Tariffs and National Security

April 20, 2020 Updated: April 20, 2020

Commentary

Here is a naked and highly credible threat uttered by a Chinese economist:

“We are at the mercy of others when it comes to computer chips, but we are the world’s largest exporter of raw materials for vitamins and antibiotics. … Should we reduce the exports, the medical systems of some Western countries will not run well …”

This blatant intimidation was uttered by Tsinghua University’s economics professor Dr. Li Daokui at a recent Chinese People’s Political Consultative Conference in China. Threats do not get much more explicit than that.

It’s also highly credible. According to Politico: “Last year, China accounted for 95 percent of U.S. imports of ibuprofen, 91 percent of U.S. imports of hydrocortisone, 70 percent of U.S. imports of acetaminophen, 40 to 45 percent of U.S. imports of penicillin and 40 percent of U.S. imports of heparin, according to Commerce Department data.” China exports account for roughly 80 percent of the U.S. supply of antibiotics.

Had we known that the Sleeping Dragon would utter these threats, and that we were so dependent upon that country for these important pharmaceuticals, should we have set up tariffs against these imports?

To do so would be to embrace mercantilism. This is the long misbegotten notion that the common weal can be maximized by promoting exports and limiting imports. When implemented, money flows into the domestic country, that is, us in this case, since we’re selling more to foreigners than we’re buying, other things being equal.

This initiative didn’t work out too well for the Spaniards a few centuries ago, has never succeeded in bringing about economic prosperity, and will not do so for the United States either.

Is there any legitimate argument in favor of this doctrine? No. But one of the most powerful claims emanating from this part of the economic fever swamp is based on national security, the last refuge of the scoundrel.

Suppose we allow full free trade. No tariffs; no quotas; no “voluntary” agreements on the part of other counties to limit their exports to us; no other interferences with the economic decisions of millions of Americans. Then what happens according to this viewpoint is that the Hitler of the day, whoever he is, engages in just these practices.

For example, he subsidizes his own steel industry and places high tariff barriers against the importation of this product into his country. This undercuts U.S. manufacturers, who subsequently go broke. True, this will cost that country (China?) heavily, but their industry will keep rolling 24/7, since it now supplies both nations.

Then, a war is declared between the two countries, and that government calls off all exports of steel to us. Without this vital ingredient for our military apparatus, we lose the war. Free trade is thus dangerous to those who adhere to it.

But if a war between these two super powers ever breaks out in the modern era, it will be over quickly. There would be no need whatsoever on the part of the United States for new steel during this brief time period.

What about a war in the olden days that lasted quite a bit longer? Or, a military conflict with a lesser power that endures for a significant amount of time? Our conflagration in Afghanistan will soon celebrate its two decades’ long birthday.

First, a weaker nation would be far less likely to be our sole supplier of anything, let alone an important input such as steel. Second, there would be no need of a thriving industry in the United States in order to preclude this presumed national security threat. Only a moth-ball operation would be needed: plenty of steel mill capacity, stock-piles of iron and steel sited nearby, and a corporal’s guard of mechanics keeping the mills well-oiled and ready for a quick start.

If this foreign threat rears its ugly head, and hostilities are likely to endure past the short term, these preparations would ensure our safety. The cost of this, in effect, insurance policy would be far less than engaging in a trade war with that country.

According to the old tried but true aphorism, “If goods do not cross national borders, armies will.”

Engaging in counter-measures on the basis of these so-called national security considerations will make war more, not less, likely. In any case, the U.S. defense department has never come close to preferring the protection of our steel mills to their next ship, rocket, or dozen fighter planes.

Then there’s the reductio ad absurdum element of this argument. In principle, according to this doctrine, we really should not be trading any good or service with any other country. For that nation might one day become our enemy.

Some extreme advocates of this view might even go so far as to employ it against Canada, of all places, a country whose armed forces have fought alongside ours in numerous battles ranging over thousands of miles. (Perhaps they have been influenced by the “South Park” episode in which hostilities broke out between the two North American neighbors to the tune of “Blame it on Canada.”)

Should we really worry about from where we are to obtain our next-day’s supply of igloos, dog-sleds, and maple syrup?

No, the mercantilist case against free trade on the basis of national security is highly problematic, the mercantilists to the contrary notwithstanding.

The latest example of this is, of course, China. That country exports to us a significant amount of our antibiotics and other pharmaceutical drugs. Suppose they pull the plug on us so as to gain the upper hand against us. Should we have been utilizing protective tariffs against this possible militarization of medicines for lo these many years? Not if we value specialization, the division of labor, and the niceties of comparative advantage.

How then, can we protect this country against such a threat?

By unleashing our own pharmaceutical industry: not whining about their high prices; not threatening them with anti price-gouging laws.

Then, what Ronald Reagan called the “magic of the market” will unleash incentives on their part so as to be ready for any such eventuality, and able to rapidly increase supply, when and if needed.

What about selling nuclear weapons to Iran, ISIS, Maduro, al-Qaeda, the Taliban? Hey, those are not economic goods, at least not as contemplated by the free traders. We’re talking food, steel, medicines, etc., here. Free enterprise is not a suicide pact.

Walter Block is the chair in economics at Loyola University in New Orleans. He is also an adjunct scholar at the Mises Institute and the Hoover Institute.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.