Export Protectionism: Back to the Future?
For several decades until 1825, the British government forbade the exportation of some industrial machinery in order to prevent foreign textile manufacturers from competing with domestic manufacturers. It also tried to prevent the emigration of specialized artisans working on these machines. (See David J. Jeremy, “Damming the Flood: British Government Efforts to Check the Outflow of Technicians and Machinery, 1780-1843,” Business History Review, 51:1, 1-34.) No national security reasons were apparently involved at that episode, but Donald Trump or Joe Biden would have had no problem adding them to their protectionist agenda.
Forbidding exports is protectionism as much as preventing imports. (Logically, however, a coherent conservative nationalist would want to keep “our national resources” at “our” service and should prefer export protectionism to import protectionism: see my Regulation piece “Logic, Economics, and Protectionist Nationalists.”) Walking in Trump’s footsteps, Biden is trying to prevent exports of machinery to China, and from a foreign country at that (Stu Woo and Yang Jie, “China Wants a Chip Machine From the Dutch. The U.S. Said No,” Wall Street Journal, July 17, 2021):
Some of the tech industry’s most important machines are made next to corn fields in the Netherlands. The U.S. government is trying to make sure they don’t end up in China. Beijing has been pressuring the Dutch government to allow its companies to buy ASML Holding NV’s marquee product: a machine called an extreme ultraviolet lithography system that is essential to making advanced microprocessors.
The one-of-a-kind, 180-ton machines are used by companies including Intel Corp., South Korea’s Samsung Electronics Co. and leading Apple Inc. supplier Taiwan Semiconductor Manufacturing Co. to make the chips in everything from cutting-edge smartphones and 5G cellular equipment to computers used for artificial intelligence.
China wants the $150-million machines for domestic chip makers, so smartphone giant Huawei Technologies Co. and other Chinese tech companies can be less reliant on foreign suppliers. …
The stance is a holdover from the Trump White House, which first identified the strategic value of the machine and reached out to Dutch officials.
In order to understand the world, it is useful to note the three misleading terms in the WSJ’s 12-word title. What the title means to say is that some Chinese companies (not “China”) want machines from a Dutch company (not “the Dutch”) and that the US government (not “the U.S.”) is trying to prevent the sale. These companies are associations of Chinese, Dutch, and other shareholders, including American ones. It is true, of course, that the Chinese government has more power to submit Chinese companies than, at least thus far, the American and Dutch governments have at bulling nominally free enterprises. Chinese companies are more under the yoke of the government than Dutch or American ones. It is also true that the necessary briefness of a news title may justify the shortcuts, although they support biased linguistic usage.
The story itself illustrates how illusory is the belief that forbidding a Western company to sell equipment to Chinese companies will help protect national security. First, the incapacity of the Chinese government and its cronies to manufacture a product equivalent to that of a rather obscure Dutch company—the WSJ says that Chinese manufacturers are a decade behind ASML’s machines—shows that a socialist economy cannot be as efficient as a capitalist one. By the time Chinese companies have benefited from their imported machines, there is a high probability that capitalist producers will still be 10 years ahead.
Second, trying to make capitalist companies as subservient to their governments as socialist ones will, in time, make the former as entrepreneurially and technologically handicapped as the latter. Interestingly Peter Navarro, the former trade czar of the Trump administration, opposed the use of national security arguments against free trade in his 1984 book The Policy Game: How Special Interests and Ideologues Are Stealing America (John Wiley & Sons, p. 82). That was before he allied with special interests to steal America.
At any rate, in case of doubt, our own governments should privilege our own freedom to trade with whom wants to trade with us.
Jul 20 2021 at 1:19am
A slight error about Chinese policy:
“What the title means to say is that some Chinese companies (not “China”) want machines from a Dutch company (not “the Dutch”) and that the US government (not “the U.S.”) is trying to prevent the sale.”
While Chinese companies definitely do want these machines, it is also the stated policy of the Chinese government to obtain and/or develop the technologies they embody.
Jul 20 2021 at 9:34am
Phil: This is why I also immediately wrote:
Note that protectionism against “the Chinese” is also the stated policy of the US government.
Thomas Lee Hutcheson
Jul 20 2021 at 6:51am
I want to point out, again, that any restriction on exports also restricts imports through price level/exchange rate changes and vice versa.
Jul 21 2021 at 12:11pm
Thomas: Good point!
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