THE RISE of China as a great power in all dimensions—military, economic, and diplomatic—has ended the unipolar era that followed the Cold War—if such an era ever truly existed. Instead of producing a bipolar world order, China’s rise is creating a multipolar world order, by enabling second-tier powers like Russia and Turkey and others to maneuver between Washington and Beijing.

The return of a multipolar world of great power rivalries is forcing American strategists to rethink the relationship between military, security, and diplomatic influence, on the one hand, and industry and trade, on the other. During the Cold War, these were habitually treated as separate subjects. The Soviet Union and, to a lesser degree, Communist China were military and ideological rivals, but not commercial adversaries. Japan and West Germany were commercial adversaries, but not military and ideological rivals. In contemporary China, however, the United States, for the first time since the defeat and dismemberment of Germany in 1945, faces a rival on all fronts simultaneously. It is as though in the 1950s the United States had not only competed with the Soviet Union in arms races and bids for influence in post-colonial countries but had also competed with the Soviets for global market share in aviation while defending the U.S. home market against subsidized Soviet automobile imports.

Although in 1990, Edward Luttwak defined “geoeconomics” in terms of the “logic of conflict” combined with the “grammar of commerce,” there is no precedent in living memory for the kind of full-spectrum great-power competition embodied in the Sino-American rivalry. Today’s members of the U.S. foreign policy establishment grew up in a rapidly vanishing world in which the national security adviser supervised defense, defined in terms of war and terrorism, while international trade was handled by the U.S. trade representative. In the split-brain of America’s foreign policy elite, one hemisphere was programmed by international relations theory, which paid next to no attention to trade and investment, while the other half of the brain was programmed with free-market economics that assumed a world of perpetual peace.

Realist thinkers might have been expected to contest this separation of trade and statecraft. After all, the history of the modern world before 1945 is largely a history of attempts by European great powers, and later the United States and Japan, to use military power and diplomacy to control foreign resources and labor and secure foreign markets for their domestic manufacturers and investors. But while “classical realists” took such factors into account, late-twentieth-century American academic “neorealism” focused excessively on national security (narrowly defined) and got side-tracked into abstruse models of polarity and seduced by the dream of pseudoscientific rigor. If national security thinkers had dared to stray into subjects of international trade and industrial structure which academic economists claimed as their own preserve, they would have been subject to attack by the Capitoline geese who guarded the free-trade/free-market Washington Consensus from the barbarians, like the economist and pundit Paul Krugman.

As a result, American strategists are wholly unprepared at the intellectual level to deal with the emerging world order, in which national security and national economic policy can no longer be separated.

IN ORDER to think clearly about national strategy, it is necessary to distinguish power from security, and wealth from prosperity. To use the jargon of game theory, power and wealth are “zero-sum” games, and security and prosperity are “non-zero-sum” games.

Power and wealth are relative. A country can be more powerful or wealthier only in comparison to other countries.

Security and prosperity, in contrast, are absolute concepts. All countries can become more secure or more prosperous at the same time, even if some countries become relatively more powerful and relatively wealthier than others.

To simplify somewhat, the dream of a certain idealistic strand of liberalism for generations has been to replace a world of zero-sum rivalries for relative power and relative wealth with a world of non-zero-sum mutual cooperation among all countries in promoting absolute security and absolute prosperity. Realists argue that this is neither possible nor prudent in a world of independent states without a single global sovereign.

In the military realm, the different objectives of absolute security and relative power are reflected in different methods: arms control and disarmament. The policy of arms control implicitly takes for granted the continuing existence of competition for relative power among great powers (if not minor states) for relative military advantage. The purpose of arms control is not to eliminate national militaries, or even to eliminate arms races, but to reduce the danger and cost of particular arms races to both sides in a geopolitical contest.

In contrast, the goal of advocates of disarmament is absolute and universal human security by means of the eventual abolition of national militaries and weapons of war everywhere. All countries could become more secure from threats of invasion, for example, if all armed forces that could be used offensively to project power across borders were eliminated.

The problem with disarmament, realists would object, is that if one country became aggressive and chose to rearm later, its neighbors might be forced to hastily rearm to deter invasion or intimidation. If they failed to do so in time, they might sacrifice vital interests or even lose their independence. Far better for all nations to maintain minimally adequate militaries that can be expanded in response to threats, rather than risk disarmament—even if, temporarily, all countries were to disarm at once.

The difficulty with U.S. strategy since 1945 is that it has been informed by the zero-sum logic of arms control in the military realm and by the non-zero-sum logic of disarmament in the economic realm. In the military arena, the United States in the Cold War engaged in arms races, not to build a war machine enabling it to invade the Soviet Union and its client states, but to achieve a position of strength from which to negotiate arms control treaties that benefited the United States and its allies. In the economic realm, however, U.S. trade policy in the same period was engaged in economic disarmament. The purpose of multiple rounds under the General Agreement on Trade and Tariffs, the creation of the World Trade Organization, and regional free trade agreements like NAFTA/USMCA, has been to strip countries, including the United States, of various tools traditionally used to protect and promote their own industries, like tariffs and subsidies and local content requirements and procurement preferences.

Why would an industrial great power like the United States promote a global trade regime that makes it illegal to engage in industrial policy for the benefit of American producers and workers? On the face of it, given the dependence of military power on national industrial capacity, this policy seems irrational—particularly because the United States during and since the Cold War has tended to turn a blind eye to violations of free-market ideals by allies like Japan and rivals like China alike.

U.S. SUPPORT for a rule-governed international economic order that binds the United States itself is not as peculiar as it seems. Under conditions that existed for a time, both multilateral and unilateral economic disarmament may have made sense in realist terms.

According to the tradition of economic nationalism informed by Alexander Hamilton, Friedrich List, Alexander Gerschenkron, Raul Prebisch, and others, the foreign trade strategy of a country should depend on its stage of industrialization. (I will limit the discussion to the small number of populous, major military and industrial powers, two categories that tend to overlap. Small and weak countries—the majority in the world—have far fewer choices and little bargaining power and must seek the protection of greater powers and access to markets of populous nations on whatever terms they can get.)

An agrarian country attempting to industrialize should engage for a time in protectionism or import substitution industrialization. Tariffs, non-tariff barriers, local content requirements, or other measures can exclude imports from more advanced, already-industrialized countries and reserve the national market for its own national “infant industry” firms, which, though inferior to the firms of the advanced countries, must learn by doing over time. The infant-industry firms need not be national; they can be local affiliates of foreign firms, as long as they build up national industry and transfer technology to national capitalists and skills to national workers.

Once a country has industrialized, its trade strategy should change. Its industries are now equal in quality to those of other countries, so it no longer needs the “training wheels” of infant industry protectionism. The emphasis should shift from protecting its own market to gaining access to foreign markets—without, however, sacrificing its home market completely to foreign firms.

The trade strategy that the nation pursues in this second era depends on its own relationship with other powerful industrialized nations. If the newly-industrialized country is only one of several great powers, then it can benefit from access to affluent consumer markets, most of which are found within the other great military-industrial powers at a similar level of development. At the same time, in a multipolar system the country should be wary of becoming overly integrated with and dependent on other great powers that might turn against it in the future. In a multipolar system, the wisest course for great powers is to increase their access to foreign markets or foreign investment by means of reciprocal trade liberalization agreements—while limiting their trading partners to military allies or neutrals and protecting their national firms in their strategic industries from competition even with the firms of friendly allies in some cases.

But another scenario is possible once the catch-up phase of national industrialization is complete. In a unipolar world in which a single power radically outmatches the other powers in military power, industrial capacity, and market size, the sole superpower can establish something like an informal world government, albeit one with rules it makes and with norms that it tends to enforce in a unilateral way. A hegemon that possesses overwhelming industrial power, as well as military might, can afford—at least for a time—to be much more relaxed about competition in international trade with other countries. It can even afford to be willing to pay some unreciprocated costs to provide transnational public goods, without endangering its primacy in the system.

ONLY TWO countries have been liberal economic hegemons since the industrial era began: Britain and the United States. In each case, the hegemon pursued an infant-industry protectionist policy for generations. Once its national industries were far superior to those of other countries, both the United Kingdom and the United States adopted and preached policies of international free trade and free investment, on the theory that their manufacturers and capitalists had more to gain from opening up global markets than their domestic producers had to lose from import competition.

Unlike the United States, Britain was never a global military hegemon. In the military dimension, Britain was only one of a number of great powers. Britain’s brief hegemony in the mid-nineteenth century was limited to manufacturing and finance.

From the Tudor era in the sixteenth century to the 1840s, Britain engaged in strategic protectionism and a highly sophisticated industrial policy. Its colonies, including those in North America, were banned from trading with other empires and forced to buy British goods, which by law had to be shipped on British vessels. The transfer of advanced technology was discouraged by British laws making it illegal for skilled technicians to emigrate.

Only after Britain had become the first industrial superpower thanks to centuries of protectionism did it switch to free trade, on the assumption that the non-industrial nations of the world would have no choice but to buy Britain’s manufactured exports while competing with each other to drive down the prices of cheap food exports to British workers and cheap raw materials exports to British factories. As the economic historian Ha-Joon Chang has explained, Britain’s free trade strategy may have been rationalized in terms of idealism or economic “laws,” but its goal was the same as the goal of mercantilism: to create a buyer’s market in Britain for low-value-added imports from other countries and a seller’s market abroad for high-value-added British manufactured goods. The British economist Stanley Jevons declared: “Unfettered commerce … has made the several quarters of the world our willing tributaries.”

That British manufacturers benefited the most from free trade in the early industrial age was not lost on the leaders of the nineteenth-century United States, Germany, Japan, and others. They realized that London wanted them to specialize forever in providing agricultural commodities, mineral ores, and lumber to Factory Britain and decided they preferred to have factories of their own, not least because no country without its own factories can be a major power in the industrial era. As a result, with the goal of catching up with or surpassing British industry, in the late nineteenth century all of the great powers adopted their own versions of import substitution industrialization. For its part, Britain persisted too long in its policy of unilateral free trade, with the result that American and German imports, and later East Asian imports, in Britain’s unprotected market eroded much of British industry with consequences that linger to this day.

ALTHOUGH NINETEENTH-CENTURY Britain for a time was the manufacturing and financial hegemon of the world, it was never a global military hegemon, only one of several great military powers. In 1945, however, the United States was a full-spectrum hegemon—the first in the history of the industrial era and possibly the last. Postwar America’s GDP was larger than that of the next few great powers combined. Because many of the factories of Europe, Russia, and Japan lay in ruins, American exporters could dominate global markets while facing little competition.

The Cold War order is usually described as bipolar, but that needs to be qualified. Arguably the world was unipolar and America-centered from 1945, and the Soviet goal was to catch up with the United States and become a genuine second superpower—a goal at which it ultimately failed. At most, the world had one full hegemon and a half-hegemon, the Soviet Union, which combined a massive military along with considerable ideological appeal in the Third World, and even in the West, with a limited and inferior economic base.

The Cold War United States created a Pax Americana in which it provided quasi-governmental services to its allies and clients, including the two most important industrial capitalist nations, Japan and West Germany, which, following their defeat in World War II, unlike Britain and France, were not traditional great powers but American protectorates. One hegemonic service was extended deterrence. The United States agreed to go to war to defend allies and client-states in Europe and Asia, with no expectation that its allies and clients would defend the United States—and went to war to prove its credibility to more important allies by defending the minor client-states of South Korea and South Vietnam.

Another hegemonic service provided by the United States as a benefit to members of the Pax America was financial—the use of the dollar as the world’s reserve currency. Finally, in the area of trade, the United States tolerated a high degree of protectionism and mercantilism on the part of its allies, particularly its East Asian allies—Japan, South Korea, Taiwan, and Singapore—which, having lost the China market following the communist victory on the mainland in 1949, were dependent for their prosperity on access to American and Western European consumers.

American industrial producers were often sacrificed to American national security strategy in the Cold War Pax Americana. A high dollar hurt American exporters and made foreign imports cheaper in the United States, but the U.S. government was willing to pay the price to maintain the dollar as the global reserve currency, which allowed the United States to borrow in its own currency even when it ran up huge trade deficits. Even worse, from Harry Truman and Dwight Eisenhower to Ronald Reagan, whenever American manufacturers complained that their goods were being kept out of the markets of U.S. allies or otherwise undercut, the Defense Department and the State Department often would weigh in and say that having U.S. bases and good relations with those trading partners was vital, even if it meant sacrificing American industries. Usually, American presidents sided with the Defense Department and the State Department.

An opportunity to reconsider the Pax Americana strategy arrived after the end of the Cold War. The United States should have begun to adjust to an inevitable future multipolar world order in both its security strategy and its trade and industrial policies. Unfortunately, utopian adherents of liberal hegemony won the debate among Democrats and Republicans alike. According to the rosy scenario shared by American triumphalists, China would be integrated with little friction as a low-tech, low-cost manufacturer into the existing Pax Americana system that would expand to incorporate the entire world. The United States would be the “sole superpower” in the military dimension and the “headquarters nation” in the global economy. Bush Republicans and Clinton Democrats alike optimistically interpreted the rapid defeats of Iraq and Serbia by high-tech U.S. weaponry to mean that the United States would lack great power rivals for the indefinite future and needed only to worry about weak “rogue states” seeking weapons of mass destruction and stateless terrorist groups like Al Qaeda. Meanwhile, the leading role of the United States in the third industrial revolution of information and communications technology, much of it, like the internet and computers, originally emerging from Pentagon state capitalism during the Cold War, made the American strategists of the 2000s as confident as the British strategists of the 1850s that the rest of the world could not catch up for decades or generations.

THE INCREASING economic sophistication of China and its combination of growing military capabilities with aggressive revisionist policies has shocked many, though not all, complacent members of the American foreign policy elite into rethinking their assumptions. Two decades ago, most in the U.S. foreign policy establishment thought of China as a hybrid of Mexico, with its cheap-labor maquiladoras assembling goods with high-tech components made in the United States and elsewhere, and Boris Yeltsin’s post-Soviet Russia, where foreign carpetbaggers could make a quick fortune. But while it lags behind in some industries, like chip manufacturing, Xi Jinping’s China is determined to compete at the level of advanced technology, not just provide cheap labor and consumer markets for American, German, Japanese, and South Korean multinationals.

Already DJI, a Chinese drone manufacturer, controls 70 percent of global civilian drones, a technology pioneered in the United States. In global shipbuilding, an advanced manufacturing industry abandoned by the United States under Reagan, China controls nearly 40 percent of the global market. By 2015, thanks to the Reagan administration’s short-sighted abolition of U.S. subsidies under the influence of free market orthodoxy, only one-third of 1 percent of new commercial shipbuilding construction occurred in the United States.

The Covid-19 epidemic illustrated the shocking dependence of the United States on Chinese manufacturing for critical items from drugs to medical face masks. And on May 15 of this year, China was the second country in history to land a robot rover on the surface of Mars. Mexico has yet to challenge the United States in the space race.

China has the opportunity to become what neither Germany under the Kaiserreich and Nazi regime nor the Soviet Union ever had a realistic chance of becoming—a full-spectrum competitor of the United States, surpassing the United States not only in population size but also in domination of one global market after another.

While China could in time become the second superpower that the Soviet Union never really was, there may be others in the future. India lags far behind both China and the United States, but it will surpass China in population soon. A more advanced India that falls short of Western standards of living would still be a major power with a home market accounting for a large share of global GDP. The nations of Europe are unlikely ever to cohere as a functioning power bloc, but Britain, France, and Germany, along with Russia and Turkey on the European periphery, and Japan in East Asia, will be great powers of the second rank.

Unfortunately, U.S. adjustment to today’s radically new conditions is being thwarted by intellectual lethargy and special interests.

Intellectual lethargy takes the form of hoping that strategies that worked during the first Cold War—democratic regime change, support for a rule-governed global trading system—can work during what promises to be a prolonged rivalry with China.

The Chinese challenge has nothing to do with the regime. If China embraced Western-style liberal democracy tomorrow, it is likely that all of the politicians in a Chinese multi-party system would favor overtaking or displacing the United States in global markets and global power politics, just as most American leaders shared the goal of replacing culturally-similar Britain as the dominant industrial and commercial power in the world in the first half of the twentieth century.

Nor is calling on China to renounce its protectionist and mercantilist practices to embrace a rule-governed international trading system based on the ideal of free trade likely to succeed. If it did succeed, the beneficiary might be China, not the United States.

Remember that the UK and the United States both turned from catch-up industrial protectionism to the promotion of global free trade at the moment they were so far ahead of their peers that they could bid for global economic hegemony. The UK embraced free trade in an attempt to lock in its manufacturing hegemony in the 1840s. The United States embraced free trade in an attempt to lock in its manufacturing hegemony in the 1940s. What if China is so confident in its industrial superiority that it embraces free trade in an attempt to lock in its manufacturing hegemony in the 2040s? In that case, a deindustrialized and militarily weak United States might be reduced to the sad condition of contemporary Britain, which, having been driven out of most manufacturing apart from foreign transplant factories, specializes in finance, tourism, and selling prestigious diplomas to foreign students.

An ex-hegemon, like Britain in the twentieth century and the United States in the twenty-first century, must abandon the strategy of liberal hegemony that served it well earlier for a generation or two. It made sense for the United States to open its market to German and Japanese and South Korean imports when American industry was the strongest in the world and the United States needed military bases in those countries. It makes no sense for the United States to sacrifice its manufacturing to China today. Nor does it make sense for the United States to continue providing hegemonic services like extended deterrence and one-way access to U.S. consumer markets for other countries in a multipolar world in which the United States is no longer the hegemonic power but first among equals at most among the great powers.

Adding to the problem of intellectual lethargy is the problem of special interests that remain committed to the continuation of a failed U.S. strategy. U.S. multinationals that profit from low wages and sometimes Chinese government subsidies in their reliance on key suppliers in China, for the most part, resist moving any production back to the United States. Even if they wanted to reshore some production, it is difficult for firms to do so because the United States has allowed much of its industrial base to atrophy, including skilled technicians and the “industrial commons” constituted by regional manufacturing firms.

American corporations that benefit from offshoring strategic links in industrial supply chains, from medicine to electronics, are only part of the coalition that opposes any significant rethinking of U.S. trade and industrial policy. Opposition also comes from domestic U.S. industries that rely on cheap imported goods, like construction, whose firms want access to the cheapest steel on the world market, regardless of whether this undermines American national security and long-term economic growth. Then there are American farmers. First Japanese, then more recently Chinese, trade negotiators learned that by promising to import more U.S. farm products, they can mobilize American farmers to oppose measures to protect American manufacturers from foreign mercantilism. Many firms on Wall Street, too, are willing to sacrifice American industry in order to gain access to foreign financial markets, including the huge Chinese market for banking services.

The increasingly dangerous status quo is also defended by powerful ideological factions in both parties. On the Right, the libertarian ideal, more influential among Republican donors than Republican voters, is a borderless world of unrestricted commerce among individuals and firms. Many on the Left have come to view restrictions on trade, like restrictions on immigration, as motivated by xenophobia and therefore to be rejected.

Some environmentalists on the Left argue for appeasing China, which thanks to its subsidies and industrial policy controls 80 percent of the global solar cell manufacturing market and 80 percent of the global market for raw materials for advanced batteries. Arguing that global warming is such a grave crisis that countries must set aside their strategic rivalries, these Green ideologues prefer importing Chinese green energy products rather than taking the time to build up alternatives in the United States or among U.S. allies.

EVEN IF these formidable intellectual and political challenges to rethinking American grand strategy can be overcome, the bipartisan commitment of America’s leaders to hegemonic liberalism from World War II to the present means that precedents for a new U.S. policy must be found in the American protectionist era before the world wars. Plenty of historical precedents for American industrial policy can be found, including Alexander Hamilton’s “Report on Manufactures” in 1791 and Henry Clay’s vision of the American System, along with federal support for the development of the railroads, the telegraph, radio, television, aviation, and nuclear energy.

What cannot be found in American history, however, is a sustained period in which the United States was one of several great powers, rather than an isolationist country or the global hegemon. This explains, perhaps, why so many critics of overextended U.S. global hegemony tend to flip to the opposite extreme of isolationism. There is simply no institutional or historical memory among Americans of a time when the United States was not either trying to isolate itself from power politics or abolishing power politics by imposing its own vision and order on the world as the sole superpower.

In the absence of historical precedents, a new strategy for a post-hegemonic America that no longer treats national security and industrial policy as subjects in separate siloes will have to be improvised. While the details remain to be filled in, the outline is clear.

To begin with, the United States must distinguish between strategic and non-strategic industries. To protect everything is to protect nothing. To attempt to promote every sector and industry in the United States would waste and diffuse the attention and capabilities of the federal government. 

The industries and products and services that are identified as strategic will vary from time to time, depending on the state of technology. Nevertheless, it is not a difficult intellectual exercise, because all of the great powers engage in the same exercise at the same time. In the 1870s, every great power wanted to stay ahead, or catch up in, steel and coal and repeating rifles and machine guns and battleships. Today, the United States, China, and the EU all want to bolster existing aviation and steel and chip producers as well as maintain adequate shares of new industries with both civilian and military applications like artificial intelligence, drones, robotics, battery technology, and (following the pandemic) drug precursors and medical supply chains.

Raw materials and intermediate products, as well as finished products, can be deemed strategic if a lack of access to them renders a major power vulnerable to blackmail or blockade by a hostile rival or alliance. For that reason, the U.S. government is trying to reduce America’s dependence on rare earths—a primary product—as well as subsidizing private American rocket companies that can launch payloads into orbit—a finished product. In some cases, the government may decide it wants to keep one link of a supply chain on American soil but not others if there are multiple diverse and safe sources of supply.

If it is legitimate for the United States to protect its strategic industries, then it is also legitimate for other great powers to do. No rational great power will allow a trading partner—even an ally—to wipe out its own strategic industries in its own home market, however indifferent it may be to the location of less essential production. From this, it follows that every great power should be allowed by trade rules to protect the industries that its government designates as strategic, not only in emergencies, but as a matter of routine.

For non-strategic industries, free trade could be the default. But in the world after the Pax Americana, free trade in strategic sectors is not desirable either for the United States or other great powers, be they U.S. allies or rivals. What is needed in strategic sectors is managed trade.

Managed trade does not rule out a high degree of trade among non-hostile great powers. For example, instead of blanket protectionist tariffs barring all imports in a strategic sector, a country might set minimal local content requirements, allowing the rest of the content to be imported. Or it could negotiate market-sharing agreements with allies, stipulating that if the share of domestic producers fell below a certain minimum the government would intervene to boost domestic production. The Multifiber Textile Agreement, which limited the textiles that could be imported from developing countries to developed nations between 1974 and 1994, provides a model for that approach.

THE POINT is that the idea of global free trade as an end in itself is obsolete in a multipolar world of several great powers and shifting coalitions, in which today’s friendly trading partner may be tomorrow’s enemy determined to cut off essential supplies. Free trade should be rejected as a goal of global trade negotiations in favor of “mixed trade”—that is, a mixture of managed trade in strategic sectors and relatively free trade in less important sectors.

It goes without saying that free market fundamentalists, along with those who speak for special interests opposed to reform, will denounce even a relatively market-friendly mixed trade system as “protectionist.” Let them denounce it. The major industrial nations, which also happen to be the major military powers, are moving rapidly away from free trade toward greater economic nationalism and mixed trade—not because they are ignorant of economics or irrational, but because they are engaged in the economic equivalent of rearmament in anticipation of a future in which the United States will no longer serve as a provider of free security services and one-way access to the U.S. market. Free trade as a universal ideal might have made sense under U.S. global hegemony. In a post-hegemonic, multipolar world of never-ending great power rivalries, free trade is only one tool to be used by the government in the national interest, along with reciprocal trade and pure protectionism, on a case-by-case basis, depending on the circumstances.

The alternative to trade war is neither unilateral nor universal economic disarmament. It is economic arms control. The sooner that policymakers, politicians, and pundits accept that, the sooner the United States will be able to reform its institutions as well as its ideology to flourish in a world which it can no longer dominate but must share with other great powers.

Michael Lind is a professor at the Lyndon B. Johnson School of Public Affairs, a columnist for Tablet, and a fellow at New America. He is the author of The New Class War (2020) and The American Way of Strategy (2006).

Image: Reuters.