We must also move decisively to secure our critical supply chains,this line is so easily sung, and it strikes the unsuspecting ear so musically. Its composer is GOP Sen. Josh Hawley of Missouri. Writing recently in The Washington Post Sen. Hawley joins the choir chanting for government to make Americans less dependent upon non-Americans for critical supplies.
Relatively few of these choir members openly support the near-autarky craved by William Upton, but all insist that a policy that leaves American buyers free of governments guiding hand will result in dangerous dependence of Americans on foreigners for critical supplies. What could possibly be wrong with government efforts to secure our critical supply chains and, thus, protect us during emergencies from reliance upon foreigners?
Sen. Hawley and others who issue such demands have not paused to ponder carefully just what any real-world policy of self-sufficiency in critical supplies necessarily requires and occasions.
Begin with this foundational question: Which goods and services are critical and which arent? Initially, answering this question seems to present no great challenge: figure out what are our critical needs and then, reasoning backwards from this determination, identify those goods and services that satisfy these needs. Easy-peasy.
Yet what, exactly, is meant by critical? Most obviously critical are products that sustain our lives. So at the top of the list of critical supplies, ahead even of medicines and military weaponry, stands food. Should government, therefore, prevent Americans from importing all foods? If not all foods, surely some foods. But if only some foods, which foods?
A reasonable person would agree that only some foods are criticalgrains and meats, perhaps, but not tomatoes and maple syrup. Lets here simply grant that the determination of which foods are, and which arent, critical is easily-enough made and widely agreed upon.
But answering the question Which foods are critical? isnt enough. We must then ask about the inputs necessary to supply ourselves with our critical foods. Chemical fertilizers and pesticides are necessary, as are tractors and irrigation equipment. So, too, are packaging materials, delivery vehicles, fuel, and refrigeration. And dont forget insurance and financing. Without these inputs, we can neither produce enough of our critical foods nor ship what we do produce to consumers. So to secure our supplies of critical foods, government must also secure earlier links in the supply chainnamely, supplies of critical inputs to food production and distribution. But which inputs are critical?
To carry out policies of the sort demanded by Sen. Hawley, answering this question about which inputs are critical is no less necessary than is answering the question about which outputs are critical.
Yet to answer this question about inputs raises further questions about how to secure our supplies of these critical inputs. To produce these inputs requires other inputs.
Suppose that tractors are declared to be among the inputs that are part of the critical supply chain for ensuring that we Americans can reliably produce our own critical foods. Which inputs are critical for the production of tractors? Metals, plausibly, are critical. But is rubber? What about paint? (Unpainted farm equipment will be rapidly ruined by rust.) Which of the multitude of beneath-the-hood parts of tractorscomponents such as fuel pumps, carbon-fiber hoses, the ceramic used in spark plugsare critical? These questions must be answered in order to implement Sen. Hawleys policy.
This example of food and food-production inputs reveals at least two realities that are masked by the fine words quoted above from Sen. Hawley.
A Web Isnt a Chain
The first reality is that, in our modern economy nearly every productive enterprise is connected to every other productive enterprise. This connectedness is the phenomenon alluded to by the term supply chain. This term, however, is highly misleading. Todays economy is not a series of supply chains running side by side with each other, each largely distinct from, and independent of, the others. If it were, there would indeed be little challenge in pulling in one or more such chains into the domestic economy so that it fully resides there, from beginning to end.
Instead of a collection of distinct supply chains, our modern economy is a single globe-spanning web of interconnectedness. Within this web every output is the product of countless inputs and each kind of input typically is used to produce countless different kinds of outputs. This web of interconnectednessthe complexity of which is beyond human comprehensionis indispensable for our modern mass prosperity. Yet its existenceits everything-is-connected-in-some-way-to-everything-else realitymeans that there are no objective and clear lines separating critical supplies from uncritical ones.
Further obliterating the existence of any such objective and clear lines is economic changeboth change that is inseparable from a market economys creative destruction (for example, the invention of the assembly line), as well as change that is imposed on humanity by nature (for example, the depletion of an iron-ore mine). Such change at every moment rearrangesusually slightly, but sometimes dramaticallythe particular connections that each node of the vast economic web has with innumerable other nodes.
In short, the notion that there exist objectively identifiable critical supply chains is delusional.
Rent-Seekers Will Seek Rents
Recognition of this delusion should, in turn, alert us to the certain abuse of political power that would occur in the wake of implementing a policy meant to secure our critical supply chains.
Because declaring an industry to be critical would entitle all domestic firms in that industry to special privilegesprotective tariffs as well as subsidiesall critical firms would thereby enjoy more sales and higher revenues. Attracted by the benefits of these special privileges, lobbyists for nearly every industry would impress upon government officials the many ways that their firms outputs are part of the nations critical supply chains.
And because each and every firm is indeed part of a vast interconnected web of production and supply, determinations about which industries and firms are critical would bemust bemade politically. With no criteria for making such determinations handed down by nature, a rent-seeking free-for-all would be underway.
Do not forget that the government that Sen. Hawley wants to invest with more power to interfere with trade is the same one that continues to run its passenger railroad at loss the same one that cannot balance its budget even during historic boom yearsthe same one that deploys the Food and Drug Administration to artificially constrict Americans access to health-care products and the same one that, since the National Health Planning and Resources Development Act took effect in 1974, demands that states use certificate-of-need requirements to restrict the growth of hospital capacity.
Conclusion: The End Result Would Be Near-Autarky
Astute readers might have wondered at my wording when I wrote at the start that relatively few people who wish to secure our critical supply chains openly support near-autarky. Did I there mean to suggest that these people support near-autarky clandestinely?
No. Most such people, including Sen. Hawley, surely arent consciously acting as secret agents to cut Americans off from the global economy. But the combination of the two realities discussed above makes adoption of a proposal such as that of Sen. Hawley much more likely, in the end, to bring us much closer to autarky.
Because the economy consists not of many distinct and separable supply chains but, instead, of one gargantuan web of interconnectednessand because public acceptance of protectionism for the purpose of securing critical supply chains would drive nearly all industries to plead for protection by pointing out how their outputs are indeed, at some remove, used as inputs for critical suppliesthe end result will too likely be an America cut off far more dangerously and impoverishingly from the global economy than the likes of Sen. Hawley envision when they cavalierly issue pleas such as the one quoted above.
The quest to use protectionism to make us more secure in our health and wealth would sever untold numbers of productive ties that we now have with the global web of economic interconnectedness. The end result would be an America far less secure in its wealth and health.