William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.

In his opening remarks welcoming Chinese President Hu Jintao to the White House on April 20, President George W. Bush said: “The United States and China are two nations divided by a vast ocean -- yet connected through a global economy that has created opportunity for both our peoples.  The United States welcomes the emergence of a China that is peaceful and prosperous, and that supports international institutions.  As stakeholders in the international system, our two nations share many strategic interests.  President Hu and I will discuss how to advance those interests, and how China and the United States can cooperate responsibly with other nations to address common challenges.”

Bush’s attempt to mask national rivalries by appealing to some imagined “international system” of global economics and institutions had little impact on a Chinese leader firmly rooted in the cultural heritage of his vast country and the rising nationalism of its people.

The “stakeholder” gambit was first tried out by Deputy Secretary of State Robert Zoellick in a speech to the National Committee on U.S.-China Relations last September, who claimed, “All nations conduct diplomacy to promote their national interests.  Responsible stakeholders go further: They recognize that the international system sustains their peaceful prosperity, so they work to sustain the system.”

In the same speech, Zoellick rejected any policy to “contain” China, or “promote other powers in Asia at its expense.” Or indeed invoke “the distant balance-of-power politics of the 19th century.” Such naive thinking by a high ranking American official can only serve to confirm in the minds of Beijing’s hard-line analysts their belief that the U.S. has entered a decadent, downward spiral.  Washington is simply no longer willing to play for keeps in world affairs to protect itself.

Conjuring up the notion of a peaceful system to which the American people should sacrifice their advantages for the good of universal others is the road to ruin.  This is true even of international commerce, which most economists claim is conducive to the idea of interdependence and laissez-faire.  

As McGill University political science professor Mark R.  Brawley has argued in regard to the attempted establishment of international order, “the liberal rules [that] the leading state creates seem to diffuse economic power out of that country and into others, undermining the leader’s own position.” (Liberal Leadership: Great Powers and Their Challengers in Peace and War, Cornell University Press, 1993.)  “Relative economic decline is explained through the success of the liberal leader’s capital-intensive sectors in exporting captial-intensive goods and services,” writes Brawley, as this “allows capital to be accumulated elsewhere.” This is what is happening as American (and other foreign capital) flows into China to build production capacity, which is then supported by exports that destroy the home industries of the countries where the foreign capital originated.  

The decline of England has always been a favorite for this kind of analysis.  As  the prominent commercial lawyer and judge Lord Penzance warned in 1886, “The advance of other nations into those regions of manufacture in which we used to stand either alone or supreme, should make us alive to the possible future.  Where we used to find customers, we now find rivals....prudence demands a dispassionate inquiry into the course we are pursuing, in place of a blind adhesion to a discredited theory.” The “discredited theory” to which Lord Penzance was referring is “free trade.” England had adopted this doctrine when it had a substantial lead in the Industrial Revolution and wanted to open foreign markets for its exports.  But as conditions changed, its leaders clung to policies that no longer fit world affairs.  

British historian D.C.M. Platt [Finance, Trade and Politics in British Foreign Policy 1815-1914, Oxford University, 1968] has argued that the leaders of Victorian England were so devoted to “free trade” that they were willing to sacrifice their direct interests to this intellectual ideal.  Another British historian, Keith Robbins [The Eclipse of a Great Power: Modern Britain 1870-1975, Longman, 1983] has written, “To a few contemporaries, this devotion was perverse.  It seemed obvious that the world was not following Britain’s Free Trade example.  Germany introduced a measure of protection in 1879, France in 1882 and the United States in 1883 and 1900....But there was no British retaliation.”

The failure to adapt in a dynamic world is a central weakness of thinking bound by  ideology; i.e., the belief that some doctrine is so perfect that it fits all times and places.  Such blind faith can lead people to reject another idea they know will work, because it does not fit their misplaced “values.” For example, the Indian historian Partha Sarathi Gupta [Power, Politics and the People: Studies in British Imperialism and Indian Nationalism, Anthem Press, 2002] cites a 1915 memo from Ernest Low, secretary to the Viceroy’s commerce department, which acknowledged,  “The public...have a policy [of protectionism] on the theoretical advantages of which a large section of them are unanimously agreed; which has been tried in many countries and can point to a considerable measure of success.” To head off the rising call for action, Low proposed a “committee of enquiry,” but one so rigged that “all questions relating to protection be ex hypothesi excluded....the enquiry will concern itself only with the examination of the alternative policies.” Low advised this course even as other voices were “pointing to the danger of ‘subsidised Japanese manufactures’ capturing the Indian market while Europe was at war,” according to Gupta.  Low would feel right at home in the Bush administration.  

World War I was too big a dose of reality for the free traders to deny.  In 1917 the Imperial War Cabinet adopted a resolution calling for a system of trade preferences within the British Empire, concluding, “The time was 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 was to be done by using tariffs to protect producers within the empire from outside competition.  The new principle was first incorporated legislatively in 1919.  Gupta notes, “Except for the Manchester Chamber of Commerce [long the center of the free trade movement], all other chambers of commerce seemed to think that a new international economic arrangement, not based on free trade, might become necessary.” As previously mentioned, most European nations had already abandoned their flirtation with free trade before the war.  

However, after seventy years of Free Trade, England's decline had progressed too far to be easily reversed, though some improvement was made.  Non-Empire imports had been cut from 22% of England's GNP in 1913 down to 10% by 1938.  Yet England still found its industrial base inadequate in the face of the revived threat from Germany under Hitler.  Without the support of American finance and industry, England would have found itself bankrupt and unable to further resist the Axis in 1942.

Today, the United States has no one to back it up if it falters.  The Bush Administration has followed an activist foreign policy, while ignoring the deteriorating international position of the American economy upon which the nation’s power depends.  It was clear from President Bush’s statements during the visit of President Hu, that the White House is still gripped by an ideology that prevents it from taking action to contain the Chinese economic threat that is shifting the balance of power in world affairs.  

The proper role of “ideology” is not in limiting the means, but in setting the ends to be pursued.  The proper end of U.S. international economic policy is the preservation of America as the preeminent world power, with the largest and most advanced industrial economy, supported by sound and sustainable finances.  Policies are tools to be used in shaping the desired outcome.  It is long past time for U.S. policymakers to return to traditional thinking on trade and foreign investment.  They must limit the first and guide the second so as to maintain American advantages and limit the rise of rivals.

---