This is an extract from ‘Exile Economics: What Happens if Globalisation Fails’ by Ben Chu.
What if the West had not traded with China after 1979, after the country opened itself up after the death of Mao Zedong? What if the United States had blocked China’s entry into the World Trade Organization in 2001, as many US politicians now say would have been the right decision? Would the world today really be more secure? It’s true that the ruling regime did not liberalise politically in the way that many hoped it would in the years after the turn of the millennium and that the Communist Party lurched in a violently authoritarian direction under Xi Jinping after 2013.
But would an alternative trade policy from the developed world after 1979 or 2001 have altered that dismal path? Would China be less of a threat today? Or might we have merely faced the same challenge today, but from a less prosperous China, in which the population was poorer and perhaps more ignorant of and hostile towards the West? And might China have made more political and social progress, under the surface, than it seems? The public protests that finally brought an end to Xi Jinping’s Zero Covid policy in 2022, when young people held up blank pieces of paper to symbolise ‘everything we want to say but cannot say’, were breathtaking in their boldness. We cannot know, but the idea that the world would today be safer is by no means a given. It seems fanciful to imagine that a world in which multilateral institutions such as the United Nations, the International Monetary Fund and the World Trade Organization – imperfect as they undoubtedly are – are wrecked by great power rivalry, or deliberately dismantled by a second Trump administration, would be more secure. It’s possible that the free world today is in a superior position to face an authoritarian leadership in China because of globalisation.
In 1910 at the height of an arms race between imperial Britain and its fast-growing rival Germany, an English journalist called Norman Angell wrote a bestselling book called ‘The Great Illusion’. Angell’s thesis was that, despite the sabre-rattling of politicians and popular jingoism of the era, a conflict between the great European powers was unlikely because of their economic and financial integration. In other words, because of globalisation. ‘What is the real guarantee of the good behaviour of one state to another?’ Angell asked. ‘It is the elaborate interdependence which, not only in the economic sense, but in every sense, makes an unwarrantable aggression of one state upon another react upon the interests of the aggressor.’ Nevertheless, four years later, European states were at war with each other, with hundreds of thousands of soldiers being slaughtered on the Western Front in France and Belgium.
The idea that trade and interdependence guarantee peace is now seen as a fallacy. Yet it doesn’t deserve to be entirely disregarded. The evidence of the years since the Second World War is that globalisation and positive-sum economic thinking have done a remarkable job in averting conflict between major powers. Some research also shows that greater trade openness is associated with a lower probability of armed conflict between smaller states. The case shouldn’t be overstated. Causation is difficult to determine.
Yet the history of the 1930s does serve to demonstrate just what a dangerous accelerant deglobalisation can be for conflict. The Japanese decision to mount a surprise aerial attack on the US fleet in Hawaii in 1941 was a panicked response to the US government’s decision a few weeks earlier to impose a de facto embargo on oil exports to Japan by freezing its American financial assets, itself a response to Japan’s military incursions into south-east Asia. The US was the source of eight of every ten barrels of Japan’s oil. Japan’s commanders had stockpiled supplies but feared that the American embargo meant it was only a matter of time before their military machine broke down. ‘If there were no supply of oil, battleships and any other warships would be nothing more than scarecrows,’ one of its admirals warned. The attack on Pearl Harbor was conceived as a way of crippling the US fleet and of buying Japan sufficient time to invade and seize the oil wells of the Dutch East Indies (now Indonesia). It was a spectacular and catastrophic miscalculation from the Japanese, since the attack brought America directly into the war with a vengeance. It was a miscalculation born of imperial fanaticism – but also resource nationalism.
Similarly, Adolf Hitler’s policy of autarky was shaped by Germany’s experience in the First World War when German cities had been starved by a British naval blockade, which had crippled its war effort. One of the obstacles to autarky was the country’s chronic reliance on imports of food, particularly edible fats. Nazi Germany explored multiple avenues to food self-sufficiency, including promoting soybeans as a source of protein to German housewives. But the Nazis never bridged their national fat gap. That is one of the central reasons Hitler doubled down on the policy of pursuing Lebensraum, or ‘living space’, invading other countries in the conviction that Germany was entitled to their arable land to feed its domestic population. Documents used in evidence at the postwar Nuremberg Trials showed that the Nazi regime planned to plunder the food supplies of Russia and Ukraine and allow tens of millions there to starve. Thus did the Nazi obsession with food self-sufficiency ultimately reinforce the danger it posed to its neighbours and the entire world. To be clear, none of this is intended to somehow excuse the atrocities of imperial Japan or Nazi Germany, but it provides some important context for the nightmarish geopolitics of the 1930s and 1940s.
Global economic integration doesn’t guarantee peace, but a world of economic and political fragmentation is likely to deliver a world of surging resource nationalism and a heightened danger of interstate aggression. History teaches us that those are the fruits of exile economics. Arguably a better way for Western countries to deal with China is to maintain and manage economic interconnections rather than dismantle them. On the specific issue of overproduction and dumping, they could appeal to Chinese economic self-interest and propose voluntary export curbs, as was achieved with Japan in the 1980s. If that fails, Western nations might then do better to impose capital controls to prevent China recycling its trade surpluses into Western currencies rather than opting for tariffs or import bans. Such a step would be profound and potentially destabilising, but it would address the origins of Chinese overproduction at source rather than risking an unravelling of the postwar trade order. If Xi Jinping wanted to avoid the kind of protectionist backlash that is otherwise coming, he would overhaul China’s economic model without further delay.
It’s crucial to recognise that we all have a stake in this. The Chinese novelist Yu Hua tells a joke about the anti-Japanese riots that happen from time to time in Chinese cities when nationalist fervour is whipped up over some perceived insult from Tokyo. A crowd, bent on destruction, surrounds a Japanese car. Then someone points out that the vehicle was made locally in a joint venture with a Chinese company. To which the answer comes: ‘Let’s smash half of it then.’ Smashing up a globalised economy is smashing up our own joint property – it’s an act of self-harm.
‘Exile Economics’ is published by Basic Books.
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