Leibowitz on Trade: Looking Ahead to the Post-Pandemic World

I think Ambassador Robert Lighthizer, the U.S. Trade Representative, and Peter Navarro, Senior Advisor to the President on international trade, have made some good points, but their analysis, in my view, is incomplete. Amb. Lighthizer recommends that, post-pandemic, the United States needs “a policy — be it subsidies or tariffs or whatever it takes — we have to have an industrial policy so we never find ourselves in this position again where we’re not [dependent] on … material that’s really, really important to the country.” Comments to the New York Economic Club, June 4.

Mr. Navarro wrote in the Wall Street Journal, also on June 4: “To be both prosperous and secure, America must bring its manufacturing and supply chains home, particularly from countries that mean to do us harm. That’s how we become too prosperous [for other countries] to hate.”

As far as these statements go, they are insufficient because they do not consider that global security depends as much or more on international interdependence as much as it does economic self-sufficiency. While our security may someday depend in part on being able to produce what we really need for our own survival if access to traded goods were cut off, that does not begin to tell the full story.

We cannot possibly succeed in making everything at home that the American military, much less American health care and American industry needs. For example, certain raw materials are simply not available here. Other materials, such as iron ore and uranium, are not available in sufficient quantities. Our industrial sector does not produce enough steel (yes, even steel) or automobiles, shoes, clothing and consumer goods to meet domestic demand. The cost to protect American industry to the extent needed to discourage imports would be prohibitive and would dry up exports too. Full self-sufficiency is not practical, even for the United States.

For 70-plus years, we have worked with our NATO allies to provide them with materials that they need and to rely on them for products that our troops need. We have applied “Buy American” rules to foreign-sourced materials from certain countries in recognition of the practical necessity to trade with other countries.

Another example is the steel sector. The steel wire that is used to make steel belted radial tires must be imported, because the scrap-based raw material used to make wire rod in the United States has impurities that cause the wire to break in production. For the foreseeable future, imports of steel wire rod for U.S. radial tire makers will be necessary. If the steel wire were not available, then tire making would have to go offshore. Would we impose tariffs on tires to the degree necessary to discourage tire imports? Would politicians support that idea?

During the pandemic, we have seen acute shortages of ventilators, masks and other personal protective equipment (PPE). These shortages were more than inconvenient—they were life-threatening to patients and to health workers in our hospitals and nursing homes. That shortage needed to be addressed on an emergency basis—and it was, thanks to the public-spirited cooperation and energy of American businesses and the American people. We now have enough PPE.

Would it be practical to establish and maintain industries to make these products after the pandemic is over? I would argue not—if materials are needed for a foreseeable emergency (and a pandemic can no longer be ignored as “unforeseeable”), governments and hospitals should build a stockpile of these materials in case of emergency. A stockpile would, I believe, be much more efficient than establishing and maintaining (through subsidies or tariffs) an industry to provide these materials. The domestic personal protective equipment and ventilators would likely cost much more than imports and be a constant drain on the resources of governments and hospitals, forcing them to cut costs in other programs.

In the modern world, interdependence has been a major factor in reducing global (and U.S.) poverty as well as the risk of war (of course, humanity’s possession of the power to destroy the planet with nuclear weapons has helped too). While manufacturing as a percentage of our GDP and our labor force has declined since 1945, Americans (and humanity as a whole) now spend a much smaller percentage of our income on basic necessities (food, clothing, shelter) than before World War II. Extreme poverty in the world was reduced by more than two-thirds between 1990 and 2015, according to the United Nations. If the United States truly adopted self-sufficiency as a goal, the costs of basic necessities would surely rise, and not by a trivial amount.

To be sure, the United States among all the world’s nations has a better chance of achieving something close to national self-sufficiency than most other countries. This means that other countries, if they shared the view that self-sufficiency was all that mattered, would need to resort to more drastic measures than the United States (such as war and conquest) in order to achieve it. If anyone wants to catch a glimpse of such a world and how it would play out, I invite you to visit the world from 1931-1945. But don’t linger there; come straight home!

This is the part that Messrs. Lighthizer and Navarro did not mention, and it’s too important to ignore.

They could argue that the United States should be more self-sufficient than it is now. I would not disagree with that notion, but I would debate how much self-sufficiency we can afford, both financially and for the peace and stability of the world. A balanced approach is the only workable one.

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