The Anglosphere Needs a Customs Union

The Anglosphere Needs a Customs Union

The five “core Anglosphere” nations on their own would add up to a very impressive economic bloc.

OVER A century ago, at the Royal Geographic Society in London, Halford Mackinder delivered a paper titled “The Geographical Pivot of History,” in which he argued that the rise of railroads would diminish the influence of seapower and render control of the Eurasian heartland the key to world power. A generation later, the American international relations scholar Nicholas Spykman disagreed. He asserted that control of the “rimlands” around Eurasia, including Western Europe and East Asia, was more important than domination of the steppes of Eastern Europe and Central Asia. Meanwhile, Adm. Alfred Thayer Mahan, a close associate of Theodore Roosevelt, found enthusiastic followers in the United States and Europe for his influential theories of sea power.

Not all strategic theorists agreed that the basis of global power and influence in the twentieth and twenty-first centuries would be determined by military and political control of this territory or that strait or sea lane. Present in the audience when Mackinder delivered his 1904 paper was a young journalist named Leo Amery, who became an influential policymaker in the British government in both world wars. Following Mackinder’s presentation, Amery stood and argued in opposition to the Heartland thesis that where a great power in the future was located would be less important than its possession of a large and advanced industrial base. Amery suggested that

a great deal of this geographical distribution must lose its importance, and the successful powers will be those who have the greatest industrial basis. It will not matter whether they are in the centre of a continent or on an island; those people who have the industrial power and the power of invention and of science will be able to defeat all others.

Alas, neither Amery nor anyone else developed this early version of what the strategist Edward Luttwak has called “geoeconomics” as an alternative to map-based geopolitics. Nevertheless, the history of the last century of great power conflict vindicated Amery’s view of the centrality of technological innovation and large-scale manufacturing. What tipped the balance of power in the world wars against Germany was America’s superior manufacturing base and energy production, mobilized first in the form of aid to Germany’s opponents and then directly after the United States had joined both conflicts. The British historian Alan Milward observed in the case of World War II, “The war was decided by the weight of armaments production.” Admiral Chester Nimitz, commander of the U.S. Pacific Fleet, declared: “Winning the war is a matter of oil, bullets, and beans.” The Soviet Union under Mikhail Gorbachev was forced to seek a truce in the Cold War because the Soviet command economy could not compete with the combined industrial forces of the United States, Western Europe, and Japan. What Amery called “the power of invention and science” was essential as well, enabling the United States to keep ahead of Nazi Germany in atomic science and of the Soviet Union in computer and rocket technology. Detroit, Los Alamos, and Silicon Valley turned out to be key pieces of strategic real estate in the twentieth century, not because of any intrinsic geopolitical value, but because they housed key manufacturing or R&D installations of the greatest scientific-industrial power on Earth.

UNFORTUNATELY, SINCE the end of the Cold War, the United States has under both political parties followed grand strategies closer to the territorial visions of Mackinder, Spykman, and Mahan, while post-Mao China has followed something like the Amery strategy, attempting to maximize its global shares not only of manufacturing but also of cutting-edge science and innovation. Apart from bloody skirmishes on its border with India, China has not fought a war since its 1979 war with Vietnam. Although China still lags behind in some areas, including the most advanced microchip technology and aerospace, in one field of global manufacturing after another it had risen to a leading or dominant position before the Covid-19 pandemic. 

For example, a single Chinese company, DJI, produces more than half of all civilian drones that are purchased worldwide and the majority of those used in U.S. domestic law enforcement. Meanwhile, in the last three decades, the United States has lost 70 percent of its semiconductor manufacturing industry to other countries, in particular Taiwan. In 2020, China’s made 76 percent of the world’s lithium-ion batteries, essential for electric cars. The United States made only 8 percent. Chinese companies make 60 percent of the world’s wind turbines. The only American company among the top fifteen wind turbine manufacturers, GE Renewable Energy, in 2018 controlled a mere 10 percent of the global market. In 2018, Chinese pharmaceutical firms dominated the U.S. markets for antibiotics (97 percent), ibuprofen (90 percent), hydrocortisone (91 percent), vitamin C (90 percent), acetaminophen (70 percent), and heparin (40–45 percent). In 2016, only sixty-nine of Apple’s 766 iPhone suppliers were in the United States; 346 were in China, forty-one in Taiwan, and 126 in Japan—twice as many, in a country with less than half of America’s population. And China continues to move up the value chain, seeking to displace the United States and other advanced industrial capitalist nations in high-value-added industries.

During the George W. Bush years, there was a complete contradiction in U.S. strategy toward China. The Pentagon treated China as the most likely “peer competitor” threat to the United States, while the Bush Commerce Department sometimes encouraged companies to offshore production to China.

Rising tensions with China led the Obama administration to combine a military “pivot to Asia” with an attempt to use the Trans-Pacific Partnership (TPP) Treaty to create an Asia-Pacific trade bloc excluding China. But the TPP was dominated by two economies, the United States and Japan, and most of the small economies, which, like Japan, traded as much or more with China as with the United States, so the idea that the TPP would advantage the United States over China never made sense. In any event, it was so unpopular in the United States that both Hillary Clinton and Donald Trump denounced it in the presidential race of 2016 and a then-elected President Trump cancelled it.

During his tempestuous single term, Trump spent much of his time at war with neoliberal globalists whom he had appointed, and he antagonized U.S. allies including Canada with his unsystematic use of tariffs. The Biden administration has kept some of Trump’s tariffs on China, and has sought to increase domestic content rules in various laws. In addition, it has approved subsidies in the CHIPS and Science Act to make the United States less dependent on chips from Taiwan. But U.S. corporations that have off-shored production to China and other countries, along with U.S. firms dependent on imports from China, provide Beijing with a powerful lobby in the United States that works to thwart efforts to achieve American industrial independence.

IF WASHINGTON were serious about ending and partly reversing the deindustrialization of the United States in the last half a century, the first question would be what the unit of industrial policy should be. A purely national industrial policy like Trump’s would exclude the industrial bases of allied countries. At the other extreme, it would be impossible to persuade all of the members of NATO and America’s Pacific alliance system to agree to common policies to increase their collective share of the global market in particular targeted areas of production. China recently replaced the United States as Japan’s largest trading partner, and Germany’s business model until recently depended on using low-cost Russian gas in factories making goods for export to China, while running perpetual merchandise trade surpluses with the United States.

The size of the market matters because manufacturing industries are characterized by increasing returns to scale, a phenomenon that means bigger firms are not only more profitable than smaller ones but also more efficient. Multinational corporations disproportionately originate in the advanced industrial countries with the largest populations and the largest national home markets—the United States, Japan, and Germany. And according to the “transnationality index” used by the United Nations (UN) Conference on Trade and Development, many of these multinationals tend to have nearly half of their sales in their home market. In other words, big firms based in big national home markets find it easier to expand to become global corporations with suppliers and affiliates in many countries. Most multinational firms retain a national market base; few are truly global. 

Between the national home market and the global market are intermediate markets with increasing degrees of organization: the free trade area and the customs union. A free trade area like that created by the U.S.-Mexico-Canada Agreement (USMCA, formerly NAFTA) can provide preferential treatment for domestic content sourced from any of its members, while allowing each national member to set its own tariffs and various other rules. In contrast, a customs union, with a common external tariff, and no tariffs within, is more like an enlarged home market. In the nineteenth century, the Prussian-led Zollverein, or customs union, preceded the unification of most German-speaking states outside of the Habsburg empire.