Does National Security Justify Trade Restrictions?

In a recent Defining Ideas article, “Why Trade Should Be Free,” I made the case for free trade. Although my way of stating it is slightly original, the case for free trade is one that many economists, including Adam Smith, have made. Free trade causes people in the free trade country to produce the goods and services for which they are the least-cost producer and to import goods and services for which people in other countries are the least-cost producers. The case for free trade is no more complicated than the case for hiring someone to mow your lawn. The conclusion that free trade is good for a country’s government to adopt does not depend on other countries adopting free trade. Even if other countries’ governments impose tariffs, we are better off, on average (there could be some losers), if our government refrains from restricting trade.

Are there any exceptions to the case for free trade? There’s one main one. Adam Smith himself laid out this exception in The Wealth of Nations: restricting trade when the traded item is crucial for national security. But the case for restricting trade even in such cases is not airtight and, indeed, other ways to assure a supply of such items may be better than restrictions on trade. One such way is by stockpiling the crucial items and that may well involve more trade, not less. Whatever the measures taken to assure availability of crucial inputs to defense, we, unfortunately, depend on government officials with information and competence, two characteristics that are typically in short supply in government.

These are the opening two paragraphs of my latest Hoover article, “Does National Security Justify Trade Restrictions?” Defining Ideas, December 5, 2024.

 

One of the exciting studies I found while researching this article was the work on rubber during World War II by Alexander J. Field, an economic historian at Santa Clara University.

I wrote:

Because of our climate, the United States has never been a producer of rubber. This mattered during World War II. In a December 2023 paper titled “The US Rubber Famine during World War II,” Alexander J. Field, an economic historian at Santa Clara University, tells the story of US dependence on rubber imports during the war. After the Japanese government invaded Singapore, it took control, writes Field, of “almost all Southeast Asian sources of natural rubber.” Field notes that this “deprived the United States of 97 percent of its supply of the one strategic material in which it had effectively no domestic sourcing” (italics added).

The good news is that various US officials saw this coming before the US government officially entered the war. Field notes the three strategies to deal with the loss of imports: (1) domestic stockpiling of rubber before US entry into the war; (2) subsidizing “domestic production of alternative plant-based sources of latex”; and (3) developing a synthetic rubber capability.

The bad news, according to Field, is that the chief US official who controlled US policy, Jesse Jones, slowed the pursuit of the first and third strategies.

Read the whole thing.

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