next to a river in a pine forest has a geographical comparative advantage over a paper mill trying to make newsprint on the rim of the Grand Canyon.
Economists and talking heads like to point to comparative advantage when the discuss laws like “Buy America”, or movements by citizens to encourage others to use domestically produced goods and services. According to their theory, if a product can be made overseas at less expense, we ought to allow that, and embrace it, because the money we save buying less expensive imports remains in the economy to strengthen it.
On the surface this can be a very enticing view. If I can buy my fence hardware from overseas versus something American made, the money I saved could go toward my child's orthodontia bill, or a payment on my new Ford. Does this principle always work?
The key part of “Comparative Advantage” is “compare”. Some manufactured goods are so similar across all suppliers that they are essentially the same. Economists often refer to these as “commodities”. Industry standards adhered to by all parties make these parts conform to a very narrow range of prices. Think of the gasoline you put in your car. There are at least a half dozen major brands of gasoline in the U.S., yet, when adjusted for regional variations in taxes and formulations, they vary in price at most by only 1-2%. Regular unleaded at one station in town is likely to be within 1 or 2 cents per gallon of another. And the gas performs pretty much the same from brand to brand.
The flaw in the argument as applied in today's fence market is that we are not comparing identical products. The hinge from overseas is likely to have inferior materials, to wear out sooner, and not work as intended. Why is that? We tend to think of the comparative advantage of foreign made goods as being based on the much lower cost of labor in most other parts of the world. While this is true, and makes up the majority of the difference in the cost of production, the cost of delivery must be added into the final price of an item.
In order for a hinge from overseas to be made with the same quality as its American counterpart, the manufacturer may have to pay even more for some materials than manufacturers in the U.S. Then he has to ship it here. In today's fuel market, that shipping adds significantly to his cost. To save money, he uses inferior materials. Reducing the gauge of steel in a hinge by just one step can save as much as 15% on the cost of that steel. It can reduce the strength of the finished product by even more. In the case of fence hardware, the manufacturer may choose to use inferior grades of stainless steel, or even substitute mild steel in its place.
Many of the raw materials used in other countries are recycled scrap from America. Shipping that scrap across the globe to be recycled, re-manufactured, then shipped back to the U.S. is extremely expensive. To be able to enter the American market at a price point that is low enough to overcome most American's impulse to buy American made goods, he has to cut even more from his costs. He may not bother to carry manufacturers liability insurance.
After all, what are the chances that his inferior product will cause harm to someone? Even if it happens, he is so well insulated by international boundaries he will never be prosecuted for negligence or sued for damages. His worst case scenario involves changing the name on his product, so people won't recognize that it is the same junk, just as likely to kill or injure someone.
I know a salesman who tells the story of a broken latch. It looks just like a well made American latch, (at first glance), but is imported and sold at 60 to 75% of what its American counterpart goes for. When confronted by an angry customer with a broken latch, the best the customer was offered was a replacement latch. That didn't satisfy the customer. He wanted to be reimbursed for the $1100 dog that escaped when the latch failed. This may be an extreme case, but do you want to be the one who sold that latch? What if it was a dangerous dog and hurt someone?
When you buy an American made product, the immediate cost, what you pay up front, may be a little higher. But look at what you are buying. It's the real deal, not the inferior knock-off. A reputable manufacturer will warrant the product and be insured against the unthinkable.
There are a lot of reasons to buy American. Some do it out of pride, some do it out of habit. If we look at the true cost of using inferior imports, we will begin to buy American because it is the economically smart thing to do.
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