Does Trade Harm National Security? (With Scott Lincicome)

Free Thoughts

E384 - Mar 5th, 2021

Scott Lincicome joins the show to discuss how new security nationalism proposals warrant extreme skepticism, and market-oriented policies should be prioritized.

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The resurgent of “security nationalism” extends far beyond the limited theoretical scenarios in which national security might justify government action, and it suffers from several flaws. “National security” has long been invoked to justify government policies intended to support manufacturing in case of war or another emergency.

How are free trade and national security related? What is a trade deficit? How do global supply chains work? Did the U.S. make China in to a dangerous country?

0:00:42.6 Scott Lincicome: Sure, so security nationalism is… I mean, it’s been around for a long time, but it’s really become prominent, it became prominent in the latter parts of the Trump Administration and now. And it’s essentially the idea that decades of free markets and government inattention have caused widespread deindustrialization in the United States, and by extension, have weakened our national security and thus require really broad-based government protectionism and industrial policy, subsidies and the rest, to restore and bolster national security.

0:01:27.6 Trevor Burrus: As you point out in the paper, even for free trade people, which we are, and we can get into just the general case of free trade, but that can be a more compelling reason to limit trade. If we went into World War II and all of our tanks were being made in Germany in 1940, that could have been a problem, right, if Germany just said, hey, no more tanks, we’re taking the tanks for us, so it’s not on its face absurd.

0:01:57.9 Scott Lincicome: No, definitely not, and in fact, look, the kind of oh, gee, free traders, Adam Smith, Milton Friedman and others, acknowledge that there is an exception for our general free trade and free market principles when it comes to national security, like you said, if in times of war or other national emergency, there may be a need for the industrial capacity, we’ll call it, just the ability to make stuff, particularly like you said, tanks, planes, and the rest. The problem with that theoretical exception is how it’s applied in practice, particularly again, kind of in the security nationalism context, because what started out, if you look at again, Adam Smith, Milton Friedman and others, you see that these guys also were very quick to note that these national security exceptions are narrow, and they really should be applied in limited circumstances, and we should be very skeptical of the application of these exceptions.

0:03:09.7 Scott Lincicome: And then when you go to in practice, you see that there are all sorts of… They spread into a lot of real world issues, and so security nationalism ignores all of that. You listen to guys like Marco Rubio, or of course President Trump, but also guys on the left too, President Biden has made these types of rumblings as well, and they are not applying a Friedmanesque national security exception to a general free trade principle. It’s actually much the opposite, it’s an assumption that we must have reshored supply chains, we must have tons of economic nationalism, and that free trade is the exception to the rule, so they really flip it on its head.

0:03:52.5 Aaron Powell: But it does seem like if we’re worried about the security of the nation, so we want the nation to be protected from whatever kinds of threats might come along, autarky, economic self-sufficiency, is going to be more secure because if we are dependent on other people, then we are dependent on other people, and if they change their mind, they do something, so isn’t it just simply the case that if we can make ourselves self-sufficient, that’s better?

0:04:20.4 Scott Lincicome: Yeah. So there’s two problems with that. Yeah, it does make some intuitive sense, right. When the pandemic started, we bought a bunch of toilet paper, had a bunch of stockpiled stuff, you think, yeah, you need to have… If you think of your nation as a house or whatever, you need to have that supply. But it runs into, like I said, two problems. First is that what is the point of national security? Well, national security is to prevent wars and armed conflicts or to be able to respond to them, at least. And there’s a ton of great academic literature looking at a hundred-plus years of armed conflicts and wars and the rest, and they see that trade openness and free trade, global integration actually dramatically reduces the chance of armed conflict. So in other words, trade promotes peace.

0:05:18.5 Scott Lincicome: So again, since your national security goal is to prevent war, to prevent attack, well, there’s actually a lot of good evidence that shows that free trade and trade openness actually help you achieve that. And importantly, the literature shows it’s not just simply about keeping you out of wars, but it’s actually keeping others out of wars too. If you can bring nations into what we call the liberal trading order, the World Trade Organization and the rest, that will reduce the chance of countries attacking each other or them attacking you, so that’s all good.

0:05:58.0 Scott Lincicome: And the second issue is, I think, just more economic, and that is that while autarky might reduce the risk of an external shock, so for example, let’s say a pandemic hits a major supplier of cars, for example, yes, that might actually hurt your supply of cars or auto parts if you’re making cars here, so you would import that shock, but that doesn’t consider what happens when a pandemic hits your country or any other sort of domestic shock, natural disaster, potential civil war, armed conflict in your own country, those types of things. And what the economics literature shows is trade openness, global trade integration and the rest actually help nations absorb and withstand domestic shocks.

0:06:53.7 Scott Lincicome: So we see this in the United States, for example, when the pandemic was raging here and other countries were recovering, sectors that were relatively open to global trade actually were performing much better than sectors that were closed. Even in specific products we saw this happen. For example, in cars, we have very low tariffs on cars, we have very high tariffs, 25% tariffs on trucks, and we had outright truck shortages this summer because we had a kind of domestic… Most of our trucks are made here, with a few exceptions. By contrast, because we have these low tariffs on cars, we had tons of import supplies, so there was far less disruption when it came to the ability to consume, for consumers to access those things.

0:07:45.4 Scott Lincicome: But the other thing that trade openness does is it helps you recover from a domestic or an external shock, and again, that’s by diversifying supplies, creating a larger, not just supplier base, but consumer base you can export and of course drive revenue and recovery that way as well.

0:08:06.8 Aaron Powell: Does this mean then that we should have Germany or, say, China manufacture our tanks?

0:08:12.3 Scott Lincicome: Yeah, I think there is a line, right? I mean, I know that some folks would say it doesn’t matter, we should… It doesn’t matter that we have, whether we have an industrial base or not. In my opinion, I think that goes too far, ’cause like you said, there are hostile nations in the world, there are nations that could, for example, impose export restrictions or other actions that could really cause serious problems in times of national emergency or war or the rest. But it really is important to dig into the data and examine what is actually happening here in the United States. I do that in a large part of the paper looking at our actual industrial capacity.

0:09:01.7 Scott Lincicome: And so, for example, the United States is still the second largest manufacturing nation in the world. We have probably the most productive manufacturing workforce in the world in terms of value-added output per worker, we’re a top recipient of foreign direct investment in the manufacturing sector. And then you look at historical trends for the last 20-plus years, and you see that American manufacturers are still investing heavily in research and development and capital expenditures, you see that output overall is up a little, it’s up a lot in the durable goods sector, these are again, tanks, planes, cars, electronics, those things that we typically associate with national security.

0:09:47.4 Scott Lincicome: And that the declines, by contrast, in our manufacturing sector tend to be these kind of low wage, low value sectors, textiles and apparel, furniture and the rest, or they are de-materialized sectors, so simply things that we don’t use as much anymore, either due to changing consumer tastes, so for example, tobacco manufacturing is way down, or because simply technological advancement, so we just aren’t using as much stuff overall in terms of raw weight production of things like metals and wood and the rest. You look at a smartphone, for example, that has taken… That’s replaced dozens of different devices and it keeps getting smaller and thinner and lighter over time.

0:10:38.4 Scott Lincicome: And so those things you also need to take into account when you look at the manufacturing sector. So it’s important again, it is, I think a good theoretical concern, you probably don’t want all of your tanks and planes made in China. In reality, that’s just not happening and we have a ton of industrial capacity. But the other thing that’s really important, I think, to note is that that is not an excuse for autarky. It’s again, more about diversity of supply, having domestic and foreign production and allowing the kind of good old comparative advantage and supply chains to do their magic in a lot of cases.

0:11:20.6 Scott Lincicome: We have this thing called the National Technology and Industrial Base, the NTIB, and it’s a pretty smart idea. Essentially, it is designed to allow really close allies; right now, it includes Canada, the United Kingdom and Australia and the United States, and it allows these very close allies to pool resources, industrial resources, R&D capabilities and the rest for specifically for national defense reasons. I think the unfortunate side of the NTIB is that it’s just simply not used enough, there are big exceptions and buy American rules and the rest that kind of gum it up. And I don’t think it’s big enough. We should have, I think, more countries, we have a lot more allies than just the ones I’ve named, and they should be in the NTIB as well.

0:12:09.1 Scott Lincicome: And the bright side is the National Defense Authorization Act just this year calls for the NTIB to be expanded, so there is a little glimmer of hope. I mentioned this rising security nationalism; well, buried in the NDAA is a little hope that we’re not… That our policymakers are not all preaching autarky as the new default.

0:12:31.0 Trevor Burrus: I’d like to take a step back, because thinking about national security justifications for limiting trade or taxing trade or tariffs, it’s hard to even define what that would mean, it could… That little kind of get out clause could consume the entire… Right, what does that mean? Think of everything we produced in World War II, from clothing to… Obviously, we have tanks, but why isn’t clothing national security, like all these things? But if we take a step back and we say, okay, let’s look at this differently, and… So the thing that is often mentioned in trade and brought up in the sort of competitive environment is trade deficits. So if we have a deficit to China, then China is kicking our butts, right? What is that thinking? What’s wrong with that general thinking, if we can pick apart the national security aspects of it.

0:13:26.4 Scott Lincicome: Yeah, the most… Basically, the trade deficit is not really a sign of industrial health, economic health or really anything else. It’s really just about overall global savings and investment flows, so this is kind of macroeconomic things that have nothing to do with tariff or trade policy. So the trade deficit can basically tell you what companies are saving more than they’re investing in consuming and what countries are doing the opposite. The United States falls in the opposite for a lot of reasons, but it doesn’t, again, tell you much about how healthy your manufacturing sector is or anything like that.

0:14:13.3 Scott Lincicome: The other issue is that it ignores… And I think this is a real big problem of security nationalism, it ignores global supply chains. And what I mean by that is that you can have a robust manufacturing base, and you can have a bunch of thriving manufacturers in these very high-skilled defense industries, aerospace, for example, and still import a lot of stuff because of the supply chains, you’re going to have production specialization all over the world, and that’s… None of that is going to really show up in a trade balance. In fact, it could show that you’re “losing” in trade in your trade balance, you’re running a trade deficit, even though you have a really strong manufacturing sector, because it’s just simply incorporated into the supply chain and we are importing certain parts for certain products and then using them domestically instead of, again, exporting those things.

0:15:18.7 Scott Lincicome: And then finally, bilateral trade balances really tell you almost nothing, and that’s… First, because they don’t consider at all that value-added production, this is just gross trade, just gross values. And what I mean, for example, I think a good example is the iPhone, so the iPhone comes from China, or at least it used to come from China, and that would register as a deficit with China of 200, let’s say $200. And you’d think, oh, wow, we’re losing to China $200. Well, the problem with that is that the iPhone actually contains parts from all over the world, it contains a ton of value added from the United States, and not just research and development and all that kind of good stuff, but some manufacturer parts, chips and whatever, and then it’s just sent to China to be assembled.

0:16:14.2 Scott Lincicome: And studies show that Chinese manufacturers were deriving something like 10 bucks of that $200 in actual value-add in China. Not to mention the fact that when the iPhone is finally here, it’s then sold for, let’s say, $400 or whatever, and that… All of that money goes to Apple’s employees and its shareholders and Apple Store and the rest, and all of that, again, kind of boosts the economy. So none of that is considered in a bilateral trade balance. And the other problem is that bilateral trade balances kind of assume that no other countries exist. You can run a massive trade deficit with one country and then run trade surpluses with every other country, and again, it’s really not telling you much about the actual trade situation or the overall trade balance, so it’s really… I think it’s unfortunate that politicians, Trump and others, use that as a metric for really judging anything related to trade policy.

0:17:17.9 Aaron Powell: It seems like whenever we do an episode on either trade issues or innovation issues, the iPhone comes up a lot, for obvious reasons, it’s like the go-to example. But I wonder if…

0:17:28.1 Trevor Burrus: Also, it’s way more than $400, Scott.

0:17:31.1 Scott Lincicome: Yeah, sorry.

0:17:32.5 Trevor Burrus: No, it’s just like, it made me think of like, what is that question where they ask politicians if they know how much milk costs, it’s like, does Scott know how much an iPhone costs?

0:17:42.3 Scott Lincicome: Well, first, I haven’t actually upgraded my phone in a few years. I’m an Android guy, and it’s all distorted by those cell phone plans and the rest, so I have no idea.

0:17:54.4 Aaron Powell: But I guess I’m wondering if the iPhone in particular potentially bolsters the case for security nationalism or… In the sense that we are wildly dependent on these technological devices, and as you said, they’re like, they’re constant aggregators of activity, so all kinds of things that used to be spread across multiple devices and media have been moved on to these little devices that are being largely manufactured in places like China or perhaps Vietnam or India, where their interests might not align with ours or might run directly counter to ours, like the government’s interests and… Is there a worry? It’s one thing to say like, we shouldn’t manufacture, our weapons of war should be manufactured at home so they can’t be cut off, because in the acute situation of an armed conflict, we want access to enough of this stuff.

0:18:52.6 Aaron Powell: But is there a worry that these global supply chains are basically integrating technology from places like China so deeply into our lives, our security systems and so on, and that these things might be… There’s a danger there, like all of our iPhone chips might contain rogue Chinese AIs that at the flip of a switch are going to take over or something like that, or the questions about 5G towers being manufactured, that we can’t necessarily see the problem until just like, it’s way too late.

0:19:25.8 Scott Lincicome: Yeah, I think there is a theoretical concern about that type of action, and I think that China is a really unique situation given, of course, the government’s behavior and its influence and interaction with industry there. The question I think we have to ask is, well, first, can we do, can government do much effectively about it. And I think that if you look at my paper, the section on the security nationalism in practice, what you see is that government, over the last 30-plus years has actually been pretty bad when it comes to implementing security nationalist policies. Either they are over-broad in the case of, for example, steel tariffs, or they’re ineffective in the case of the Jones Act, or they’re subject to all sorts of lobbying and cronyism and the rest, in the case on all of them, or even in the security space, for example, in semi-conductors, we ended up picking the wrong products, we ended up picking the wrong chips to protect, and the consortium we produced or we created, that is public-private partnership called Sematech, really just ended up not doing much in terms of advancing the ball and improving domestic semiconductor capabilities and R&D collaboration and the rest.

0:21:09.3 Scott Lincicome: And so I think the first problem with that is, can government policy, particularly a policy that fosters autarky or reshoring, whatever you want to call it, actually improve on the outcome, and I think there’s a lot of question there. The other problem is that, what will be the economic impact? Let’s just assume maybe they can be successful, and I think the iPhone is a good example, because, look, if we had had a policy of making all of our smartphones domestically, there’s a chance we might not even ever have smartphones, because the price point, particularly in the early years, of the iPhone would have been so high that you might not have had consumers adopting the technology and it would have just simply gone by the wayside.

0:22:01.0 Scott Lincicome: And so not only can that discourage innovation, but it can again discourage adoption and use of these kind of great technologies, and of course, it just imposes substantial costs on the US economy, on American manufacturers when you talk about industrial inputs, and all of that decreases our productive capacity and decreases our ability to withstand shocks, have industrial capacity in times of war, all of those types of things. So certainly, I think there’s a role in the security space for whether it’s policing industrial espionage or dealing with these types of, like you said, malware or whatever that’s in these products, but I think we really need to separate that kind of what you’d call a scalpel approach to trade and tech policy and the rest to security nationalism, which is, it’s not a scalpel approach at all, it is really this kind of default position that we need everything reshored unless there’s a reason or a good justification for it not being made domestically.

0:23:16.9 Trevor Burrus: Back on the point when I mentioned that just thinking here, the way that Trump and Bernie… I mean, free trade is not very popular generally, but the way they talk about it with China and it could be other countries, that security nationalism is not just individual things that could be used for war purposes, but even the wealth of China, so the idea that we made China into a dangerous country by just sleeping while they built up their sector and didn’t care about everything they did. So we grant that they have some underhanded tactics, especially when it comes to industrial espionage, but on this general principle that I’ve… Bernie and Trump would totally agree on, that why wouldn’t we want to pay $200 more for an iPhone so Americans in Ohio can have a job while not bolstering China into a super-power that one day could be someone who really wants to go toe-to-toe with us on maybe something like the South China Sea or Taiwan, that we just have to let that happen while depriving Americans of jobs, that’s a national security concern, right?

0:24:30.1 Scott Lincicome: Yeah, so there’s a host of problems with that, as I’m sure you can imagine. Now, we’re going back, actually, to my previous paper on China’s growth and on US engagement with China. But first thing is, I think it’s really important to note that China was going to rise with or without the United States. Certainly US trade with China helped, I think it provided financial benefits for certain companies and the rest. But the reality is, if you look at the trajectory of China’s economy, and if you look at why China actually became an economic power, it has much less to do with the United States than Trump or Bernie or others claim in the arguments you just made.

0:25:18.7 Scott Lincicome: And that’s kind of typical American egotism, we think that we did… We are responsible for both the good and the bad in the world, but if you look at the various analyses, you see that look, the vast majority of China’s growth and China’s wealth came from its own domestic internal reforms, came from, of course, privatization and property rights and the rest, but also a lot of trade liberalization, China undertook a lot of trade liberalization, and so those reforms, much less the United States opening up its market more through, for example, permanent normal trade relations, are what drove China’s impressive growth over the years.

0:26:06.7 Scott Lincicome: So that’s the first problem. The second is the counterfactual, well, what would China be if it had not integrated into the global economy? Would we be safer with a, say, rogue isolated nation, more like North Korea, but with over a billion people? And that, I think, raises all sorts of significant security issues, and I think, as I argued in that paper, it really, when you start to think about isolating a rogue nuclear power with over a billion people and the potential security implications of doing that, you see, I think quite quickly that the decision to admit China into the World Trade Organization, to bring China into the fold, so to speak, into the liberal trading order, was pretty pragmatic, and regardless of whether China ever became a liberal democracy or the rest, it really was the best available option given the realistic alternatives.

0:27:10.1 Scott Lincicome: And it’s important to note that back then, China was actually liberalizing. This was not Xi Jinping’s China, it was [0:27:18.8] ____ China. It was a very different place, at least on the outside. But let me just go, one other thing before you keep going. The other issue, though, is those manufacturing jobs in Ohio, right. The mis-assumption there is that there would… That first of all, those would be really good jobs. The fact is that the jobs for the most part that we offshored in the 1990s and 2000s were low wage, low-skill jobs. Assembling an iPhone still is not a really good high-paying job. It is not something that’s going to be a great living in 2021.

0:28:03.5 Scott Lincicome: But the other thing is that you, by raising the price of these goods, you reduce demand for the goods. So you would have a smaller Apple, you would have a smaller industry overall, and again, none of that is good for innovation, for… Even in the national security sense, do we want Apple to have become, say, a German company or something like that? Isn’t it better, I would think it is, to have Apple still be at least headquartered in America.

0:28:37.4 Aaron Powell: The case for the positive benefits of free trade is, we’ll call it pretty strong, and the effects of free trade are fairly clear. The wealth that it has brought to not just this country, but to the world in general over the last 100, 200 years is extraordinary. So given all of that, why are so many people opposed to free trade? We talked about Trump and then… But it’s bipartisan. The Bernie Sanders progressive wing doesn’t like it, lots of Americans are at best ambivalent about it, like why is this such a hard case to make?

0:29:19.2 Scott Lincicome: Right, and it’s a classic public choice issue, that you have… Trade provides these… Or protectionism, I should say, provides these very concentrated benefits and very diffuse costs, and then by contrast, free trade’s the opposite. So when you liberalize trade, you are going to… There will be some very concentrated harms, so lost jobs due to new import competition, closed factories and the rest, these things we see, they’re very concentrated and clear. By contrast, the benefits are, they tend to be smaller and more diffuse, and they tend to be described in I think really bad terms, in terms of cheap t-shirts, cheap consumer goods. Look, I just did it here. I talked about iPhones, right? The reality is that the benefits of trade go way beyond just cheap consumer goods, whether it’s providing alternative sources for, again, withstanding global pandemics, whether it’s creating a knowledge base that is beyond our borders, you look at the vaccines, for example, COVID vaccines, that is just this incredible global collaboration, whether it’s the Moderna vaccine or the Pfizer vaccine, which of course, Pfizer partnered with a German company, the German company was founded by a Turkish immigrant. You could do this all day.

0:30:56.8 Scott Lincicome: And that type of global collaboration knowledge is just… The benefits are immeasurable, but you don’t see them, right? Unless you’re reading my newsletter or whatever, you’re not going to… We don’t think about these on a daily basis. And politicians, unfortunately, are going to focus on the concentrated harms, because the folks that are potentially subject to those harms are the ones that are going to be lobbying to prevent them, they stand the most to lose, and thus it makes perfect sense to expend the effort to block any sort of liberalization. So that’s just a classic, again, classic kind of public choice issue, politicians are self-interested, they want to get reelected, they want campaign donations, so of course they’re going to pay more attention to the people who are actually paying attention, and also they’re going to pay more attention to the people who will vote on this issue.

0:31:58.1 Scott Lincicome: The fact is that trade in the United States is actually quite popular, but like you said, most people are ambivalent and they tend to just kinda go with the flow, depending on what the economy is doing, what political leaders say, but sure, there’s a really strong and opinionated minority that really does care and really will vote on this issue, so politicians are going to cater to that. And then I think the last issue is that, and I think this is a big mistake from the free trade side, is that free trade has become synonymous with trade agreements, and that, like NAFTA or the Transpacific Partnership and the rest, and that puts, first of all, a big political target for demagoguery.

0:32:42.5 Scott Lincicome: Trump, Obama did the same thing, they can campaign against NAFTA or campaign as Trump did against TPP, and it’s a target and they can blame that thing, which of course was implemented by other politicians, as the cause of all of your problems, right? The other thing, though, is that these trade agreements, like any sort of legislation, because they have to get through Congress, end up getting larded up with special interest favors, whether it’s intellectual property rules or investor state dispute settlement, or specific tariff carve-outs for the sugar industry or whatever, that again, becomes less about really free trade, which is about simply letting people buy and sell from or to whomever, it becomes much more about this thing has these bad things and did this bad thing to you, thus you should oppose this thing, it’s the embodiment of free trade, and so it leads to, I think, a lot of our current problem.

0:33:51.9 Trevor Burrus: Since we’re just talking about free trade here, it’s worth asking a question that I think that people often think of, is it okay to trade with countries that exploit their workers, do not protect their workers, hurt the environment, basically they have a comparative advantage by being less ethical could be the argument, which is a weird way to have a comparative advantage or maybe a desirable way to have a comparative advantage. So is that something that we should be concerned with?

0:34:19.0 Scott Lincicome: Yeah. So there’s a… I think a real problem with that is, again, thinking about the alternative, right. So Planet Money did this awesome video a few years ago about how to make a t-shirt, and it was this… I actually taught it in my trade class at Duke, because it shows, I think, quite clearly what the alternative to, say, low-wage jobs in Bangladesh, making t-shirts. The alternative was subsistence farming or sex work for young women in particular in this video case. And so when we say we don’t like the working conditions, we don’t like the environmental conditions, the truth is that the alternative, say cutting to what is now there, is likely going to be far worse.

0:35:13.5 Scott Lincicome: And that includes on the environmental side, burning biomass, they call it, for example, is far dirtier than burning fossil fuels, and again, that’s kind of the poorest countries in the world tend to be the dirtiest, so trade can help those countries develop, and as countries develop, they tend to have better labor rules, they tend to have, and better just wages and working conditions, and they tend to have better environmental policies. So it’s not… The problem, of course, is that that’s not a politician thing, you can’t say, look, it’s going to take 20 years, but eventually these countries are going to come along, look at the charts that we have. It just doesn’t work like that.

0:36:07.7 Scott Lincicome: Whereas again, you can point to, say, a factory collapse in Bangladesh and say aha, our consumption, our greed did this, right? Now, but you actually talk to people who work in global poverty and they say the absolute worst thing we could do for these folks is to cut off trade with them.

0:36:28.1 Aaron Powell: All three of us are lawyers and not economists, but one of the things that my economist friends tell me is that people respond to incentives, and I wonder if… I mean, the United States, say, is this huge potential trading partner for any other nation, that we can pump a ton of money in. And so you’re saying that the alternative is worse, that these countries would… The jobs that would be available if we weren’t trading with them are subsistence farming or other things that aren’t great, and that liberalizing trade improves their institutions, but isn’t there another direction that that cause could run in terms of the incentives that if we as the United States were to say to other nations, look, we will not trade with you unless you behave ethically, unless you respect rights like human rights and property and the environment and all that, and when you get your act together, then we will trade with you, that would seem to provide a strong incentive to a lot of government to shape up.

0:37:25.7 Scott Lincicome: Yeah, but it’s essentially pulling up the ladder. The United States went through the same type of economic development in terms of labor rights and the environmental rules that a lot of these developing countries are going through right now, and so it’s really, I think, inappropriate, to say the least, for the United States to say, you need to have US labor and environmental standards. Oh, and don’t mind the fact that we didn’t have those 100 years ago when we were developing. The same really, quite frankly, it goes for intellectual property rules. The United States was a massive IPR, intellectual property thief for a long time, especially in the industrial space. Even 30, 40 years ago, we were stealing French fashions and knocking them off in small factories in New York.

0:38:15.8 Scott Lincicome: And so to apply developed country standards to countries that are developing, it really is unfair, it thwarts their ability to develop. The other issue I think that’s critical to note is that these well-intentioned policies often have very bad… How do I put it? Well, they have a lot of unintended consequences, first of all, but second, they can often be captured by less ethical people, and so what you can see, for example, is labor rules in US trade agreements being used by labor unions not to actually improve labor conditions in Mexico but just to block trade and to block competition with these countries.

0:39:08.3 Scott Lincicome: And then the other side, I mentioned unintended consequences. It’s really critical to think about, well, what is going to happen when you try to impose these types of, like you said, ethical constraints. There’s actually… We have a great recent example in conflict minerals, so the United States, about 10 years ago in Dodd-Frank, required multinational corporations to map their supply chains to ensure that they weren’t using conflict minerals in Congo, in the DRC. And what happened? Well, multinationals said, wow, this is really difficult, so we’re just going to leave the DRC. And that actually made things worse in terms of conflict and in terms of poverty in the Congo. So you again have to think beyond kind of oh, we want these well-intentioned policies, you need to think about what’s actually going to happen in the real world.

0:40:03.9 Scott Lincicome: And this really goes back to Americans’ inability to understand we live in, at least in economic terms, a multi-polar world, that is we are not the only player in town, and as the US-China conflict showed, high tariffs and other things will not be very effective in changing behavior overall. You can maybe tweak some things at the margins here and there, but the reality is that you are going to cause a lot of pain for your own companies, your own consumers, and at the end of the day, not make things much better. And in fact, you might actually make things a lot worse, for example, by providing the Chinese government for an excuse for more economic intervention, for more state control, and not to mention, of course, retaliation against US exports and farmers and the rest.

0:41:00.7 Trevor Burrus: So if an individual American consumer goes to, say, Walmart and looks at some products, at shirts, t-shirts, or something that they could buy, and one of them says Made in America, and they say, buy American, that’s important. And so kind of like going down to the local food cart, or a person selling produce on the side of the road, that’s a person in your neighborhood who’s selling something, why ship it from wherever? So that person says, okay, look, $2 more for buy American. That’s within my preferences. I’m willing to do that. Is there anything wrong with that, with someone making this decision to pay more for buying American or should people be like, you know, maybe someone says for national security concerns, even, I’m going to buy American. Or should people be being like, no, I should be buying from Bangladesh?

0:41:58.5 Scott Lincicome: Yeah, well, look, I think people should buy from wherever. If you have a strong preference for a made in America label and you’re willing to pay extra for it, look, that’s… Go for it. And contrary to popular belief, there still are options out there for that, because there is a market for patriotic consumption. Whether that is actually good for the US economy is a totally different question, and I think that what people don’t think about when they spend, say, 10 extra bucks for a t-shirt, is that they’re denying other businesses access to that same 10 bucks, and that can boost the economy and typically will boost the economy more. Why? Because you’re funneling your money towards more productive enterprises, things that are going to be paying higher wages and have more viability in the market.

0:42:58.6 Scott Lincicome: So when you start to think about that, when you start to think about, well, so I’m buying a t-shirt from Bangladesh, that benefits me, ’cause I get a t-shirt, it benefits Bangladesh, that’s great, or some workers in Bangladesh, but then the money that I saved then I can then spend elsewhere or I can actually save it, I can do all these other things. And when you start thinking about where that savings can go, it really breaks down the economic argument for doing it. Look, if you want to do it for just general feel-good reasons or whatever, totally fine. Some local produce is actually tastier. Totally fine, and we all have value judgments that are perfectly acceptable in a free market economy, but the difference is that the government shouldn’t be making that decision for us, particularly on economic grounds or national security grounds. That’s where I think things really break down.

0:44:00.6 Scott Lincicome: It’s not better economically to force people to buy local, it’s actually worse. And again, if you’re thinking about national security in the broader context, in terms of having a strong, vibrant, innovative economy, really the worst thing, one of the worst things the government can do is essentially create a Jones Act, which is a shipping law, probably one of the worst laws on the books in terms of economic policy, having a Jones Act for all other goods. And so the Jones Act, just for those listening, requires all US ships traveling between US ports to be made in America and to be crewed by Americans and owned by Americans, so it’s a very nationalistic law.

0:44:49.7 Scott Lincicome: Well, what has the Jones Act done to the US shipping industry? Well, it’s been around for more than 100 years, and we’ve seen a steady decline in the number of ships available to the Merchant Marine, we’ve seen a steady decline in the competitiveness of the industry. The US shipbuilding industry about 50-plus years ago had a 20% price premium versus foreign competition. Now, US ships are four to five times as expensive as foreign-made ships, and again, the result is having a decrepit domestic shipping industry and a decrepit Merchant Marine. So if we did this for all of our… Imagine doing this for all of our essential goods and then services and the rest, and you can see how what might sound good on paper, what might make us feel good is actually quite bad for the economy and for the very security objectives you’re trying to achieve through through these laws.

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0:45:49.5 Aaron Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at www.libertarianism.org.

Does Trade Harm National Security?

Free Thoughts

Trevor Burrus

Aaron Ross Powell

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