Murphy on National Defense as a Justification for Tariffs
Even Adam Smith recognized national security as a possible justification for tariffs on strategically important commodities. But is it a good justification for tariffs on steel and aluminum in the 21st century when the United States has many potential sources of those two items? This month’s Feature Article author, Jon Murphy, a fan of Adam Smith, says no.
The concern about relying on foreign sources of war materials is that they could be unreliable or disrupted. In a world of shifting alliances, geographical concerns, and logistical issues, as in the 18th century Britain of Adam Smith, this fear might be justified. However, in 21st century America, it is less plausible. Most U.S. imports of steel come from solid allies such as Canada (17% of imports, which is 5.9% of total domestic consumption), Brazil (14% of imports, or 4.7% of consumption), South Korea (10% of imports, or 3.4% of consumption) and Mexico (9% of imports, or 3.2% of consumption).8 Russia and China, potentially antagonistic countries, account for only 9% and 2% of U.S. imports respectively (3% and 0.7% of consumption, respectively). Moreover, these are primarily “long steel products,” which are used in construction. Disruptions of steel imports from these nations would not adversely affect U.S. national defense needs. Furthermore, the United States’ main steel trading partners are located primarily along land trade routes; even if the United States were blockaded, the government would still be able to get steel.
This is from Jon Murphy, “Does National Security Justify Tariffs?” Econlib, May 7, 2018.
Read the whole thing.
Jon Murphy is an econ Ph.D. student at George Mason University and, as readers of this blog probably know, a frequent commenter on this site.
May 7 2018 at 2:51pm
I was just watching an interview with Berkshire Hathaway’s vice chair Charlie Munger yesterday evening. He said pretty much the opposite in that it would likely be a bad thing for the US steel industry to disappear.
David R Henderson
May 7 2018 at 4:08pm
He [Charlie Munger] said pretty much the opposite in that it would likely be a bad thing for the US steel industry to disappear.
1. Did he say why?
2. That’s not “pretty much the opposite.” The late Brookings economist (and President Carter’s chairman of the Council of Economic Advisers) Charles Schultze, a strong free trader, put it well back in, I think, the 1980s. He said that the usual issue with restrictions on trade on steel is whether we produce 40% of our steel (free trade) or we produce 60% of our steel (protectionism.)
May 7 2018 at 4:17pm
It’s unlikely the US steel industry is going away anytime soon. Imports account for around 33% of US steel consumption (Us imports, according to Trade.gov, are 34 mmt and US consumption is around 99 mmt). That consequently means US consumption is around 66% of domestic steel.
The US steel industry would have to shrink considerably, and I strongly suspect the only way that’ll happen is if some steel substitute is created that is significantly cheaper, and thus the dissolution of the steel industry will be no better or worse than the dissolution of the carriage industry.
May 9 2018 at 12:16pm
You might want to look at articles written by one of your old UCLA professors, Earl Thompson, on the use of tariffs, taxes, and subsidies to industry on national defense basis. They are available on line for all.
David R Henderson
May 9 2018 at 6:58pm
Imports account for around 33% of US steel consumption (Us imports, according to Trade.gov, are 34 mmt and US consumption is around 99 mmt). That consequently means US consumption is around 66% of domestic steel.
Don’t you mean that that means U.S. consumption is around 150% of domestic steel?
Thanks for the reminder. Do you have in mind his classic JPE article, “Taxation and National Defense,” among others?
May 11 2018 at 8:11am
@David R Henderson
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