On Monday, President Biden announced his plan to amplify current “Buy American” policies, which require the federal government to purchase “American‐made” goods in most circumstances and have been a (much‐deserved) target of Cato scholar criticism for decades. Undergirding the President’s announcement was a popular, but misguided, narrative: decades of “deindustrialization” have left the U.S. manufacturing sector in a dire condition that, as the pandemic revealed, undermines national security and requires new and sweeping government policies (namely, protectionism and industrial policy). As Biden said when signing the “Buy American” executive order, “I don’t buy for one second that the vitality of American manufacturing is a thing of the past… American manufacturing was the arsenal of democracy in World War Two and it must be part of the engine of American prosperity now.”
It’s good that the President isn’t buying into the death of American manufacturing because, as I explain in a new paper out today (executive summary below), the sector not only is still alive, but was actually doing quite well on both a global and historical basis before the pandemic. It’s also booming right now too. Standout industries include the ones most directly tied to national defense (e.g., weapons, aerospace, motor vehicles, and metals) and others often associated with security (e.g., energy, semiconductors, and medical goods). The paper also explains — citing both economic research and ample historical evidence — why “Buy American” and other economic nationalist policies intended to bolster national security and economic “resiliency” often end up backfiring, thus weakening the manufacturing sector and national security. By contrast, market‐oriented policies, including trade liberalization, can boost the economy, discourage armed conflicts, and help the country mitigate or recover from economic shocks, including pandemics. Thus, if the President is concerned about national security and economic resiliency (instead of, say, politics), he should be eliminating Buy American restrictions, not “strengthening” them.
Unfortunately, Biden and his advisors have promised more and bigger “security nationalism” policies in the future. One can only hope that they read the paper (along with plenty of other Cato research) and realize what a bad idea that is.
Manufactured Crisis: “Deindustrialization,” Free Markets, and National Security
Both the American left and right often use “national security” to justify sweeping proposals for new U.S. protectionism and industrial policy. “Free markets” and a lack of government support for the manufacturing sector are alleged to have crippled the U.S. defense industrial base’s ability to supply “essential” goods during war or other emergencies, thus imperiling national security and demanding a fundamental rethink of U.S. trade and manufacturing policy. The COVID-19 crisis and U.S.-China tensions have amplified these claims.
This resurgent “security nationalism,” however, extends far beyond the limited theoretical scenarios in which national security might justify government action, and it suffers from several flaws.
First, reports of the demise of the U.S. manufacturing sector are exaggerated. Although U.S. manufacturing sector employment and share of national economic output (gross domestic product) have declined, these data are mostly irrelevant to national security and reflect macroeconomic trends affecting many other countries. By contrast, the most relevant data—on the U.S. manufacturing sector’s output, exports, financial performance, and investment—show that the nation’s total productive capacity and most of the industries typically associated with “national security” are still expanding.
Second, “security nationalism” assumes a need for broad and novel U.S. government interventions while ignoring the targeted federal policies intended to support the defense industrial base. In fact, many U.S. laws already authorize the federal government to support or protect discrete U.S. industries on national security grounds.
Third, several of these laws and policies provide a cautionary tale regarding the inefficacy of certain core “security nationalist” priorities. Case studies of past government support for steel, shipbuilding, semiconductors, and machine tools show that security‐related protectionism and industrial policy in the United States often undermines national security.
Fourth, although the United States is not nearly as open (and thus allegedly “vulnerable”) to external shocks as claimed, global integration and trade openness often bolster U.S. national security by encouraging peace among trading nations or mitigating the impact of domestic shocks.
Together, these points rebut the most common claims in support of “security nationalism” and show why skepticism of such initiatives is necessary when national security is involved. They also reveal market‐oriented trade, immigration, tax, and regulatory policies that would generally benefit the U.S. economy while also supporting the defense industrial base and national security.