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Save The American Economy By Increasing U.S. Consumer Willingness And Desire To Pay More

In his much-anticipated speech on global trade in June, Republican presidential candidate Donald Trump lambasted what his website describes as all talk, no action politicians for betraying American workers. In his words, these politicians h


In his much-anticipated speech on global trade in June, Republican presidential candidate Donald Trump lambasted what his website describes as “all talk, no action politicians” for betraying American workers. In his words, these politicians “have aggressively pursued a policy of globalization—moving our jobs, our wealth, our factories to Mexico and overseas.” In his June trade speech at the Alumisource Factory in Pennsylvania, Trump also pointed out that the United States imports “nearly $800 billion more in goods than it exports” and called this a “politician-made disaster” brought on by a “leadership class that worships globalism over Americanism.”

The Democrat’s candidate Hillary Clinton flip-flopped recently from supporting the Trans-Pacific Partnership to opposing it because the country should “say ‘no’ to new trade agreements unless they create American jobs, raise wages and improve our national security.” She also promotes “Buy American standards” “so we can make things here.” Indeed, her website declares bluntly that “we need to buy what America makes.” Both candidates apparently think bringing back American manufacturing jobs by, among other strategies, exhorting American companies, governments and individuals to buy locally rather than globally will help cure our country’s economic woes.

But is this really true? Would priming consumers to become “localists” rather than “globalists” achieve an increase in domestic purchases that would help revive and/or restore our flagging manufacturing sector? Our research suggests it would not. Consumers who are localists, our research shows, are less price sensitive for all goods irrespective of the country of origin. The extent to which our presidential candidates would have us think localists will buy more local products may be misleading.

The attraction for many American consumers—localists or globalists—who buy goods made outside of this country has always been lower prices. Equivalent products made and sourced in the United States may cost more because, among other things, our workers get paid more to make them. USA Today, for example, pointed out that Ford is moving its small-car production to Mexico because automakers there set average worker wages “at a fraction of their U.S. counterparts” and this would reduce costs enough to keep small-car sales profitable. To get consumers to forego the savings to be had by buying foreign-made goods (in economic terms, lowering their price sensitivity), they need to be persuaded to favor their local consumer identity over their global consumer identity. As we learned through numerous studies, consumers with a local identity exhibit a mental association to local traditions, culture and people than to global traditions, culture and people. In addition, localist customers tend to adopt a “sacrifice mindset,” which makes it easier for them to pay more for goods and services irrespective of where they are produced. In other words, localists—because of their sacrifice mindset—are less price sensitive. As a result, they are willing to pay more for a product even when the product’s country of origin is not known to them. Thus, localists would be less price sensitive, say, for products at Wal-Mart no matter where the products are sourced.

 

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