Considering this only covers US Government purchased flags, this IS the invisible hand of the market. It’s a consumer choosing where they want to purchase products.
And it is t nationalizing the industry. They still will be privately produced. And individual Americans can still by Chinese flags.
Nationalization means the government takes full control of an industry, not merely sets standards on their purchase.
And buyers are able to have any reason they want for their purchase decisions, including optics. It’s still the invisible hand. And besides, I think it’s more than optics to want American tax dollars to go to Americans.
Capitalism doesn’t mean “always buy the cheapest.” It means anyone can sell at any price and quality, and the people choose. And, in my experience, Chinese made goods are often of lower quality, made with poor environmental standards, and produced with questionable labor practices (including outright slave labor).