Protectionism and My Wood Chipper
I bought a used wood chipper about a month ago. It needed a little work & it’s about 25-years-old, so I got it cheap. It works great after I fixed almost everything, but the carburetor leaks gasoline when the engine is off. Today, I stopped by the local small engine shop, & asked about it. He said the carburetor needed to be totally rebuilt & cleaned, which would cost about $100. About 2 years ago I bought a new carburetor for a lawn mower & it only cost $40, so I asked him what a new one would run? That’s when he told me that Tecumseh Engines went out of business, and parts are very rare; if one could be found, it would probably be $200. As I walked out of the shop, I started thinking that a whole new engine should only about $250. So I drove to Northern Tool in Burnsville to see my options.
After a short time looking, I decided I wanted a 205 cubic centimeter engine, of which there were a lot to choose. Hondas fell out of the running just because they are almost $500, Kohlers also were too high for my needs, so that left Briggs & Stratton. I then started thinking, well at least I’ll have an engine made in the USA. I’m not a huge “Buy American” guy, but I sure like to avoid buying things made in China when I can. Well the Briggs engines in my price range are made in China, not the US. But they have a nice Intek series 205cc engine that would be perfect for $280. However, I really wanted to see if I could get an engine made in the US, In my opinion there is a quality difference, so I looked. I finally found an Intek series 205cc engine that was made in the US, but it was $480. Looks like I’m buying Chinese.
But this got me thinking, what can be done about this? Is a “Made in USA” engine of identical specifications really worth nearly twice the price? I don’t think so. So I came up with three possible solutions:
1) We can raise tariffs on Chinese made motors so that they also cost $480… or more, but that only hurts me as a consumer. I can buy an engine for $280, why would I want to insist that they raise the price to make the American engine more appealing at $480?
2) We can address the structural inequities/inefficencies in our domestic system, so that the manufacturer can sell American made engines closer to the $300 ball park, where I’d be happy to pay a little more for the quality & pride of having an American engine, or
3) We can admit that the Chinese can make small engines more efficiently than we can. So we stop making small engines domestically, & direct our domestic resources to something that we can make better than other countries.
The first is classic protectionism. It is favored by labor unions, but as I said, it only serves to raise all prices to the American consumer, including the union member when he goes shopping for engines. The second is a competitive approach, where we do what we can to compete in the market place. Think of Target & Walmart. They have to constantly figure out how to operate in a way that they can keep their prices at the same level as the other. Or they can give the consumer a reason to want to pay more for an identical item at their store, as opposed to forcing the consumer to pay more like in the first option. The third option is one of efficiency. I have less than an acre of land, & I hate gardening. I love beef, but I really can’t raise livestock in my yard. I can however fly people around in airplanes, & my wife can sell paper products to graphic designers all day long. So That’s what we do, and we let a farmer take care of our food needs. It’s called division of labor according to Adam Smith.
So, which do you think would be the best option? I’m torn between 2 & 3 myself.
the pushy peasant 
July 6, 2011 at 10:53 am
I’m torn as well, but option #1 is certainly NOT on my list!
July 6, 2011 at 12:36 pm
Hi. I’ve always thought that the reason we don’t make goods in the USA anymore is because of the corporate mentality to maximize profits for shareholders at any cost. I think Briggs and Stratton could make quality engines in the USA at a fair price, but they choose to make them in China because the margins are higher. This results in higher revenues which boosts stock prices which pads the pockets of investors, the CEO and executives while emptying the pockets of employees. What happens when US-Chinese relations fail? Better stock up on shoes and socks (and small engines).
July 6, 2011 at 3:19 pm
Businesses need to make a profit; that is true. However, if what you say is true, then why was there two identical engines at two very different prices? If this theory was true, the made in China engine would cost $480 and the made in the USA engine would either cost the same, or not exist.
Prices are determined by the consumer. If no one will buy an engine for $480, then the price will either have to fall, or the company will have to stop making the engine. Assuming that Briggs sells enough engines at $480 to justify the price (which is seen through profit) then it can assume that an Intek 205cc engine is worth $480 to the consumer. So, If the mentality is to maximize profits for shareholders above all other concerns, then why not close the the US plant, make all the Intek 205cc engines in China & charge the $480 the consumer is willing to pay? That would be the maximum profit, however they don’t do that.
It cost less to make the engine in China, so they charge less. They probably make the same profit margin on both engines, but they will make more money with the Chinese engine, only because more people, like me, can afford a $280 engine, so they sell a lot more.
There are far more reasons than labor costs that are pushing companies to China. Regulations, taxes, & legal challenges are but a few unseen costs of manufacturing in the US. There are also costs of doing business in China, including shipping & unskilled labor. Businesses have to look at all costs to determine their structure.
July 6, 2011 at 5:18 pm
It’s because the corporation wants the same margin on USA made goods as Chinese. I think they could sell the American made product to consumers for a fair price, make a fair profit and pay their workers fair wages – bus since they are beholden to maximize profits for their shareholders without regard to American jobs or security, they will continue to move jobs and factories overseas.
July 6, 2011 at 6:37 pm
Who gets to decide what is a fair profit? A fair wage? A fair price? How should those decisions be imposed? Where would the control stop?
I don’t understand why the profit is seen as the problem. A company doesn’t make engines to provide jobs or security. It exists to make money, all other outcomes are the beneficial byproduct of profits. The reason companies leave is because it’s too burdensome to stay.
Look at what’s happening with Boeing. They determined that they cannot build the 787 in Washington & still be competitive in the world market, their costs are too high there. So, they try to open a plant in South Carolina where they can build a competitive product. The NLRB & the Obama administration intervenes on behalf of the union to stop them from moving to SC. Don’t be surprised if a new Boeing factory opens in Mexico.
July 6, 2011 at 3:26 pm
As far as relations go, I kind of agree with you. Most economists, of all stripes, believe that a condition of interdependent countries will prevent huge conflicts & promote cooperation when conflicts arise. China needs the US as much as the US needs China. Personally, I see their point, but it relies on both parties making decisions that are in their best interests. China has a long history of making decisions that are best for the ruling class, with little concern for the effect those decisions have on it’s society.