Skip to main content
Menu

Main navigation

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
    LOADING...
  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit
    LOADING...
  • Publications
    • Studies
    • Commentary
    • Books
    • Reviews and Journals
    • Public Filings
    LOADING...
  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving

Issues

  • Constitution and Law
    • Constitutional Law
    • Criminal Justice
    • Free Speech and Civil Liberties
  • Economics
    • Banking and Finance
    • Monetary Policy
    • Regulation
    • Tax and Budget Policy
  • Politics and Society
    • Education
    • Government and Politics
    • Health Care
    • Poverty and Social Welfare
    • Technology and Privacy
  • International
    • Defense and Foreign Policy
    • Global Freedom
    • Immigration
    • Trade Policy
Live Now

Cato at Liberty


  • Blog Home
  • RSS

Email Signup

Sign up to have blog posts delivered straight to your inbox!

Topics
  • Banking and Finance
  • Constitutional Law
  • Criminal Justice
  • Defense and Foreign Policy
  • Education
  • Free Speech and Civil Liberties
  • Global Freedom
  • Government and Politics
  • Health Care
  • Immigration
  • Monetary Policy
  • Poverty and Social Welfare
  • Regulation
  • Tax and Budget Policy
  • Technology and Privacy
  • Trade Policy
Archives
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009
  • January 2009
  • December 2008
  • November 2008
  • October 2008
  • September 2008
  • August 2008
  • July 2008
  • June 2008
  • May 2008
  • April 2008
  • March 2008
  • February 2008
  • January 2008
  • December 2007
  • November 2007
  • October 2007
  • September 2007
  • August 2007
  • July 2007
  • June 2007
  • May 2007
  • April 2007
  • March 2007
  • February 2007
  • January 2007
  • December 2006
  • November 2006
  • October 2006
  • September 2006
  • August 2006
  • July 2006
  • June 2006
  • May 2006
  • April 2006
  • Show More
March 25, 2020 10:47AM

The Coronavirus Is Not a Good Argument for Protectionism

By Simon Lester

SHARE

Protectionists have been emboldened by the Trump administration’s approach to trade policy, and some are now using COVID-19 as an argument to support their cause. In most cases, it’s not worth responding, but I don’t think of economics columnist Noah Smith as an economic nationalist, so if he is saying things along these lines, I feel like it merits a response. Here’s what he said in his column yesterday:

Offshoring Left the U.S. Unprepared for Coronavirus

…

But a new problem threatens to reverse even this tepid progress: a shortage of personal protection equipment. Medical workers who do coronavirus testing need to wear masks, gowns and other items to prevent them from being infected after dealing with large numbers of infected patients. Another problem is a shortage of the cotton swabs used to carry out the tests.

It seems almost unthinkable that shortages of these simple materials could hamstring the medical system of the country with the biggest economy on the planet. Economist and long‐​time policy adviser Larry Summers wondered how this could happen:

Thoughts at the end of a long week:

Why can’t the greatest economy in the history of the world produce swabs, face masks and ventilators in adequate supply?

— Lawrence H. Summers (@LHSummers) March 21, 2020

The reason is offshoring. Over the years, the U.S. has outsourced the production of items such as masks, mostly to China — which is now reluctant to allocate any of its production capacity to the U.S., given its own needs and the deteriorating relations between the two countries. Making these objects is technologically somewhat challenging, but it’s also a low‐​margin, commoditized business — there’s little in the way of network effects or brand value or patents to yield big profits. So it made sense for the U.S. to focus on higher‐​value things at the beginning and end of the supply chain — medical services that make use of masks, marketing and distribution, and innovation of technologies used to create better masks.

This was an example of thinking on the margin. Economics predicts that businesses decide what to produce based on what makes a little bit more profit. The siren song of marginal profit drew the U.S. relentlessly away from mask production.

The problem is that when the economy suffers a huge shock such as a war or a pandemic, the margin vanishes. The U.S. economy is projected to shrink by 30% or more in the second quarter as a result of the coronavirus, and the necessity of doing mass testing has created an abrupt shift in the demand for protective equipment and swabs. What made economic sense yesterday doesn’t make sense today.

Eventually the U.S. will reconfigure its economy in response to these shocks. Domestic mask and swab factories will open, or existing facilities will be repurposed to make them. But that will take time, and the U.S. needs more testing now. Lockdowns can suppress the virus, but only at great economic cost; as soon as restrictions end and people go back to their jobs, coronavirus will come roaring back unless the country has a strict regime of widespread testing and contact tracing in place. Thus, every day that the economy fails to provide enough masks and swabs is another day that it has to remain in shutdown.

If businesses will always make decisions on the margin, then it’s government’s job to insure the country against big shocks such as pandemics and wars. The U.S. could have used trade barriers and government support to make sure that the entire supply chain for medical equipment stayed in the country. But government action against offshoring has long been stigmatized, including by Summers himself, who in 2012 lambasted offshoring skeptics as “Luddites.”

The coronavirus crisis should cause advocates of unrestricted free trade to rethink their blanket opposition to protectionism. An economy based entirely on far‐​flung supply chains is more profitable in normal times, but when a crisis hits, it can quickly become a liability. Items such as masks and swabs are too crucial to be left to the whims of international markets.

There is a valid but narrow point buried in his argument, but it requires a lot more nuance than what he is offering. It’s true that if you are in the midst of a geopolitical conflict with a particular country, you wouldn’t want to be dependent on them for certain essential products. For example, during World War II, we wouldn’t have wanted to be dependent on Germany for rifles or for penicillin.

So yes, you want to make sure that you are not getting all products that are, in some sense of the term, essential from a single country, which could be the subject of a geopolitical conflict, or could be susceptible to a natural disaster. (You also may want to consider whether it really makes sense to have that geopolitical conflict. There are concerns with China, but they could certainly be handled better than we are currently handling them.)

But that’s a very narrow proposition, and it doesn’t translate into “offshoring left the U.S. unprepared for coronavirus.” It also doesn’t necessitate a rethinking of support for free trade. Rather, it requires a country to take a look at what products are essential for security or public health or some other policy, and to make sure it has a diverse and reliable supply of those products. To be clear, that does not mean “reshoring” all production of those products to the United States. Offshoring has many benefits, and in fact helps ensure a supply of these essential products, because there are risks to having your own country as the sole supplier. We want to have good trading relationships with the rest of the world, because when (inevitably) something goes wrong with our own production, we want to be able to quickly get help from others. We are better off if this manufacturing knowledge is distributed around the world. We just want to make sure that we have sources of supply in countries that we can count on.

So is Noah right that offshoring is to blame here? No. Every country needs to have a plan for ensuring that it can get medical equipment when it needs it. But it’s costly and risky to seek self‐​sufficiency in this production, and it’s better for everyone to maintain a cooperative international approach to making these products.

Related Tags
Economic Impact of COVID-19, Manufacturing and Industrial Policy, COVID-19, Trade Policy

Stay Connected to Cato

Sign up for the newsletter to receive periodic updates on Cato research, events, and publications.

View All Newsletters

1000 Massachusetts Ave. NW
Washington, DC 20001-5403
202-842-0200
Contact Us
Privacy

Footer 1

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
  • Podcasts

Footer 2

  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit

Footer 3

  • Publications
    • Books
    • Cato Journal
    • Regulation
    • Cato Policy Report
    • Cato Supreme Court Review
    • Cato’s Letter
    • Human Freedom Index
    • Economic Freedom of the World
    • Cato Handbook for Policymakers

Footer 4

  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving
Also from Cato Institute:
Libertarianism.org
|
Humanprogress.org
|
Downsizinggovernment.org