August 25, 2019

What the U.S.-China Trade War Tells Us About Peace and Interdependence

  • Analysis

By: Logan McRoberts

Conventional wisdom regarding the relationship between free trade, interdependence, and peace has largely been positive.

Generally, the formulation goes, free trade creates economic ties between nations such that the cost of going to war with one another outweigh the potential advantages of claiming victory.

Conventional wisdom on this matter, at least in the United States, is changing – perhaps for the worse. Some may remember the 2016 presidential election for starkly polarizing subject matters, but everyone would do well to remember one area where Donald Trump, Bernie Sanders, and Hillary Clinton unanimously found common ground: a suspicious – even hostile – attitude towards free trade in the contemporary world. Granted, the three then-candidates couched their critiques in distinctly different terms, but the message, at bottom, was one of contempt aimed at free trade.

Rewind a hundred years to World War I, where, as Dr. Michael A. Butler, author of Cautious Visionary: Cordell Hull and Trade Reform, 1933-1937 explains how Cordell Hull, “one of the most important forgotten men of the 20th century,” had an epiphany about the relationship between peace and free trade.

Cordell Hull, former congressman from Tennessee, was observing the conflict between Germany and France, thinking the two European powers would need to, or be able to for that matter, conduct war with one another were they to have deeper economic ties.

Jacob Goldstein, an NPR correspondent, nicely summarizes Butler’s point as, “businessmen in Paris and Berlin saying to their governments - hey, don't shoot my customers.” During the 1930s, Hull served as secretary of state under Franklin Roosevelt. It turns out pushing international free trade in the 1930s in context of the rising tide of fascism wasn’t a great environment for Hull to be pitching, let alone operationalizing, his theory.

Doug Irwin, Professor of Economics at Dartmouth and expert in past and present US trade policy, points out that people saw Hull as missing the point. No way, no how could trade be the answer to a fascist regime and a democratic country at war. It wasn’t until World War II that Hull’s case was more palatable for a US audience that saw Western Europe and Japan being devastated and in need of American products in addition to returning American soldiers needing job opportunities at home.

The notion of trade creating vested interests between would-be rivals to prevent conflict was sold to Americans as well as President Roosevelt. After World War II, the General Agreement on Tariffs and Trade (GATT) was created and average tariffs on imports to the U.S. dropped dramatically.

Fast-forward to the 21st century and many would say Hull’s proof is in the pudding. Daniel Griswold’s, former director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute, commentary from 1998 lays out the evidence: in every war between countries since WWII, at least one of the parties involved had protectionist trade policies.

Griswold flushes out some nuance between the dynamic. An abundance of free trade does not necessitate peace, nor does an absence of trade necessitate conflict. After all, nation-states are not constituted entirely out of their commercial interests, and Griswold rightfully points out, “human vices such as greed, envy, racism and intellectual hubris, combined with the power of government, can overwhelm the beneficial influence of peaceful commerce.”

Herein lies a challenge. At what point does interdependence’s peace-making function become a liability to peace-making?

The U.S.-China trade war has received mixed criticism from both parties of Congress while the Trump administration has waged it, but nevertheless, there’s a general bipartisan consensus on the fear of China as a rising challenger of preeminence equal to that of the United States, namely in economic terms. It seems fair to say that economic interdependence between Beijing and Washington has been an overall positive trend with respect to its effect on national security, peace, and foreign policy. However, the tit-for-tat, back-and-forth saber rattling between president Trump and president Xi has illuminated the capacity for interdependence to inflict real damages to peoples’ lives without those people having been subject to gunshots, artillery fire, or combat zones.

Assuredly, costs of an economic war are markedly less extreme that the likes of World War II, but nonetheless carry real, material harm. The point is not that free trade means all parties will never see harm come to them again, but that the gradation of harm potentially incurred by a given nation is both less likely and less severe in a world marked by the constraints interdependence places on nation-states.

What may perhaps be more concerning is long-term effects of interdependence. Take, for example, an industry that has significant national security implications yet receives little mainstream attention even amidst the trade war despite it being a potential crisis point for the United States should armed conflict erupt between the People’s Republic of China and the United States. Ryan Castilloux, Managing Director of Adamas Intelligence, a Canadian independent research and advisory firm focused on strategic metals and minerals, in an interview with Mercy A. Kuo, Vice President of Strategic Services at Pamir Consulting, a global risk intelligence firm, indicates the “strategic importance” of rare earth elements quite clearly. Commercially, they’re used in hydrocarbon processing, electric vehicle, renewable energy technology, smart phones, computers, and more making them vital for U.S. economic interests.

In terms of national security and defense, rare earths are vital for jet engine durability, avionic display screens, advanced weapons and missile guidance systems, and major aircraft components. Because the PRCs has a functional monopoly on any economically viable supply of global rare earths as well as on the global supply chain via processing capabilities, “the strategic importance of rare earths to the U.S. is high,” and the threshold for such retaliation by the PRC appears to be low. That’s evident based on their decision to cut off supply to Japan in 2010 over territorial disputes.

Here’s the point: rare earths demonstrate the kind of double-edged, hand-tying interdependence has brought with it despite leading to a net aggregate increase in peace over the last several decades.

How does the US expect to be able to credibly sustain a military presence in the Indian Ocean, for example, amidst the PRCs naval modernization and expansion process that’s been happening for several years now?

What about future disputes in the East or South China seas? Sure, the U.S. military has significant presence in those areas, but amid the looming non-military threat of supply cut-off of such an invaluable resource, with no reliable third-party producer or substitute materials, what can Washington really do with its aircraft carriers, strike teams, and F-35s?

The idea of seizing Chinese production and processing facilities is a dystopian fantasy. A fantasy, to be sure, that neither will nor should ever come to fruition. The reality is that Washington’s hands would be tied both in terms of literal capability in the medium to long-term as well as almost immediately, economically.

Serious encroachments by the PRC into disputed territories runs the risk of the People’s Liberation Army (PLA) trying to run roughshod over sovereignty claims by Japan, South Korea, and India. Should flash points such as the Korean peninsula, the East or South China seas, or the Indian Ocean spark a prolonged, armed, military conflict with a U.S. ally, the US would be faced with cowering away, thus doing clear damage to our credibility regarding willingness to defend our allies (imagine how NATO countries might interpret such a scenario) or risking a serious threat in the form of supply cut-off that could significantly hamper the US’ own potential modernization efforts as well as be devastating for the U.S.’ consumer-based economy.

None of this is meant to dissuade the liberalization of trade, nor is it to endorse the kind of hostilities leveled against trade liberalization by many contemporary U.S. politicians on both sides of the aisle. Rather it’s a reminder that Griswold’s nearly twenty-one-year-old sentiment that while trade has had tremendous success in reducing net aggregate conflict in the last several decades, nation-states are not merely actors driven by utilitarian self-interest is still germane to discussions around trade and peace.

Nation-states are partly, sometimes strongly and wrongly, directed by hubris, nationalism, greed, and envy. Coupled with the power and force of government and military, large-scale armed conflict is by no means an impossibility in the twenty-first century. Interdependence becomes a liability with regards to peacemaking when it significantly hamstrings the very decision-making process that goes into foreign policy and defense strategy.

With that in mind, the U.S. would do well to identify the ways in which trade limits the U.S.’ ability to confront forces that jeopardize its national interest and work to reduce the ways in which interdependence has rendered foreign policy less flexible than is desired or necessary.

Logan McRoberts is a policy analyst and freelance writer in Washington, DC. Contact him at loganlmcroberts@gmail.com.

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