National Security and the Economy.

            Seen in historical perspective, different concepts of international trade and economic prosperity have served as organizing principles of national policy.  In the Early Modern Period (c. 1450-1750), Western governments pursued “mercantilism.”  They sought to enhance national prosperity through self-reliance.  During the Modern Period (c. 1750-2020), Western governments reversed course to pursue an open world economy based on comparative advantage and the exchange of goods and services.  Now, the Trump Era seems to have ushered in a movement toward semi-mercantilism. 

Are the tariffs slammed on China by the Trump administration, and maintained by the Biden administration, and the subsidies for American-made semi-conductors promised in the recent bipartisan bill a bad idea?  The answer to those questions depends upon context.[1] 

On the one hand, the Covid pandemic sent shock waves through the world economy.  Economic fluctuations disrupted global supply chains.  Some, perhaps much, of what we are seeing is transient and the product of accident, rather than long-term and of enemy action. 

On the other hand, to batter its enemies of the moment, Russia and Iran, the United States has resorted to its favorite moral equivalent of war, economic sanctions.  States like Russia and China have responded in kind by exploiting their own economic advantages for political ends. 

Semi-conductors, the key component of so many modern products, have become a center of attention.  Most countries that produce them—or want to produce them—have long been subsidizing the producers.[2]  The European Union is headed down this path as well.  To ignore reality in favor of ideological purity seems a fool’s game.  One purpose of the China tariffs imposed by the Trump administration,[3] was to force American companies away from Chinese suppliers and toward other sources.[4] 

The path is not without real dangers.  First, there is the danger that every other industry is going to show up in Washington to argue that it, too, is an “essential” industry.  “If we’re going to protect micro-chips, then why not potato chips as well?”  Second, and much more seriously, there is the danger that many countries will sponsor national chip industries, leading to a huge glut of chips, sooner rather than later.  This prospect leads observers to foresee some kind of international cartel involving the United States, the EU, and other willing participants.[5]  Third, the recent bill on micro-chips deals with one essential component of a larger and highly-complex set of industrial products.  American discussion and financial support have focused on high-end products like artificial intelligence and robotics.  There is a much larger low-end range of products touching things like magnetic resonance imaging and automobiles.  The recent bill does nothing about Chinese dominance in these areas. 

            So, are we at a tipping point? 


[1] Greg Ip, “China Changes the Calculus on Free Trade,” WSJ, 28 July 2022. 

[2] Regardless of the substantial profits earned by such producers.  It’s like subsidizing steel-makers during the era of the World Wars.  If you didn’t want to end up having to learn German, then…  You can’t help thinking that Bernie Sanders objects to corporate subsidies because he objects to corporations.   

[3] Whether President Trump himself understood this is still an open question. 

[4] As a result, since 2017, US imports from Mexico have risen 52 percent, imports from South Korea have risen 67 percent, imports from Taiwan have risen 124 percent, and imports from Vietnam have risen 195 percent. 

[5] With Taiwan joining from considerations of military security more than economic interest. 

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