Manufactured Crisis: “Deindustrialization,” Free Markets, and National Security



Scott Lincicome | CATO Institute


Both the American left and right often use “national security” to justify sweeping proposals for new U.S. protectionism and industrial policy. “Free markets” and a lack of government support for the manufacturing

sector are alleged to have crippled the U.S. defense indus- trial base’s ability to supply “essential” goods during war or other emergencies, thus imperiling national security and demanding a fundamental rethink of U.S. trade and manu- facturing policy. The COVID-19 crisis and U.S.-China tensions have amplified these claims.

This resurgent “security nationalism,” however, extends far beyond the limited theoretical scenarios in which national security might justify government action, and it suffers from several flaws.

First, reports of the demise of the U.S. manufacturing sector are exaggerated. Although U.S. manufacturing sec- tor employment and share of national economic output (gross domestic product) have declined, these data are mostly irrelevant to national security and reflect mac- roeconomic trends affecting many other countries. By contrast, the most relevant data—on the U.S. manufactur- ing sector’s output, exports, financial performance, and investment—show that the nation’s total productive capac- ity and most of the industries typically associated with “national security” are still expanding.

Second, “security nationalism” assumes a need for broad and novel U.S. government interventions while ignoring the targeted federal policies intended to support the de- fense industrial base. In fact, many U.S. laws already autho- rize the federal government to support or protect discrete U.S. industries on national security grounds.

Third, several of these laws and policies provide a cau- tionary tale regarding the inefficacy of certain core “secu- rity nationalist” priorities. Case studies of past government support for steel, shipbuilding, semiconductors, and machine tools show that security-related protectionism and industrial policy in the United States often undermines national security.

Fourth, although the United States is not nearly as open (and thus allegedly “vulnerable”) to external shocks as claimed, global integration and trade openness often bolster U.S. national security by encouraging peace among trading nations or mitigating the impact of domestic shocks.

Together, these points rebut the most common claims in support of “security nationalism” and show why skepti- cism of such initiatives is necessary when national secu- rity is involved. They also reveal market-oriented trade, immigration, tax, and regulatory policies that would generally benefit the U.S. economy while also supporting the defense industrial base and national security.


To read the original policy analysis from the CATO Institute, please click here

Scott Lincicome is a Senior Fellow in Economic Studies, where he writes on international and domestic economic issues, including: international trade; subsidies and industrial policy; manufacturing and global supply chains; and economic dynamism. Scott also is a Senior Visiting Lecturer at Duke University Law School, where he has taught a course on international trade law, and he previously taught international trade policy as a Visiting Lecturer at Duke. Prior to joining Cato, Scott spent two decades practicing international trade law at White & Case, LLP, where he litigated national and multilateral trade disputes and advised multinational corporations on how to optimize their transactions and business practices consistent with global trade rules and national regulations. From 1998–2001 Scott was as a trade policy research assistant at Cato, and he became an Adjunct Scholar in 2013. During that time, Scott authored or co‐​authored several policy papers, as well as numerous op‐​eds on trade and economic issues, and he is routinely featured on TV, radio and print media.