When trade becomes a weapon

Tell me to shut up if you’ve heard this before: we’re in the middle of a trade war with China. Actually, you probably haven’t heard of it until now. I am not referring to Donald Trump’s clumsy tariffs aimed at reducing the US trade deficit. What I am talking about is the new generalized controls that the Biden government imposed last Friday on technology exports to China, with which it is intended to condition other advanced countries, in addition to the United States.

Unlike Trump’s tariffs, these controls have a clear objective: to disable or, at least, stop Beijing’s attempts to manufacture advanced semiconductors, of enormous military and commercial importance. If this sounds like a very aggressive move by the United States, that’s because it is. But you have to put it in context. Recent events have undermined the cheery vision of globalization that has dominated Western politics. It is now obvious that, despite global integration, there are still bad and dangerous actors, and that interdependence sometimes gives them power. But it also provides actors with good ways to limit the bad guys’ ability to do harm. And it is clear that the Biden administration is taking the lesson to heart.

This was not what was supposed to happen. The postwar world trading system, with its limits on protectionism and waves of tariff reduction, grew in part from the idea that trade fostered peace. This was firmly believed by Cordell Hull, Secretary of State for Franklin Roosevelt, who can be credited with the paternity of the system. The European Union developed from the European Coal and Steel Community of 1951, created with the explicit goal of making war impossible by linking European industry.

Later, Germany promoted economic ties with Russia and China under the Wandel durch Handel doctrine—change through trade—which stated that integration into the world economy would favor democratization and the rule of law. It is clear that the theory has not worked. Russia is run by a brutal autocrat who has invaded Ukraine. China appears to have regressed politically with a return to erratic one-man rule. And instead of forcing countries to understand each other, it seems that globalization has created new frontiers for international confrontation.

Three years ago, international relations experts Henry Farrell and Abraham Newman published a prescient article titled Armed Interdependence: How Global Economic Networks Shape State Coercion. The authors argued, in effect, that conventional trade wars—in which countries attempt to exert economic power by restricting access to their markets—are no longer the scene of action. Rather, economic power derives from the ability to restrict other countries’ access to critical goods, services, finance, and information.

And much of this new form of power is in the hands of the West, especially the United States. We are certainly not the only ones who can exert economic pressure. Russia, which is being defeated on the battlefield, tries to blackmail Europe by cutting off the supply of natural gas. But the big surprise on the economic side of the Ukraine war has been the early success of the United States and its allies in strangling Russian access to critical industrial and capital goods. Russian imports have started to recover, but the sanctions have probably dealt a decisive blow to President Vladimir Putin’s fighting ability.

Which brings me to what we might call the Biden doctrine on globalization and national security.

Last week, Katherine Tai, the US Trade Representative, made a rather alarming speech calling for a US industrial policy designed in part to protect national security. Tai denounced China’s “state-led industrial dominance policies” and declared that the efficiency gains from trade liberalization “cannot be achieved at the cost of further weakening our supply chains and exacerbating dependencies on high risk”. On the same day, the Biden administration announced its new export controls, targeting China. Suddenly, the United States has taken a much harder line on globalization.

I have no inside information on what is driving this policy shift, but it seems likely to be a reflection of both a new perception of global dangers and a greater confidence in America’s ability to wield economic power. On the one hand, it is clear that the Wandel exchange was not born from the Handel . Putin’s Russia is, or was, deeply integrated into the world economy, and has also tried to conquer its neighbor and is committing horrific war crimes. A Chinese invasion of Taiwan would be highly self-destructive, but that doesn’t mean President Xi Jinping won’t try.

On the other hand, the rapid success of sanctions against Russia has been a demonstration of the economic power of the West, and especially the United States. So too, in a way, was an earlier episode: the US imposition of sanctions against the Chinese company Huawei. China did not strike back, which seems to confirm that when it comes to technology, the United States still rules the roost.

Does all this make you nervous? Should. But, as we now know, the world is dangerous, and I cannot fault the Biden administration for its turn to toughness, genuine toughness, not the macho swagger of its predecessor.

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