In a recent Defining Ideas article, “Why Trade Should Be Free,” I argued for free trade. Although my way of saying it is a bit original, the argument for free trade has been made by many economists, including Adam Smith. Free trade causes people in free trading countries to produce goods and services for which they are the lowest cost producers and import goods and services for which people in other countries are the lowest cost producers. . Free trade cases are no more complex than cases for hiring someone to mow your lawn. The conclusion that it is good for a country’s government to adopt free trade does not depend on whether other countries adopt free trade. Even if other governments impose tariffs, our country will be better off on average if our government refrains from trade restrictions (although there may be some losers).
Are there any exceptions in the case of free trade? There is one main one. Adam Smith himself explained this exception in The Wealth of Nations, restricting trade when the traded item is important to national security. However, even in such cases the basis for restricting trade is not foolproof and, in fact, other ways of guaranteeing the supply of such items may be better than restricting trade. . One such method is to stockpile critical items, which could involve more trade rather than less trade. Unfortunately, no matter what steps we take to ensure the availability of critical information to defence, we still have access to information and capabilities, characteristics that governments generally lack. We rely on government employees.
These are the first two paragraphs of my latest Hoover article, “Does National Security Justify Trade Restrictions?” Defining Ideas, December 5, 2024.
One interesting study I discovered while researching this article was a study of rubber during World War II by Alexander J. Field, an economic historian at Santa Clara University.
I wrote:
Because of the climate, the United States was not a major producer of rubber. This was important during World War II. Alexander J. Field, an economic historian at Santa Clara University, spoke about the United States’ dependence on rubber imports during the war in a December 2023 paper titled “U.S. Rubber Famine During World War II.” After the Japanese government invaded Singapore, it took control of “nearly all of the natural rubber sources in Southeast Asia,” Field writes. Field notes that this “deprived the United States of 97 percent of its supply of certain strategic materials for which there was virtually no domestic procurement” (italics added).
The good news is that various U.S. officials saw this coming before the U.S. government officially entered the war. Field points to three strategies for dealing with import losses. (1) Stockpile rubber domestically before the United States enters the war. (2) Subsidies for “domestic production of alternative plant-based latex sources.” (3) Develop the functions of synthetic rubber.
The bad news, Field said, was that Jesse Jones, the senior U.S. official who controlled U.S. policy, delayed pursuing the first and third strategies.
Please read the whole thing.
