One of the surprising developments of the last few years is that the volume of global trade has continued to rise, reaching a record of $28.5 trillion in 2021, despite the pandemic’s grip on the global population. The outlook is more uncertain for 2022 in the wake of the West’s embargo on Russian exports and imports in retaliation for the invasion of Ukraine.
There is, however, another area of concern regarding the future of the global economic order and trade, and this is none other than the growing antagonism between the US and China. To see the dangers of this antagonism we need to take a detour into past history.
In a new book Blood and Ruins: The Last Imperial War, 1931-1945 historian Richard Overy casts a new light on the meaning of World War II, a meaning that differs depending whose perspective one considers. Overy writes that for the western nations and the Soviet Union the war against the Axis of Germany, Italy and Japan was for freedom and the defeat of dehumanizing fascism. But for the many countries still under colonialism or foreign occupation (like China) the war was predominantly between established and aspiring colonial powers. That is, between the colonial nations of Europe and the US on one side and Germany, Italy and Japan, which were either stripped of their colonies after World War I or were left out of the colonial game, like Japan.
According to Overy, the WW II actually started in 1931 when Japan invaded Manchuria, and then moved on to invade China and claim significant parts of Southeast Asia. Japan’s goal of this belated colonial expansion was to expand its sphere of economic influence. In a like-minded calculation, Hitler and Mussolini launched their wars in search of “living space.” This appetite for economic space can be explained by the fact that the 1930s started with the Allies controlling colonial lands 15 times that controlled by the Axis countries. Colonies proved to be of particular importance during the Great Depression when protectionism limited access to raw materials through free trade.
In Overy’s book, America’s belated entry into the WW II was triggered when it became clear what was at stake for the US (as well as Great Britain) in terms of economic advantages in the Pacific basin. Japan’s attack on Pearl Harbor was only the opening salvo. On the next day, Dec. 8, 1941, Japan attacked US possessions in Guam, the Philippines, Midway, and Wake Island and British possessions in Malaysia, Singapore, and Hong Kong. This coordinated attack was the clearest sign that Japan was intent on claiming for itself Pacific space that was vital to its economic aspirations.
Now we can move forward to our time and use Overy’s historical account to try to understand the risks for global trade and peace.
Global trade, like its domestic counterpart, requires free flow of goods and fair competition. Ever since China joined the international economy, a long- standing complaint from its trading partners is the restrictions placed on foreign firms doing business in China and its other anti-competitive tactics, especially in the area of intellectual property rights.
No less important though is the problem with international supply chains which can fall victims to national interests in critical periods, like a pandemic. If a trading party cannot depend on the other party’s willingness to trade certain products, then international commerce will retreat within national border. The US is already engaged in a broad examination of its vulnerabilities to international supply chains, especially those that involve China.
A related and often underappreciated risk to free global trade is the formation of trading agreements and blocks that confer privileged, if not exclusive, economic ties with countries rich in resources. When a country gains a lock on rare and valuable resources available in another country, that posits a risk to those denied access. This is the modern version of old colonialism as a method to create economic advantages. In a sign of progress, the modern version relies on diplomacy rather than gunboats and armies. At least for now.
China, having supplanted Japan as the preeminent power in the Southeast Pacific, has proven very efficient in spreading its influence across the island nations that dot an enormous area of this ocean. China is doing this by building infrastructure projects, providing training, and support for overall development. This is the same approach China has adopted in building economic ties with countries in Africa, Latin America, and even Europe. Without any military involvement, China has been able to build a constellation of trading partners and acquire influence across the globe.
What about the US? As several commentators have written, American efforts and results in countering China’s growing economic influence are falling behind and are hamstrung by our own domestic problems. First, American influence abroad is being understood first and foremost as the projection of military might demonstrated by over 700 military bases in 80 countries. But while the American navy continues to challenge China’s ambitions in the South China Sea, it is China’s trade volume and investments that keep growing around the Pacific.
The populist backlash in the American heartland against globalization has also frozen American foreign policy out of the pursuit of forming trading partnerships in Asia. Without a clear plan as to how to protect workers from global competition, American administrations are reluctant to enter cross-border trade agreements. Thus, after the scuttling of the Trans-Pacific Partnership by the Trump administration, its resurrection as the Indo-Pacific Economic Framework is mostly a document of aspirations than actionable steps.
Having access to international trade is of vital importance to all nations. It can be accomplished through cooperation and fair dealing or through hostile actions. The present danger for peace and the global economic order is that China overreaches in its strategy of expanding its economic influence and the US relies more on military power than diplomacy.
There is currently a sense that economic globalization has not brought the benefits of peace (with Russia) and democratization (of China) the West expected. There is, however, a greater risk in the absence of open and fair trade across nations, and that is recreating the nationalist feelings of resentment that ignited the WW II.
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