Wednesday, October 18, 2017

Is National Defense a Justifiable Reason to Put Trade Barriers on Steel?

A Don Boudreaux letter to the Wall Street Journal:
Nucor Steel CEO John Ferriola doth protest too much against free trade for the steel industry (Letters, Oct. 17).  He starts by complaining that Chinese steel is subsidized and ends by asserting that U.S. steel producers should be protected from foreign competition because such protection will strengthen U.S. national defense.
If the national-defense argument is valid, then
the reason for the low prices of foreign-made steel is irrelevant.  National-defense considerations should, by Mr. Ferriola’s reckoning, suffice to justify steel tariffs even if the low prices of Chinese steel stem from Chinese steel producers’ genuine efficiency advantages.  So if Mr. Ferriola is truly concerned about national defense, what’s the point of his complaining about the alleged subsidies?
But the national-defense argument is almost certainly invalid.  Forget that any subsidies bestowed by Beijing on Chinese steel producers make the overall Chinese economy less productive than it would otherwise be.  Focus instead on the reality that protecting U.S. steel producers from foreign competition dampens innovation not only in the U.S. steel industry but also in those American industries that produce goods that compete with steel – goods such as aluminum and carbon fiber.  There’s no substitute for the spur of competition to incite businesses to find ways to improve the quality of their outputs and to lower their production costs.  Therefore, government protection of U.S. steelmakers results, over time, in the quality of American-made steel, aluminum, carbon fiber, and other such materials being lower than it would be with the competition of free trade, and the costs of these materials being higher.
How lower-quality U.S. steel and other outputs produced at unnecessarily high costs will strengthen U.S. national defense is a deep mystery.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek


  1. It’s almost as if John Ferriola (great name for a steel exec btw) wants to use the state to eliminate his competition...

  2. One surely misses the great Ken Iverson, who made Nucor into the lowest cost steel producer, with mini-mills and no unions.

  3. If the US had no native steel industry in 1941, how would it have been able to fight until 1945 and win?

    1. Maybe it would have viewed trade as even more important and not imposed an embargo against Japan, so Japan might never had attacked.

    2. Re: Marmite,

      This is not 1941 and scary stories about not having the wherewithal to defeat the next Germany is no justification to Make Americans Pay More For Steel Again.