In a recent one Defining ideas article, “Why trading should be free”, I advocated free trade. Although my way of putting it is somewhat original, the case for free trade is one that many economists, including Adam Smith, have made. Free trade ensures that people in the free-trading country produce the goods and services for which they are the cheapest producers, and import goods and services for which people in other countries are the cheapest 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 does not depend on whether other countries adopt free trade. Even if the governments of other countries impose tariffs, we are better off on average (there may be some losers) if our government does not restrict trade.
Are there exceptions to the case of free trade? There is one important one. Adam Smith himself explained this exception in The wealth of nations: restricting trade when the traded good is crucial to national security. But even in such cases, the argument for restricting trade is not watertight, and other ways to guarantee the supply of such products may be even better than trade restrictions. One of those ways is to stockpile the crucial goods, and that may well mean more trade, not less. Whatever measures are taken to ensure the availability of crucial defense inputs, we are unfortunately dependent on government officials with information and competence, two characteristics that are generally in short supply in government.
Here are the first two paragraphs of my latest Hoover article: “Does national security justify trade restrictions?” Defining Ideas, December 5, 2024.
One of the exciting studies I came across 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 rubber producer. This was important during World War II. In a December 2023 article titled “The American rubber famine during World War II,” Alexander J. Field, an economic historian at Santa Clara University, tells the story of America’s dependence on rubber imports during the war. After the Japanese government invaded Singapore, it took control, Field writes, 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 only strategic material for which it in fact had no domestic source” (emphasis added).
The good news is that several US officials saw this coming before the US government officially entered the war. Field points out three strategies for dealing with the loss of imports: (1) domestic stockpiling of rubber before the US entered the war; (2) subsidizing “the domestic production of alternative plant-based latex sources”; and (3) developing capabilities for synthetic rubber.
The bad news, according to Field, is that the top U.S. official controlling U.S. policy, Jesse Jones, delayed the pursuit of the first and third strategies.
Read the whole thing.