The economic self harm of autarky: Are we really talking about America making everything it needs in America?

By: James Pethokoukis, American Enterprise institute

It’s unclear what exactly President Trump meant the other day when he told Fox News that “we shouldn’t have supply chains, we should have them all in the United States. We have the companies to do it.” The generous reading is that the president was mostly referring to the repatriation of critical components necessary for national security, including pandemic response.

Of course, some supporters took Trump’s words at face value: economic autarky. Make everything here in the good ol’ US of A. It’s hardly a massive leap when one key White House adviser, Peter Navarro, has said things that come pretty close to that idea.

Sometimes we need to revisit first principles, examine them, and recall why we believe in them. The notion that all countries can benefit from international trade goes back to Adam Smith and David Ricardo in the late 18th and 19th centuries, with modern experience and research supporting their theories. Trade takes the ideas of division of labor and specialization and applies them internationally. Nations should specialize in providing what they’re comparatively more efficient at producing. “Trade improves economic performance not only by allocating a nation’s resources to their most efficient use, but also by making those resources more productive in what they are doing,” writes economist Douglas Irwin in “Free Trade under Fire.” Research from the Peterson Institute finds US real incomes are 9 percent higher — over nearly $2 trillion — than otherwise thanks to trade liberalizing efforts since World War II.

From the Soviet Union to China to North Korea, autarky has been a policy of impoverishment rather than enrichment. (I recommend this Mercatus Center brief on the myths of the anti-trade position.) But even the case for narrow autarky for critical materials and products isn’t as strong as it might first seem. From Martin Sandbu in the Financial Times:

To be sure, national resilience against an epidemic (and other calamities such as war) requires a country to have secure access to essential goods. But, as Switzerland illustrates with its huge reserves, there is nothing to stop us building up collective stockpiles of necessities, be it foodstuff, medicines or medical equipment. The obstacle is a different one: politicians’ unwillingness to pay the price to store products that may never be used and to keep depots well stocked. Yet, because they allow much greater scale, that price is if anything lower with globalised supply chains, not higher. … The largest economies could conceivably get away with a greater degree of autarky. But look closely, and it is remarkable how fast domestic manufacturers in the US — where hoodie factories are switching to making face masks — the UK, Germany and elsewhere have been rapidly retooling factories to produce what is needed in the crisis. So if manufacturing can be turned around within weeks even in countries with poor government planning, the supposed lack of essential productive capacity is a chimera. The Covid-19 pandemic clearly caught most countries unprepared. But it is by harnessing globalisation more intelligently, not by turning their backs on it, that they will boost their national resilience.

It’s also strange for people who say they value capitalism and economic freedom to also favor giving the state such massive power over our economic lives.