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More on Trade and National Security

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Here’s a response to Café Hayek commenter William Swiggart:

Mr. Swiggart:

Commenting [2] on a recent post at Café Hayek you write that “Globalization can have the effect of moving entire industries out of America depriving citizens of the experience of making things and making the United States more vulnerable in the event of a conflict.”

I don’t deny the possibility. (In theory, a great many things are possible.) But I also believe that using this possibility to justify protectionism is more likely to weaken, rather than to strengthen, U.S. national defense.

First, resources tied up in protected industries are not available for use in new industries. How can anyone be sure that the older, protected industries are more vital for national defense than would be the newer industries that, because of protectionism, never arise? Would U.S. national defense today be stronger had Uncle Sam protected telegraphy, wired telephony, and typewriter manufacturers from competition? After all, the U.S. military once relied heavily on these (and other) now-defunct or dying technologies.

Don’t forget that, in a market-oriented country, whenever particular industries die or decline – whether because of trade, innovation, or simply changes in consumer tastes – other industries are born or grow.

Second, protecting an industry is likely to make it less innovative and less efficient. Shielded from competition, that industry’s incentives to improve the quality of its outputs and to produce those outputs as efficiently as possible shrivel. If that industry truly is vital to national defense, such self-inflicted debilitation is dangerous.

Third, each time protection is granted on national-security grounds, the executives of all firms get heightened incentives to dash off to DC to portray themselves as vital to national security. Economic growth is thereby reduced as business executives spend less time competing to build better mousetraps and more time pleading for government favors.

Fourth, when trade makes us more dependent on foreigners for goods and services used in our national defense, it very likely makes foreigners more dependent on us for goods and services used in their national defense. And because America is among the world’s most technologically advanced economies, it’s probable that foreigners’ dependence on our exports more than offsets whatever national-security risks are created by our dependence on their exports.

Fifth, globalization itself reduces the prospects of war. To the extent that we Americans depend for our prosperity on trade with the Chinese, the Chinese depend for their prosperity on trade with us. This mutual dependence diminishes both our and the Chinese people’s incentives to blast each other to smithereens, for to unleash such blasting would be to wreck a source of economic gain. Protectionism – even when done on legitimate national-security grounds – reduces the size and extent of the economic ties that connect us with foreigners, and, thus increases the prospects of a hot war.

Sadly, almost none of the attempts to use national security as a justification for protectionism evince the slightest awareness of the above facts.

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