War, Trade and Utopia

War, Trade and Utopia

Mini Teaser: Economic interdependence leads to peace, say the globalizers. Think again, and examine the U.S.-Chinese connection.

by Author(s): Barry Lynn

The success so far of this trade utopianism is due largely to the success with which it has been packaged within a mythologized history--that U.S. governments have always believed in laissez faire management of industry and in completely "free" trade. Friedman, especially, writes of the emergence of today's global system as a natural phenomenon, a by-product of freely operating markets and freely evolving technologies. The implication of course is that political decisions played little part in shaping this system and that political decisions can have little effect over its future evolution.

The reality could not be more different, however. Domestically, Americans have long regulated the U.S. economy, not least through the aggressive use of antitrust power. Internationally, the United States protected its industries behind a high tariff from the Napoleonic wars at the beginning of the 19th century through the end of the Second World War. It was only in the early days of the Cold War that the Truman and Eisenhower Administrations began to take a radically new approach--which was to seek to weave sovereign nations into a single system, in part by fostering industrial interdependence.

The modern intellectual foundations of this Cold War-era policy trace back most obviously to Albert O. Hirschman's 1945 work National Power and the Structure of Foreign Trade. Key instances in the early postwar period include the creation of the European Coal and Steel Community and Washington's granting of especially liberal access to the U.S. marketplace to Japan, then to Taiwan and South Korea. The goal of these policies was always security foremost, pursued through locking former enemies and traditional allies into complex webs of industry from which it became ever harder to escape and through the creation of multinational-scale systems of production and research that increased the efficiency of the West in its industrial rivalry with the Soviet Union.

In other words, in the postwar period, liberal cross-border trade was never pursued as an end in itself, but as a means toward a higher end--the security of the nation. Nor was industrial interdependence ever regarded as the main glue holding together the nations allied in the old West. On the contrary, it was but one of many bilateral and multilateral institutions and agreements. But liberal trade in the service of industrial interdependence certainly proved one of the more effective strategies, simultaneously contributing to the political power and security of the United States and to the affluence of all the nations in the system.

At no point did the American leaders of the Cold War era show the slightest indication that they believed such a multi-state industrial system could ever become self-regulating, economically or politically. The principle that guided their thinking can be regarded as a sort of trade realism--a clear-eyed understanding that nations exercise power vis-ˆ-vis each other across a plane of commerce and industry, in the same way they do across the planes of diplomacy and military power.

Whether or not one believes the end of the Cold War justified experimentation with how the industrial system of the West was organized and managed, it is now starkly evident that the radical laissez faire policies adopted in the 1990s have placed us in extreme political and economic danger. The result was not a self-regulating, self-perpetuating system tending inevitably toward peace but a power vacuum on the commercial plane, into which other states moved, the most troublesome of which by far is China.

Trade utopianism, especially as applied to China, did not originate with either Friedman or Barnett. The same basic thinking shaped the Clinton Administration's trade policy, which set the whole process of integration between the two nations into motion. In defense of the Clinton team, it can be argued that they could not have known that the very nature of the multinational firm would be transformed over the subsequent decade and so had no idea how swiftly the industrial systems of the two nations could become merged.

This means that the gravest error of today's trade utopians is their inability to adjust for the complete failure of the Clinton policy to yield its goal, which was a liberal, democratic, pacified China integrated into the global system.

IT IS TEMPTING to join the utopians in the hope that industrial interdependence with China will somehow, in the end, automatically yield harmony. Unfortunately, both common sense and history teach us that such a passive response is deeply unwise. It is quite plausible that this deep industrial interdependence might actually lead to conflict.

Yes, current governments in Beijing and Washington appear to be committed, for the moment, to maintaining the status quo. But what guarantees that everyone with the power to disrupt this common system of production shares the same interest in avoiding disruptions? Might not other parties, in some instances, be tempted to exploit industrial interdependence for their own ends?

We should not, for instance, fall into the trap of assuming that the Chinese ruling class is monolithic, or that if a group now in opposition were to come to power it would automatically continue today's policies. On the contrary, any faction playing for power might view the disruption of a global industrial system that serves the interest of the sitting government as a way to undermine the regime's power and thereby clear a path for its own advancement. We saw one example of such a strategy in Venezuela in 2002, when forces opposed to President Hugo Chavez shut down the pumping and export of oil destined for the U.S. market. We should also keep in mind the mysterious anti-Japanese riots in China earlier this year, which erupted despite the deep industrial interdependence between those two nations and which may or may not have been conducted with the approval of the government.

We must also recognize the power of third-party nations--and of factions within these nations--to disrupt deeply interdependent industrial systems. Taiwan, for instance, is not only an inherent flash point in the bilateral U.S.-Chinese relationship, it is also home to industrial capacity that serves both the United States and China. Both Taiwan's government and elements within Taiwanese society have their own goals, of course--including in some cases complete independence--and it is not inconceivable that some one of these parties will conclude that the best way to serve its interests is to threaten to disrupt an industrial system that serves the interests of leaders in Beijing and Washington. Arguably, such a dynamic has been present in the U.S.-Chinese-Taiwanese relationship for at least the last five years. Arguably, this dynamic may end up precipitating the very conflict that the Taiwanese assume the Chinese and Americans most wish to avoid.

Nor is it impossible to imagine that today's government in Beijing will alter its calculations and conclude that it has more to gain from a disruption of the system, or the mere threat to disrupt the system, than from some further compromise to ensure the stability of the system. Indeed, a deep economic recession or popular discontent might lead either government to adopt policies that would disrupt trade flows, perhaps in an attempt to harness the energies of nationalism, even if there was no overt desire to damage the trans-Pacific relationship.

Finally, in direct contrast to the core contention of the utopians, deep interdependence could lead a completely rational actor to choose to disrupt a common industrial system, especially if that actor comes to believe that its counterpart is relatively more vulnerable to a disruption in trade. To understand this point requires examining the analogies through which we view the relationship, reviewing precedents in which partners in interdependent relationships disrupted commerce, and reviewing cases in which the threat of disruption to trade flows resulted in political compromise.

For instance, although Andrew Grove used the phrase "Mutually Assured Destruction", and although both Friedman and Barnett act as if the dynamics of industrial interdependence are much the same as those of nuclear interdependence, it should be clear after only the slightest review that the analogy does not hold. For one, the scale of the threat is not the same--the computing equivalent of Mutual Assured Destruction is not as terrifying as the prospect of thermonuclear war. For another, the nuclear face-off between the United States and the Soviet Union was for all intents actively regulated by the two states, one result being to ensure a sort of "balance of terror."

History, meanwhile, provides many models of how industrial and economic interdependence not only has not prevented conflict, but may actually have tempted one party to an action that disrupted cross-border systems. The most important example by far was in 1914, when Germany went to war knowing that Britain did not have the capacity to produce sufficient shell-grade steel for war, because the British had outsourced that production to Germany. For the Germans, this extreme-stakes bet can still be regarded as reasonable, even smart. Not only were British armies hobbled in the field by a lack of artillery support, the shortage precipitated a political crisis that nearly collapsed the war government in 1915. In the end, the German bet did not pay off. But this was not because Britain was able to reconstitute its capacity to manufacture high-grade steel; it was because the United States agreed to ship steel to Britain. It took the British more than two years to rebuild their capacity and then only with machine tools imported from Switzerland and the United States.

Essay Types: Essay