Export Controls and the Economics of National Security

Export controls restrict trade to limit adversaries’ access to goods that contribute to military capability, but their effectiveness depends on how trade and production adjust across countries. We combine new data on U.S. export control classifications and licensing outcomes with a quantitative general equilibrium model featuring dual-use production, input-output linkages, and separate civilian and military final expenditure. We estimate large export and entry frictions from these controls. These effects are substantially smaller for U.S. exports to members of multilateral export control regimes (MECRs): the differential is equivalent to an export cost of 15 to 29 log points. Relative to a counterfactual without differential controls on adversaries, multilateral controls reduce their imports of controlled products far more than unilateral U.S. controls. Only 7% of the reduction in controlled exports under the multilateral regime is replaced by other countries, compared with 28% under unilateral U.S. policy. Multilateral controls reduce adversaries’ real military expenditure by increasing their military price index. The security impact, measured as U.S. real military expenditure relative to adversaries, rises by about 1 log point under multilateral controls but only 0.14 log points under unilateral controls, with both imposing a similar civilian real cost. Even a U.S. embargo fails to reproduce the multilateral security outcome.