The National-Security Argument

When an industry is threatened with competition from other countries opponents of free trade often argue that the industry is vital for national security. In our example, isolandian steel companies might point out that steel is used to make guns and tanks. Free trade would allow Isoland to become dependent on foreign countries to supply steel. If a war later broke out and the foreign supply was interrupted Isoland might be unable to produce enough steel and weapons to defend itself.

Economist acknowledge that protecting key industries may be appropriate when there are legitimate concerns. Yet they fear that this argument may be used too quickly by producers eager to gain at consumers expense.

One should be wary of the national-security argument when it is made by representatives of industry rather than the defense establishment. Companies have an incentive to exaggerate their role in national defense to obtain protection from foreign competition. A nation’s general may see thing very ydifferently. Indeed when the military is a consumer of an industry’s output it would benefit from imports. Cheaper steel in isoland for example would allow the Isolandian military to accumulate a stockpile of weapons at lower cost.

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