The Democrats in House of Representatives have put something particularly stupid in the national recovery legislation they have just passed. It is a requirement that none of the infrastructure projects purchase steel from any country other than the United States.
The stimulus bill passed by the House last night contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package.
A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.
See: Washington Post, 'Buy American' Rider Sparks Trade Debate
It is widely accepted that one of the things that made the Great Depression far worse than it would have otherwise been, and that made the war that followed much more likely, was the protectionist legislation that sprang up as the world economies crashed. Countries cut economic ties with other countries, demanding that more and more purchases be done locally.
One of the effects of cutting international trade was to promote international job loss and economic decline.
Another effect comes from the fact that as economic relationships between countries weaken, the possibilities for armed conflict tend to increase.
To see the truth of the first of these effects, simply imagine that you are living alone. You are stranded on an island where you must gather food and water buy yourself, create your own clothes, build your own shelter, build your own tools for farming, tailoring, and construction, provide for your own health care, predict the weather, determine which natural foods are poisonous, and the like.
This is not a life with a particularly high standard of living.
Introduce just one more person, and both of you are better off. That one person can focus on growing and preserving food for two people. This makes him much more efficient at his job. Furthermore, it gives him an opportunity to learn how to do his job better. He need not be distracted by other jobs such as building a house or making clothes – you are doing those things. And, as with your partner, you become better and more efficient at the tasks you specialize in.
Add a third person, and a fourth. Every additional person creates more opportunity for specialization and trade.
Add enough people, and soon you have people specifically devoted to the study of health, to predicting the weather so as to better determine when to plant and when to harvest, the study of engineering, and construction itself allowing the community to build aqueducts and to harvest power from the flowing streams.
It no more matters that some of your trading partners live across the ocean than that some of them once lived on the other side of the stream or a mountain. Distance increases the cost of trade (more so for physical goods and services, and less so for information) but is not relevant to the fundamental benefit of trade.
Any time anybody stands up and demands that we cut off trade with some group of people, that we make the economic community smaller rather than larger, then this person is promoting a system that will make all of us worse off. It makes us worse off by blocking our trade with others, and makes those others worse off by blocking their trade with us.
If it makes sense to say that smaller communities can be more prosperous than larger communities, then it makes sense to say that none of us should be engaged in trade with any other person, and we should all live a life where we each grow our own food, manufacture our own clothes, construct our own shelter, and tend to our own doctoring.
Perhaps more important is the fact that isolated tribes are the type who are more likely to go to war with each other. If two tribes have economic links – if the wealth and well-being of one tribe is tied to the wealth and well-being of the other – then there are all sorts of incentives to preserve the peace. But, if there economic borders are closed, then the only way to get something that the other tribe has is to take it by force of arms.
It is quite reasonable to suspect that, without the protectionist policies of the 1930s and its adverse effects not only on the global economy but the severing of incentives to maintain peace between nations, came to be followed by the largest global military conflict in human history.
What the United States does in this economic crisis sets an example for the rest of the world. We have many and good reasons to set an example of keeping economic relationships between different countries open – to foster trade rather than sever economic ties. We have many and strong reasons to demand that, this time, the world works together to get through this economic crisis, rather than split off into isolated tribes.
Because it typically is not long after countries quit trading bread and butter across their national boundaries, that the find they are soon trading bullets.