If the American military considers purchasing shoes from local manufactures only, a number of the economic phenomena are likely to occur. Both short-term and long-term impacts are possible. One of the major short-term effects will be an increase in the rate return on sales for the local companies. The current situation, where the military obtains shoes entirely from imports, tends to reduce the market for local manufacturers.
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It also gives foreign manufacturers an advantage since the military is a bulk buyer. In addition, the government is likely to lose in terms of the tax obtained from imports. However, it is worth noting that American laws exclude the military from certain taxes, and shoes are some of the basic items for the military that face lenient taxation.
On the other hand, the government would increase tax collectible since local manufactures would still be taxed on manufactured units. On the long-term basis, the local manufacturing companies that would be picked to make military shoes would need additional employees, which would increase the rate of employment by a significant margin (Ramey & Shapiro, 2011)
This initiative is a relatively good idea in economic terms. When goods are manufactured in foreign nations, the market available for local companies is reduced. They cannot compete with foreign products since the latter is preferred, especially when the consumers are not individuals but a group such as the military. Local manufacturers lose to foreign manufacturers, especially in terms of microeconomics. For example, such imports as shoes are made in countries such as China, South Korea, and India, where labor is cheaper than in the US.
In addition, the cost of production on materials is relatively low in these nations compared to the US. Although companies such as Reebok, Marlboro, and Nike are European conglomerates, they have taken advantage of cheap labor in Southeast Asia and India by locating their manufacturing plants in these countries. Thus, it is clear that the price of imported products is less than that of locally manufactured products.
Thus, the competitiveness of the local shoe manufacturers is relatively weak. In this case, the military’s intervention by purchasing locally manufactured goods is likely to promote this industry. Another long-term effect of this action is the increase in the demand for raw materials. This would promote other industries such as leather, silk, cotton, and others that produce products needed to make shoes. As such, the American economy is likely to gain, especially in terms of an increased rate of employment and industrial growth.
The government expenditure on the military is likely to remain intact. However, due to the increase in demand for raw products and the resulting increase in the rate of production for raw materials, the increase in industrial growth, especially in agriculture and processing industries, is likely to benefit the government (Galí, López‐Salido & Vallés, 2007). Thus, the long-term effect is a significant improvement in the general economy.
From a macroeconomic point of view, this initiative should be encouraged if the US is willing to aid and work with the local companies. There is no need for the government to spend on imports, yet there are competitive and qualified local companies ready to deliver the desired services and goods. The government should focus on the long-term results of the initiative. Therefore, this initiative should be started as soon as possible for economic gains.
Galí, J., López‐Salido, D., & Vallés, J. (2007). Understanding the effects of government spending on consumption. Journal of the European Economic Association, 5(1), 227-270.
Hagerty, J., James, R., & Kesling, B. (2014). America’s strategic shoe reserve- Military explores recruitment that sneakers be US-Made: New Balance of Power. The Wall Street Journal, 1(2), 2-6.
Ramey, V. A., & Shapiro, M. D. (2011). Costly capital reallocation and the effects of government spending. Carnegie-Rochester Conference Series on Public Policy, 48(2), 145-194.