Ever since before Adam Smith, this model of countries not being able to produce everything that they require, but instead, focusing on a few things, and trading for the rest, has been accepted as a more efficient system, where everybody benefits from the savings these efficiencies allow.
I think this model works extremely well ... until it doesn't. Until some event keeps trade from occurring, whether that event is a currency collapse, a drought, or, more often, a war.
I don't know what the right answer is. We seem to be muddling along fine, however, with the system as it is, but there's always a specter of catastrophe hanging over our heads.
Yes, "comparative advantage" this is called. Everyone should try to do the highest-margin thing they can, even if they are capable of doing lower-margin things more efficiently than their competitors. The article is worrying about downstream effects, i.e. that by giving up a low-margin business in the present, you cut yourself off from future high-margin businesses.
Errr, I'll give you 50% credit for pulling out the catch phrase "comparative advantage" which indeed is used to weakly describe the concepts Mr. Smith was outlining.
As for the article itself, as it is from harvard business school, the author may indeed be concerned about margins. I'm more interested in the inherent dangers of a system that makes you extremely vulnerable in bad times, and how to balance that against the obvious advantages, in good times, of that system.
The author only sees one of two potential values: they're concerned about the future value of domestic manufacturing capability, but they seem to miss that the savings in manufacturing costs can be spent elsewhere in the economy, which may lead to a vastly better overall result.
I find it hard to believe any developed country or even a developing country like China would be shocked enough by drought to stop trade. Sure desalination is expensive, but that's all it is, expensive. On the other hand, countries currently challenged by droughts... will sadly continue to be.
As to war, what is the probability of the countries actively tied up trade with each other going to war. Obviously the US and China are posturing all the time, but war?
Plus trade and countries are dynamic and flexible and changing all the time even without major external shocks. A sudden reduction in supply in location X, would shortly lead to a rise in supply from location Y.
Well I don't know how likely it is that we go to war with China. However, in this particular case, most LCD technology actually comes from Taiwan. The tension between China and Taiwan could conceivably pull us into a war with China, as we defend Taiwan, or we could just sit back and watch, depending on who is in the white house. In either instance, LCD supply would be disrupted.
I only mentioned drought, because, in an agriculture based economy, a drought is devastating, as you suddenly have a huge reduction in your exports. It doesn't even have to be what you're imagining. Just a wheat crop that's only 60% of last year, could be ugly.
Anyway, we know what the most likely disruption will be, and it's not war, it's currency collapse.
You'd be surprised how easily 40% of the supply of a crop could disappear. P.E.I. produces 1/3 of all potatoes consumed in Canada (this includes virtually all potatoes used by McDonalds, Wendy's and most fast food companies). If a severe problem ever hit P.E.I. it would be devastating, and it's an island a whole factor smaller than the next smallest province and has less than .1% of Canadian land.
As the island only has 1 bridge connecting it to the mainland, and the ferry service is largely only a novelty service any more it would present a serious problem for the country for its food production.
Before Germany invaded France in 1939, they were major trading partners. War is less likely now; see Stephen G Brooks, "Producing Security: Multinational Corporations, Globalization, & the Changing Calculus of Conflict", which claims the fact that no one country produces anything at all complicated any longer makes it almost impossible. In this view, it is the fact that manufacturing is transnational that prevents it, not trade in the traditional sense.
I think this model works extremely well ... until it doesn't. Until some event keeps trade from occurring, whether that event is a currency collapse, a drought, or, more often, a war.
I don't know what the right answer is. We seem to be muddling along fine, however, with the system as it is, but there's always a specter of catastrophe hanging over our heads.