Dr. Herbener, in response to the ubiquitous claim that to be a “good American” one must buy American products so as to support the American economy instead of supporting a foreign economy one of the arguments I use is as follows. In order to buy, for instance, a Japanese car, one must provide the manufacturer with Japanese yen. In order for an American to obtain yen he must sell dollars for yen on the foreign exchange market. The individual who would be willing to sell his yen for my dollars is obviously doing so to obtain the ability to purchase American products. While buying a Japanese car instead of an American car would of course reduce demand for American cars, I am providing a foreigner with the means to purchase an American good, thereby creating demand for some other sector of the American economy. Is the argument sound? Have I missed any important parts or oversimplified the issues (disregarding the complexities of foreign exchange markets and import-export banking)? Do you recommend any other more persuasive arguments?
Foreigners who obtain dollars by selling goods to us can use them to buy our goods or to buy our assets (either physical or financial), i.e., to invest in our economy or simply hold our dollars. As you point out, if they buy our goods this improves the standards of living of all concerned by extending the division of labor to encompass more people in more places. If they invest in our assets, this too improves the standards of living of all concerned. The capital structure of the world economy is built up more fully. If they hold dollars, then we benefit in having higher purchasing power of our dollar than otherwise. In all cases, we benefit.