Question

In the national interest argument. It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument has been made for commodities that are important to the U.S. economy as a whole, like oil. Discuss some arguments economists may raise against this

Answer 1

If the United States needs to be protected from a possible cutoff of foreign oil, then a more reasonable strategy would be to import 100% of the United States’ petroleum supply now, and save the U.S. domestic oil resources for when or if the foreign supply is cut off. It might also be useful to import extra oil and put it into a stockpile for use in an emergency, as the U.S. government did by starting a Strategic Petroleum Reserve in 1977. Moreover, it may be necessary to discourage people from using oil, and to start a high-powered program to seek out alternatives to oil. A straightforward way to do this would be to raise taxes on oil. (Such a tax increase on oil could be offset with cuts in other taxes, so that the total tax burden need not rise.) But it makes no sense to argue that because oil is highly important to the U.S. economy, then the United States should shut out oil imports and use up its domestic supplies of oil more quickly.