Buy American
Rearrange American Jobs

Driving in certain parts of this country, one is sure to occassionally see a bumper sticker with the words "Buy American Save American Jobs" on it. An economist dedicated to the truth would stop these vehicles and inform the driver that their dumper sticker is in error and that he would be happy to change it to the correct version, "Buy American Rearrange American Jobs."

The reasoning behind this is that a change in buying habit (like a increase in tariffs) would increase the demand for domestic good, it would be offset by the decrease in exports. Suppose the US restricted importation of Japanese cars (also assume this took place several years ago, before Japanese cars were made here). This would increase the consumption of american cars, and decrease unemployment for US auto workers. But, now because the US is no longer importing cars, Japan's Balance of Payment will fall (ie. they have less dollars to buy american goods). This mean that Japan will import less american goods. Ultimately another sector of the american economy will feel this effects of this and start laying off workers.

In more mathmatical terms, while the NX curve will shift up, total NX will not change as Net Foreign Investment remains constant. (NFI=S-I S=Y-C-G I=I[r]) Savings is output minus private and government consumption, investment is a function of the real interest rate. Since neither of these change, NFI and NX will not change.

So while a tarrif or a drive to buy domestic goods will help some american workers, they won't save american jobs, insteady they'll merely rearrange them.

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Taken in part from Professor David Romer's Economics 101B lecture.