As World Politics Return to Normal, So Must Trade

by WILLIAM R. HAWKINS December 23, 2016

Beijing has returned the unmanned U.S. Navy research vehicle stolen by a Chinese warship in international waters in full sight of the crew of the USNS Bowditch.  Beijing did not do so in good grace, however, accusing Washington of a "unilateral move to dramatize the issue" which is "inappropriate" and "not conductive to its settlement." So, as usual, the problem is not Chinese aggression, but objections to that aggression. This incident could have been called piracy, but was not as the Obama administration's reaction was quite mild. In contrast, the Communist party's media outlet Global Times blamed the U.S., elaborating on the Foreign Ministry's complaint about U.S. "reconnaissance" of the area as a threat to China's "sovereignty and security." Though Global Times acknowledged that the incident was in international waters, it still argued, "Washington should be well aware that it is the strategic aggressor in its controversies with Beijing and China only plays the role of strategic defender." 

The underwater drone issue is just one of several flowing from China's escalation of its military actions in the South China Sea since the Permanent Court of Arbitration in The Hague ruled that Beijing's claim to "own" this vital sea-lane has no basis in history or law.  About a week ago, China flew one of its H-6K long-range bombers around the South China Sea. Though there has been some dispute over whether this particular bomber was "nuclear capable" (the warplane can carry cruise missiles), it was clearly meant to demonstrate Beijing's determination to defend its territorial claims by the same means upon which they are based; the traditional right to take and hold whatever one can. Deploying air and missile units to the artificial islands China has constructed in the disputed waters sends the same message.

Meanwhile, in Syria the regime seems to have decisively turned the civil war in its favor by capturing Aleppo, the country's largest city and former commercial center. Though he once appeared to be on his last legs, with a majority of the Syrian people in revolt and an international coalition (led by the U.S.) demanding he step down, President Bashir al-Assad looks secure due to military intervention from Russia and Iran. The latter redeployed Hezbollah troops from Lebanon to Syria and also sent in its own forces. Half-hearted American efforts to support the rebels failed as Russian airstrikes mounted. And the diplomacy of Secretary of State John Kerry was hopelessly naive. A historic lesson was repeated: The side that sends out an army will beat the side that takes in refugees.

In both the Middle East and the Pacific Rim, great power rivalries are manifest. China's claims threaten Japan as well as the other nations along the South and East China seas. Tokyo has had to scramble fighters to defend its skies over a hundred times during 2016. And Russia's actions are not confined to Syria, but are an extension of the same belligerence it has shown towards Georgia, Ukraine and the Baltic states, giving renewed relevance to the NATO alliance. Thus, the world continues on its cycle, moving out of the post-Cold War period into a new round of major power rivalries over the age-old pursuit of wealth and power, control of land and people, and quest for security and independence; all bound up in the desire to shape the future in one's own favor.

Such an international environment affects everything, including one topic some vocal special interests and liberal philosophers would like to be ignored: "global" commerce which they believe should be conducted as "free trade." But what does "free" mean? It means trade conducted without reference to the larger needs of national societies or the pressures of geopolitics. Merchants are to be considered autonomous actors whose behavior is unrelated to the balance of power between contending states----even though no one can seriously argue that economic capabilities; industrial output, technology level, financial stability, labor productivity, natural resource development, fiscal and monetary capacity, are not the essence of national strength.

The desire of merchants to operate purely for their own profit, and to place economics in a box, out of sight in some dark corner, is as old as time. But since the conflicts between nations and empires are just as old, they have not had much luck in getting their way. Barring cases of corruption where politicians are induced to look the other way, the philosophy of "free trade" has only flourished during two unusual periods during the last three centuries. The first (and longest) was after the Napoleonic Wars when a period of exhausted peace and ideological unity against the radicalism of the French Revolution dampened international conflict. This atypical era saw Classical Liberalism reach its peak with sages like Jean-Baptiste Say proclaiming "All nations are friends in the nature of things." In terms of trade liberalization, the 1850 Anglo-French agreement was as "free" as possible. Yet, even it had a political dimension as London and Paris would soon be fighting as allies against Russia in the Crimea War.

By the second half of the 19th century, conflict was again on the rise in Europe as Germany and Italy unified and the Ottoman Empire disintegrated. Globally, the "scramble for empire" accelerated in the hunt for resources and markets. It became evident that industrial development was the key to national power, so every major state made protecting and expanding domestic industry its top priority. The world wars of the 20th century confirmed that economic capabilities were crucial to national survival. Even Great Britain, the leading "free trader" discovered the vulnerability created by its dependence on foreign suppliers. In 1917 the Imperial War Cabinet proposed a system of trade preferences (which had been rejected before the war) arguing, 

The time has arrived when all possible encouragement should be given to the development of imperial resources, and especially to making the Empire independent of other countries in respect of food supplies, raw materials and essential industries.  

This sentiment is very similar to that expressed by Thomas Jefferson after the War of 1812. Jefferson had opposed the nationalist policy of protective tariffs and other encouragements set out by Alexander Hamilton in his famous Report on Manufactures. Hamilton created the model used to transform the colonies into the world's leading industrial power by the dawn of the 20th century; a policy embraced by Abe Lincoln and Teddy Roosevelt. Writing to J-B Say in 1815, Jefferson argued for protective tariffs,

The prohibiting duties we lay on all articles of foreign manufacture which prudence requires us to establish at home, with the patriotic determination to use no foreign articles which can be made within ourselves without regard to difference in price, secure us against a relapse into foreign dependency.                              

Even Max Beer, a left-wing critic of nationalism, had to concede the success of this policy. He wrote in 1901, "The United States, with its ruthlessly protectionist trade policy, vast territory and endless energies, is proving the most powerful rival to England and Germany." America was the "arsenal of democracy" against the Axis and used economic warfare to bring down the Soviet Union under President Ronald Reagan. Ironically, is was this success that opened the door to future policy failures.

The second period of "free trade" ascendency in the U.S. was in the 1990's when the supposed "end of history" made the world safe for transnational business. Borders were no longer important, as the world was going to be a safe place. Indeed, there was even an attempt to substitute the term "global" for "international" to eliminate from consideration the role of nations and their people. President Bill Clinton, who would approve NAFTA and the World Trade Organization, proclaimed in 1998 that the world powers were no longer competing for wealth and territory. A doubtful claim even at the time, it is clearly not a description of world affairs today.

 Thus, President-Elect Donald Trump's promise to bring industry back to America is not just about job creation, as important as that is. It is also vital to maintaining America's preeminence and security. This is particularly true in regard to China where the transfer of technology and capital, supported by a trade deficit in manufacturing that has sent $2 trillion to Beijing since 2010, has given Beijing the wherewithal to threaten its neighbors. Trump has placed great emphasis to ending this dangerous trade relationship.

Likewise, energy independence is about import substitution, not "free trade." Besides the obvious security benefits of developing domestic fuels, the downward pressure on world prices undermines the finances of Russia and Iran, curbing their ability to project power or stand as models for other trouble-makers,  

International trade cannot be considered outside the realm of national security. Thus, when House Majority Leader Kevin McCarthy (R-CA) says, "I don't want to get into some kind of trade war" when objecting to Trump's program, he is showing his lack of knowledge about the wider world. He is happy to just recite the slogans of the special interest donors who want him to continue to look the other way as foreign threats are on the rise. But to make America great again, trade policy must fit the times and face the challenges being posed to our prosperity and security. Though this anomalous period of "free trade" has lasted too long, Trump's arrival is not too late to redress the situation.  

William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.


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