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.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
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.