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Trade Deficits and War: Tales from Two Economists

Here’s another letter to my new correspondent Mr. Nolan McKinney:

Mr. McKinney:

Unimpressed with my response to Peter Navarro’s op-ed in yesterday’s Wall Street Journal, you complain that I “turn blind eyes on” what you describe as Navarro’s “strongest argument” against the trade deficit – namely, Navarro’s tale that trade deficits endanger America’s national security.

Never mind that Uncle Sam today spends more on its military than is spent on militaries by the next seven top-military-spending countries combined.  And never mind that, despite nearly 40 consecutive years now of annual U.S. trade deficits, the U.S. military still stands atop Global Firepower’s ranking of the world’s most powerful militaries.  Instead, realize that all that Mr. Navarro did was to spin out of thin air a fanciful tale of U.S. trade deficits allegedly leading to U.S. military decline.

Yet anyone can spin fanciful tales.  For example, I can argue that those, including Mr. Navarro, who wish to reduce the U.S. trade deficit recklessly endanger U.S. military might.  By cutting off supplies of low-cost steel and other imports used in American industry, trade restrictions of the sort favored by Mr. Navarro will raise the cost of producing weaponry in the U.S. to such heights that we Americans will no longer produce enough fighter jets, tanks, submarines, and atomic bombs to keep us safe and secure at home.  Furthermore, because Mr. Navarro’s policies will reduce the inflow of foreign capital to the U.S., American factories will deteriorate for want of funds to keep them up-to-date.  Our crumbling factories will no longer adequately serve to supply ‘democracy’s arsenal’ when the next war comes.  Likewise, reduced purchases by foreigners of U.S. government treasuries will force Uncle Sam to cut the Pentagon’s budget to levels so low that soldiers will go without pay.  These unpaid and bitter warriors, after swarming out across the land to rape our women and enslave our children, will stage a coup and impose military rule on America.  And all because of Mr. Navarro’s scheme to reduce America’s trade deficit.

I submit, sir, that the national-security tale told by Mr. Navarro in yesterday’s WSJ has no more basis in reality than is the tale that I tell just above.  There is, however, a national-security point that free trade in fact (and not in fancy) has in its favor that protectionism does not: increased trade between countries reduces the prospects of war.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030