Sean Speer: National security matters too—Why we must reshore our critical industries

On November 22, 2022, as part of the Ontario Chamber of Commerce’s Ontario Economic Summit, The Hub’s executive director Rudyard Griffiths moderated a “Munk-style” debate involving Globe and Mail columnist Andrew Coyne, C.D. Howe Institute president and CEO Bill Robson, former Ontario Cabinet minister Sandra Pupatello, and The Hub’s own editor-at-large Sean Speer. The debate’s resolution read: Be It Resolved: Ontario Needs Reshoring as Part of Its Growth Agenda. Pupatello and Speer argued in favour of the motion. Coyne and Robson against it.

Let me say what an honour it is to have someone as distinguished and public spirited as Sandra Pupatello as my debate partner.

It’s also kind of cool to be debating Andrew Coyne and Bill Robson, who’ve both had formative influences on me through their thinking and writing over the years. That’s not a dig, by the way, at how much older they are.

That I’m up against them is of course a bit intimidating—though Sandra and I have one thing going for us that they don’t: the better argument.

What are their arguments? I suspect that we’ll hear about Public Choice theory: the idea that the politicized allocation of resources in the economy causes capital to flow based on political preferences rather than market forces. There’s a reason after all the Nobel Prize-winning founder of Public Choice called it “politics without romance.”

They’ll also probably point to other Nobel Prize-winning economists like Friedrich Hayek or Milton Friedman who’ve written powerfully about the productive benefits of leaving the allocation of resources to the invisible hand of the market economy. The invisible hand of course being a reference to the founder of modern economics himself, Adam Smith.

But Smith wasn’t a dogmatist. While he understood the benefits of a self-regulating economy, he had important caveats. He once wrote for instance that “defence is of much more importance than opulence.”

Herein lies the weakness of Andrew and Bill’s argument. They fail to reckon with a globalized economy in which China, home to 30 percent of global manufacturing output, is neither a reliable trading partner nor a responsible stakeholder. National security must ultimately trump our fidelity to markets.

I think a big part of the problem is that they’ve succumbed to a post-Cold War nostalgia that said if we brought China into the world trading system, it would boost its economic growth and wealth creation and in turn put it on a path to something resembling democracy and ultimately a stake in defending the liberal international order.

It was a reasonable experiment. More than twenty years ago I was only a teenager, but I probably would have supported China’s inclusion into the World Trade Organization on these grounds.

Remember, though, the purpose of an experiment is to collect evidence, test our hypothesis, and adjust accordingly. The evidence is pretty clear: our underlying assumptions about China have been proven wrong.

China isn’t a reliable trade partner. Instead, it’s used our asymmetric openness to copy our technologies, steal our ideas, and turn our supply chain dependency into a geopolitical weapon. Think of Canada’s own experience with vaccine development and production early in the pandemic. Is there any doubt that the Chinese government was using our vaccine partnership as a geopolitical weapon to punish us?

It’s not a responsible stakeholder. There are too many examples. The unlawful detention of the two Michaels, recent news of its interference in our elections, and plenty of proof in the words of President Xi that the Chinese Communist Party subscribes to a zero-sum view about technology, geopolitics, and China’s relationship to the world.

And it certainly hasn’t moved in the direction of democracy. Quite the opposite. Modern technology has enabled it to realize a form of totalitarianism that past autocratic regimes couldn’t have imagined.

The upshot: we should abandon the failed experiment and reduce our supply chain dependence on China. We ought to have the goal of greater economic self-determination—specifically in areas that are critical to our national interest.

Let me wrap up with some observations about reshoring.

First, a reshoring strategy requires clear parameters to determine which productive capacities are indeed critical or strategic. I agree that it can’t become an excuse to substitute the preferences of politicians for markets in every part of the economy.

There’s a strong case, for instance, for governments to use public policy to ensure vaccine production within our borders. But there isn’t a case to redomicile t-shirt production. A reshoring strategy must be able to distinguish between the two.

Once we have made these judgements, then we need a set of policy tools—including R&D investments, tax preferences, regulatory forbearance, etc.—that can achieve reshoring while minimizing economic distortions.

The ultimate goal must be to enable markets to function as freely as possible within a framework that recognizes that, in certain cases, national security must trump opulence.

Thank you.