Josh Hawley is a man of system.
In a guest essay in the October 29 New York Times titled “The Only Way to Solve Our Supply Chain Crisis Is to Rethink Trade,” US Senator Josh Hawley (R-Missouri) challenges what he sees as a dangerous reliance on imports from other countries. He claims that Washington politicians from both parties have “helped build a global economic system that prioritized the free flow of capital over the wages of American workers, and the free flow of goods over the resiliency of our nation’s supply chains.” He proposes that the Departments of Commerce and Defense be given the power to determine which goods and inputs are “critical for our national security and essential for the protection of our industrial base.” Once these goods and inputs are designated, Hawley would have the US government require that at least 50 percent of the value of the goods be made in the United States. He would have this requirement enforced by allowing domestic producers to petition the US International Trade Commission to take enforcement actions against violators.
Hawley claims that local-content requirements “will bring jobs back to America, help to revitalize the nation’s depleted manufacturing sector, and foster the domestic production so essential to our economic independence.”
Some of what he claims is true. His proposal, if implemented, would bring some jobs to America—and would cause America to lose other jobs. It would revitalize parts of our manufacturing sector—and would hurt other parts of manufacturing. It would foster domestic production of some goods but, ironically, this could actually make us less independent.
These are the opening paragraphs of David R. Henderson, “Hawley’s Folly,” Defining Ideas, November 4, 2021.
Note the quote from Adam Smith, The Theory of Moral Sentiments.
Read the whole thing.
READER COMMENTS
David Seltzer
Nov 5 2021 at 3:18pm
Hayek’s collectivist at work. The ignorance is stunning. Does he understand comparative advantage? David Ricardo?
MarkW
Nov 7 2021 at 7:33am
The ignorance is stunning. Does he understand comparative advantage?
Oh, he might, or he might not, but it wouldn’t matter. He’s mainly interested in the politics of the issue, not the economics. As long as a policy position A) helps get him re-elected, and B) isn’t too economically harmful in a way that would be obvious to his constituents, then it’s a good one.
Milton Friedman’s point about getting the ‘wrong people to do the right things’ applies here. Hawley would be perfectly willing to support free trade, if that would result in a net gain of votes in the next election. But he’s probably correct in thinking that right now it wouldn’t. Getting Missourians to support free trade is the problem — solve that and Hawley will happily go along (or be replaced by somebody else who will).
We’re in a bad place right now with Democrats favoring protectionism because of unions and Republicans now having joined them because of ‘American First!’ nationalism. It’s depressing.
Art Carden
Nov 5 2021 at 4:17pm
Sounds like Joe Biden calling for a “National Supply Commander.”
TMC
Nov 5 2021 at 4:37pm
I’d agree that items “critical for our national security and essential for the protection of our industrial base” should be protected, but having a % on them defeats the purpose. We’ve been running into issues with items that we source 100% from overseas. Mission critical items should have some local redundancy.
Frank
Nov 5 2021 at 9:59pm
Does this clown from Missouri know anything about Missouri? Stopping all those imports will also stop lots of exports originating in Missouri, lots of industrial goods.
The fault is fundamentally in the man’s arithmetic.
Mark Brady
Nov 5 2021 at 10:59pm
You quote Adam Smith. I dare say that Joshua Hawley would be sympathetic to another argument articulated by Adam Smith in The Wealth of Nations: “As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.” (Book IV, chap. ii. pp. 29-30.)
Jon Murphy
Nov 6 2021 at 7:44am
I’ve written a lot on that particular quote. In Fall 2020, I had a short paper published in Economic Affairs where I argue that Smith’s praise of the Navigation Acts is tongue-in-cheek (Here is an ungated version of the paper. See, in particular, Section 3). Smith walks back his praise of the Navigation Acts in Book V of the Wealth of Nations, and indeed argues they actually weakened Britain.
Michael Stack
Nov 6 2021 at 12:01am
I think Josh is smart enough to know that this is a terrible idea. I wonder – is it a political strategy of taking an extremely dumb position that polls well, knowing he can defend an idea like this without having to worry about the consequences of an actual implementation? Or, is he so awful that he’d be willing to put something like this into law?
Jon Murphy
Nov 6 2021 at 8:16am
Great article. Another argument one could make is the complexity of supply chains a la “I, Pencil.”
Let’s assume, for the sake of argument, that Hawley has his way and, subsequently, the pencil is designated as “critical for our national security and essential for the protection of our industrial base” (after all, how can our military leaders plan or our captains of industry work if they have no writing implements?). Thus, 50% of pencils must be manufactured in the US.
Ok, but what about the components that go into the pencil? Must 50% of the graphite be mined and refined in the US? Graphite is a critical element of a pencil. And what of the paint? And the rubber for the eraser? What about the components of those elements of the pencil? Must they all be produced domestically as well?
“But Jon, you sly and handsome devil” you might be rightfully thinking. “Those components are relatively small. It is more important to have the good manufactured here. Those small elements can all be sourced elsewhere.” Perhaps, but as recent work by Daron Acemoglou and others (including myself) have shown, small microeconomic disruptions can have disproportionately large aggregate effects as the shock cascades through the network. Thus, to protect our critical pencil industries, Hawley’s plan would have to protect all the components of the pencil, plus all the components of the components, and the components of the components of the components, etc.
In short, there is no logical stopping point for Hawley’s tariffs. It ultimately comes down to autarky.
David Seltzer
Nov 6 2021 at 6:58pm
Murph, you sly and handsome devil, Hawley ignores one’s individual rights. The most basic of our rights is freedom from coercion, or the arbitrariness of people in power. Individuals should be free from the directives of political functionaries. How does Hawley or anyone, for that matter, know or understand the vastly different preferences of vastly different free individuals competing for resources out of self-interest? Hawley’s policies, as I infer from your post, deprives free market competition of its enormous power to effectively coordinate the efforts, preferences and voluntary exchange(s) among and between free people. In the end, Hawley’s intellectual mastery rejects the moral argument for free people in free markets. To wit. Competition is a process where one can pursue their self interest(s) in the form of productive work.
Monte
Nov 7 2021 at 1:53am
Let’s pump the brakes a bit on comparative advantage, shall we? It’s not as if it’s built upon a foundation of unassailable logic. The Ricardian theory of comparative advantage suffers from several shortcomings, as most on this blog should be aware. Prof Henderson basically nails it. Hawley may be a “man of system…wise in his own conceit”, but nevertheless wise enough to get some things right. To disparage the man as an ignorant clown is a tad beyond the pale.
Jon Murphy
Nov 7 2021 at 7:39am
It’s not clear to me what you mean. Comparative advantage is a mathematical relationship based off opportunity cost. So long as two economic agents (whether they be individuals, firms, countries, whatever) have proportionally different opportunity costs, then mathematically one will have comparative advantage in one good and the other will have comparative advantage in the other. If X/Y > Y/X, then Y/X < X/Y. If you can find a single instance where that relationship fails to hold, I’d love to see it.
Dr Henderson is doing no such thing. In fact, he treats Hawley with dead seriousness. Handerson is pointing out the flaws in Hawley’s reasoning. That doesn’t mean Henderson thinks Hawley is an “ignorant clown.”
Monte
Nov 7 2021 at 11:13am
It should have been clear what I meant in the follow-up sentence about Ricardian theory suffering from several shortcomings. Mathematical relationships in economics work well on paper, but not always in real world application. There are a number of over-simplifying assumptions regarding Ricardian theory on comparative adavantage here that warrant criticism:
It neglects all non-labour costs involved in production
Heterogeneous labour due to different grades/kinds
Different tastes with respect to economic growth and income brackets
Utilization of proportion of labour dependent on types of commodities being produced
The existence of underemployment
Transaction costs
In your eagerness to defend Dr. Henderson’s honor, I think you failed to notice that I wasn’t accusing him of disparaging Senator Hawley, but rather addressing, in general, some of the other commenters. If you care to revisit my original post, I actually gave Dr. Henderson credit for “basically nailing it.”
I also find it curious that the title was changed from Hawley’s Folly to Trade Follies. Not that there was anything wrong with the original title, just an observation.
Jon Murphy
Nov 7 2021 at 11:43am
Well, except they do always hold in the real world. Mathematics holds both on paper and in real life. 2+2=4 both on paper and if I have 2 apples and get 2 more, then I now have 4 apples. Again, give me a single example of mathematics not holding in the real world.
Actually, all of those are explicitly taken into account in comparative advantage models. The simplified model one learns in Econ 101 is just that: simplified. More complex models take into account all the costs and the relationship still holds.
Monte
Nov 7 2021 at 12:24pm
Oh, come on, Jon. Now you’re moving from mathematical models in Econ to pure math. You know quite well there are many instances in economics where models break down and fail to reflect reality. I don’t have time at the moment to provide concrete examples, but I’ll be glad to follow-up when time permits. Even a cursory investigation into their shortcomings can easily be googled. Econometrics might be a good place to start.
Yes, the relationship in CA still holds, but it doesn’t work in every situation to the exclusion of all else.
Jon Murphy
Nov 7 2021 at 12:57pm
Oh sure. Absolutely. But that’s not what you said. You said:
You didn’t say anything about the model as a description of reality. You made two claims about mathematics. Those where what I was addressing.
If you want to claim that the comparative advantage model doesn’t accurately reflect reality, that’s fine. However, that statement is also incorrect. Comparative advantage actually does a very good job explaining trade patterns.
Thomas Lee Hutcheson
Nov 7 2021 at 6:16am
Not to defend Sen Hawley, who is just virtue signaling to fellow xenophobes Left and Right, but isn’t anyone who proposes any policy change a “man of system,” of small system, perhaps but of system non the less? They think the know how the existing system works and how the change would affect along dimensions over which they have preferences?
Jon Murphy
Nov 7 2021 at 10:30am
No. Adam Smith makes the distinction between the “man of system” and the “man of public spirit” (see Theory of Moral Sentiments, Part VI, Section II, Chapter 2). Both are reformers, but have different characters. The man of public spirit “is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided.” Furthermore, even if he disagrees with the various divisions of society and its rules: “he will content himself with moderating, what he often cannot annihilate without great reason.” He seeks not to impose his will or system on everyone else. Rather, see seeks to conquer “the rooted prejudices of the people by reason and persuasion.”
The man of system, however, is the exact opposite. The man of system “is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it complete and all its parts, without any regard either to the great interests, or the strong prejudices which may oppose it…He does not consider…that in the great chess-board og humanity, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.”
Hawley is certainly the man of system. His plan ignores why things have formed along the lines they have. In other words, he ignores the institutional framework, the choices people face, and the reality of the world. He sees a bunch of levers; if he just pulls thi or that lever, the world will reorganize along the lines he so chooses.
Monte
Nov 7 2021 at 6:52pm
Rejoinder to Jon Murphy above.
It’s not as if it’s built upon a foundation of unassailable logic. [A mathematical statement]
The word “logic” isn’t intrinsically mathematical. My use of it here was more syllogistic.
If you want to claim that the comparative advantage model doesn’t accurately reflect reality, that’s fine. However, that statement is also incorrect. Comparative advantage actually does a very good job explaining trade patterns.
According to Krugman (who it pains me to quote):
For all its criticisms, I still believe Ricardo’s Comparative Advantage (RCA) model remains viable for international trade among developed nations. However, the widespread adoption of Tinbergen’s Gravity Model to explain patterns of trade on a global scale has been seen by contemporary economists as a significant improvement on previous theoretical models, including RCA.
I understand that, for better or worse, mathematics has become the language of modern analytical economics. It quantifies relationships, formalizes and clarifies their properties, and allows economists to identify and analyze those properties critical to the behavior of economic systems. At the same time, Mises reminds us:
Jon Murphy
Nov 8 2021 at 8:10am
That’s still mathematical, though. The logical of comparative advantage is mathematical.
It’s also worth pointing out that the Krugman quote doesn’t undermine comparative advantage. In fact, he won the Nobel Prize partly for showing how the outcome quoted aligns with comparative advantage.
Additionally, Tinbergen’s model is a comparative advantage model.
Furthermore, both with regard to Tingerben and Krugman, see my article on comparative advantage here. It is a mistake to apply comparative advantage to countries except insofar as it is understood to be a shorthand for the firms and individuals operating within countries.
Monte
Nov 8 2021 at 11:55am
Dead horse.
Yes.“…rendering the traditional theory of comparative advantage almost obsolete”is definitely an endorsement I’d welcome if I was defending CA.
OK, I get it. Like Samuelson, you, too, are smitten:
“If theories, like girls, could win beauty contests, comparative advantage would certainly rate high in that it is an elegantly logical structure.”
I simply outlined the criticisms commonly referenced when debating the merits of CA in action.
The funny thing is I never objected to David’s argument in the first place. My original comment was actually in response to the perjoratives “ignorant” and “clown” used by other commenters to describe Hawley. Even Henderson gave credit where credit was due to Hawley and his position.
I not an unwavering supporter of Hawley’s, but he’s no slouch.
Jon Murphy
Nov 9 2021 at 6:52am
Yes, I suppose you could say I am smitten with comparative advantage. It does have a certain simplistic beauty to it. And there is truth in beauty.
Look, if you want to continue to critique comparative advantage, that’s fine. Again, I just don’t see the point to it all.
Monte
Nov 9 2021 at 11:12am
‘Nuff said, I believe. Enjoyed the discussion and appreciate your insights.
Jon Murphy
Nov 8 2021 at 9:39am
I guess I just don’t see what your objection is to David’s argument. It doesn’t particularly hinge on comparative advantage. Comparative advantage makes his point stronger, yes, but you don’t need it.
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