Buy New Zealand Made is a fundamentally silly idea

Most of the goods we purvey at BoutiqueHealth are imported. None of the imported goods are manufactured or produced in New Zealand. We keep our feelers out for New Zealand goodness. The following article is from The Dominion Post › BusinessDay › Saturday, November 3, 2007 . . a clear-headed response to the Buy New Zealand made mantra. We are Kiwis first and we do care about our country, however, fundamentally, buying New Zealand made is a silly idea. Still . . we do choose Kiwi where we are able and want. Should you come across Kiwi made that may fit our range then we do invite you to share your discovery with us. contact us » For now, read on . .

If you haven’t seen the new poster for the Buy New Zealand Made Campaign, it features an attractively attired woman, asking: “Does my economy look good in this?”
The implication is that we should think carefully about the damage wrought when we purchase foreign-made goods.
As an economist, I am loathe to criticise a campaign that features pretty models urging us to think more about the economy. But, to my great dismay, there simply isn’t any intellectual merit to the campaign’s message.
Buy all the foreign products you want – it won’t hurt the domestic economy in the slightest. In fact, there is a common school of thought, one actively supported by current government policy, that implies that if New Zealand is to climb up the OECD economic ladder, it is going to have to buy far more imports.
Let me explain.
Where exactly does the bizarre idea that imports are bad come from? Perhaps media coverage is partly to blame. Whenever we hear of large-scale job losses, the reasons normally given are either businesses moving overseas or succumbing to foreign competition.
However, the number of jobs lost in this manner is a small fraction of the jobs that vanish each year, which are in turn almost always smaller than the number of jobs created.
Empirically, the relationship between imports and job losses doesn’t exist. Over the past 15 years unemployment has been trending lower, even as import concentration has been increasing. This shouldn’t surprise anyone.
If we think harder about the trade process, it becomes clear that there is an error in the intuition that when foreign goods are bought, spending power (and thus jobs) vanish from the domestic economy.
The mistake begins with the terminology. We don’t “buy” imports, we swap for them. In order to purchase that Chinese-made dress, our poster-girl needs to find someone willing to take her New Zealand dollars in exchange for Chinese currency.
New Zealand dollars serve two purposes. They can buy New Zealand-produced goods or services (exports); or can be lent to New Zealanders, who will in turn buy New Zealand-produced goods or services. The money does not disappear.
We can only buy imports if there is someone willing to accept our exports in return. And imports and exports tend to closely balance in the long run.
Over the past 20 years New Zealand has had an average trade surplus of 0.9% of gross domestic product.
Here we normally encounter a more sophisticated complaint.
When New Zealand is running a trade deficit (as is currently the case), we are borrowing from the rest of the world. It is argued that the New Zealand economy would grow faster if New Zealanders saved more, and the Government has responded with numerous policies designed to encourage this.
But regardless of whether savings are sufficient, buying New Zealand-made still can’t have an impact on the trade balance. The economy is already producing at full capacity (or more than capacity, judging by the Reserve Bank’s monetary policy stance).
There aren’t any spare resources to produce more for domestic consumption, so any switch from imports to New Zealand-made goods would have to be matched by a one-for-one decrease in exports. The trade balance, and thus the savings rate would be unaffected.
To increase our savings rate we either have to buy fewer imports or buy fewer goods that are made in New Zealand (allowing us to export the surplus). In other words, if we wanted to redesign that poster so the message actually made economic sense, the model would have to be wearing nothing at all.
Now that I’ve shown that the inexorable consequence of importing less is exporting less, hopefully it is apparent why going out of your way to buy New Zealand-made is a fundamentally sily idea.
In case you’ve forgotten, we’re still in the government’s designated “Export Year 2007”. Plenty of time and money is spent in an attempt to encourage and aid New Zealand companies to export more.
Existing government policy is geared toward increasing the share of output we export. The Buy New Zealand Made Campaign encourages us to increase the share of output we consume locally.
I think we can all agree it is a mathematical impossibility to do both at the same time, but nevertheless, the Government will spend $11 million in the next four years to convince us otherwise.