From his substack “The Central Banker’s Watch”:

Tariffs as National Security Policy

The logic of the argument points to the need for national-security policies. Tariffs are one possible tool.

In normal times, a tariff applied to the imports of essential goods raises the import price. That, in turn, encourages firms to keep producing them at home and preserves productive capacity. The key point is that this is not about protecting inefficient firms or favouring special interests; it is about correcting a problem that markets, on their own, cannot solve.

Firms make decisions based on what is profitable when trade is working smoothly. They do not—and cannot— consider the possibility that access to essential goods might suddenly fail. As a result, the economy becomes too specialized and too dependent on foreign suppliers for goods it cannot do without.

A national-security tariff addresses this problem directly. It nudges firms to maintain domestic production of essential goods, even if importing them would be cheaper most of the time. In doing so, it aligns private decisions with what society as a whole needs: the ability to function in bad states of the world.

Seen in this light, tariffs are not a rejection of free-market principles; they are a practical way to ensure economic viability when trade is risky, and some goods are simply too important to leave entirely to global markets.

Conclusions

These are our main findings, but there is clearly more to understand. In our preliminary analysis of a two-country setting, for example, the framework opens the door to studying strategic interactions: how the risk of supply disruptions can be deliberately increased, how tariffs respond to such “weaponization,” and how these forces interact in equilibrium. This is a natural next step, and one that brings the analysis even closer to real-world policy debates.

The framework also speaks directly to current discussions about economic security, supply-chain resilience, and trade fragmentation. Much of the recent debate has been shaped by the insights of Farrell and Newman and by Fishman’s work on chokepoints and economic warfare. Our contribution is to provide a simple economic logic that formalizes these ideas. By focusing on essential goods and the risk of physical disruption, the framework clarifies why dependence itself can become a strategic vulnerability, and why policy responses aimed at preserving domestic capacity are not ad hoc departures from economic reasoning.

At the same time, the analysis connects naturally to the emerging geoeconomics literature, pioneered by Clayton, Maggiori, and Schreger. That literature emphasizes contractual frictions and enforcement as sources of strategic dependence and fragmentation – our mechanism is complementary. We focus instead on physical disruption and viability constraints yet arrive at similar conclusions: when interdependence can be weaponized, free trade no longer delivers robust outcomes, and fragmentation can emerge as a rational response.

The broader message is simple: adapting to a challenging and uncertain world requires understanding its defining features and being willing to revise the intellectual frameworks we use to analyze trade.

This is a great start on thinking formally about national security and trade policy, and how these argument fit — or don’t fit — with the ways in which the current (and past) administrations have made the national security arguments for tariffs. For instance, I’m pretty sure the Trump 2.0 administration did not have a valid national security motivation for the proposed (but now delayed) Section 232 tariffs on upholstered furniture and bathroom vanities… But maybe we were to soon to dismiss the proposed Section 232 tariffs on automobiles during Trump 1.0 (contra “we don’t go to war in a Ford Fiesta”).  The Trump 1.0 Section 232 report has disappeared (or I can’t find it), but the CRS report discussing the petition is here.

For competing views, see  Navarro (1984) and  Navarro (2020:

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