New proposed tariffs on imported goods and a renewed focus on American-made products has sparked conversation as to the ramifications of an economy that produces American, buys American and sells American. Globalized manufacturing and trade will always be a part of the American economy, but an “America First” approach for the majority of industries would certainly have a ripple effect on everything from supply and demand to cost and quality. Let’s take a closer look at some of the costs and benefits in focusing on domestic production.
Opponents of a domestic approach to manufacturing overwhelmingly cite the increased cost of production paired with the reduced variety of goods offered. The fact of the matter is many raw materials are cheaper to source, refine, manufacture and distribute in some foreign countries. U.S.-sourced raw goods would be more expensive by default, increasing the cost of shipment, production, storage and more. Labor is also more expensive in the U.S. than it is abroad. This is due in part to labor laws and the fact that fewer companies in the U.S. specialize in manufacturing after massive offshoring in decades past.
To sum up some of the regularly mentioned costs:
- More expensive raw materials
- Increased labor costs
- Decreased competition increases costs for end consumer
- Less U.S. investment from foreign companies
- Higher likelihood of companies relocating overseas to cut costs
- Possibility of more restrictive imports of U.S. goods abroad
Proponents of U.S.-based manufacturing regularly tout smoother communication, simpler logistics and economic stimulation as some of the main reasons to produce American. Housing manufacturing practices in the United States allows companies to implement innovative technology on the production floor, improving production flow and streamlining production. Communication gaps are less likely to happen due to language and time zone barriers normally experienced abroad, and a domestically based manufacturing chain has a naturally shorter logistics chain, which simplifies storage, shipping and trade routes. Aside from these factors, U.S.-based companies have to comply with strict federal regulations and naturally contribute to the economy by creating more jobs.
To sum up some of the regularly mentioned benefits:
- Reduced logistics costs
- More opportunities for new technology on the production floor
- Improved communication
- Clear, concise regulations on businesses
- Better control over safety/environmental impact of materials used
- Economy stimulation through job creation
Putting domestic manufacturing first clearly has its plusses and minuses up and down the production chain. While some smaller firms have found ways to flourish in a highly regulated domestic market with fewer competitors, some larger companies have had to rely on cheaper options abroad to stay afloat. What are your thoughts on manufacturing abroad versus at home? Share with us in the comments below.