The Buy American fallacy is very deeply entrenched in the mainstream thinking. After all, the mistaken thinking goes, if we Buy American, we are helping our friends and neighbors make a living, and they in turn [if they follow this Golden Rule], will be helping us.
Add to the mix that those Chinese coolies work for pennies a day, and it becomes obvious, so the fallacy goes, that Americans are just digging their own graves if they buy from China. No American company can stand such cutthroat competition, since they have to pay fair wages to American workers. Not to mention that the Chinese manipulate their currency in order to compete.
Nobody does it better than Donald Trump. He wants to impose a 25% tariff on all things Chinese. Buy American and save us all. He himself buys tons of stuff from China, not because he wants to, he hates it, but because they manipulate their currency and make it prohibitive for American companies to compete with Chinese companies. He's said it many times, for example in the video on this page.
So why is it a flaw? For many reasons. If you are serious about it, read Henry Hazlitt's Masterpiece, chapter 11.
For the lazy, I'll provide one reason, the simplest. When you buy a Chinese TV set, you are buying American. Sounds crazy, no? But think about it. When you go to Walmart's and buy that Chinese television set, how do you pay for it? In dollars.
Even if you would go right to China and buy the TV set [like Walmarts does], you would pay for it in dollars, because that's all you have. Granted, the Chinese store may not accept dollars, so you would have to go to a bank and exchange your dollars for Chinese money, and then buy the TV set. But no matter where you buy it, no matter what the intermediate steps, the bottom line is that you give some Chinaman in China US dollars in exchange for the TV set.
Uh, oh. Here comes Devil's Advocate again. Let's give him the floor:
DA: Dave, you are just proving Donald Trumps point. Dollars are flowing outside the United States and into China. Meaning less US products are being bought, because the dollars aren't here to buy them.
SD: So the dollars are now in China?
SD: And what are the Chinese going to do with them?
DA: What do you think people do with money? Spend it, of course.
SD: And what can they buy with their dollars?
DA: Anything we make here in America. After all, the only place where dollars are legal tender is the USA.
SD: So the when I buy a TV set from China with my dollars, those wily Chinese are going to come right back here and spend those dollars in the only place they can, the good ole US of A?
DA: YES! They spend it here, the only place they can, and now you see why businesses here will sell less, because your Chinese TV set means the Chinese will buy from American... wait a minute.
SD: The defense rests.