- The Washington Times - Tuesday, March 11, 2003

After every period of international conflict since the Seven Years War, liberals have proclaimed a new world order where commerce would replace geopolitics. The 1990s fascination with "globalization" was another such passing moment.

Commercial expansion assumed the withdrawal of nations from world affairs. This is what "free" trade means, free of government interference. Stability requires appeasement to dampen any risk of conflict, hence that era's emphasis on institutions like the United Nations and the World Trade Organization. In a world where conflict is still common, business decisions about investment, plant relocation and technology transfers could be restricted by considerations of national security. Prudence would require governments to promote greater self-sufficiency in strategic industries, as global supply chains would be vulnerable to a variety of disruptions.

No wonder at the recent World Economic Forum at Davos, there was nostalgia for President Clinton and hostility towards the more assertive "nationalistic" policies of President Bush. But September 11 awakened Americans to the real world. Beset by terrorism, rogue states and rising powers, with crises on every continent, America must rally its economic strength to prevail.

The classical-liberal ideology linking trade with peace took root during the relative calm that followed the Napoleonic Wars, but such conditions never last. Commerce is driven by competition, making trade rivalry a part of the larger struggle of nations for independence, security and prosperity. How resources, industry, wealth and technology are distributed around the world forms the material basis of the balance of power.

Adam Smith knew: "It is of importance that the kingdom depend as little as possible upon its neighbors for the manufactures necessary for its defense." The Wealth of Nations was the pioneer work on the industrial revolution, a system that integrated raw materials, energy sources, a diversified manufacturing base, improved transportation and a dynamic research effort to strengthen a country's domestic capabilities.

A large market is needed to support the industrial capacity necessary to provide the myriad needs of the armed forces. "Dual use" technologies and advanced manufacturing methods originating in the private sector have widened the scope of firms whose preservation is vital to national security. Indeed, the Pentagon is actively searching for new firms, with new ideas, to join the defense industry in transforming the 21st century military.

The Bush administration has done much to dispel the strategic malaise of the 1990s, but its international economic policy is still stuck in the Clinton era. With $1 trillion worth of manufactured imports displacing American production each year, there is no systemic tracking of the growing dependence on foreign components in weapon systems. When President Bush intervened in the dock dispute last October, he said: "•efense contractors receive components and materials through the West Coast ports that are necessary to supply the military's needs. The disruption of the flow of such military-related goods could impact national security."

Traditionally, the United States has insisted that foreign-designed weapon components be produced in America, either by subsidiaries or under license; but major defense contractors are tempted, like other industries, to outsource to cheaper overseas vendors. Foreign firms have also been very aggressive in buying up hundreds of American defense subcontractors and high-tech companies, using them as fronts for their own operations while moving their research and technology offshore. The authority to stop such debilitating trends exists in current law and must be used.

Such dependency is more dangerous as international politics becomes more fluid. Historically, most trade flows between allies, but today alliances are in flux. The use of economic leverage is on the increase, particularly by the European Union (led by France) in its attempts to constrain the United States. Of course, the United States also uses such leverage. The denial of weapons systems or the spare parts needed to operate them has proven a potent tool. America must not be vulnerable to the same pressures.

When the Bush administration issued its national security strategy last fall, its was seen as a commitment to maintain America's military superiority far into the future. Yet, its chapter on economics never mentioned promoting U.S. growth. Instead, it spoke of "advancing prosperity and freedom in the rest of the world" and "foster[ing] the diffusion of technologies" overseas.

The quaint notion that providing other states with greater capabilities will promote peace is belied by history. The 20th century was both prosperous and violent, with the richest states at the center of world conflict. Increased resources fuel grander ambitions. The rise of China may be the most prominent example, but the global spread of capitalism is giving an increasing number of states the means to be players on the world stage.

If the United States is to preserve its dominant military capabilities and political independence, it must maintain firm control of its own industrial base and promote its continued advancement.

William R. Hawkins is senior fellow at the U.S. Business and Industry Council.

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