Friedrich List, China, and Economic Nationalism

"We ask, would not every sane person consider a government to be insane which, in consideration of the benefits and the reason­ableness of a state of universal and perpetual peace, proposed to disband its armies, destroy its fleet, and demolish its fortresses? But such a government would be doing nothing different in principle from what the popular school requires from governments when, because of the advantages which would be derivable from general free trade, it urges that they should abandon the advantages derivable from protection." This statement by Friedrich List in his 1844 book The National System of Political Economy sets out the basic difference in assumption about how the world works held by Free Traders and Nationalists. While Free Traders such as the French economist Jean-Baptiste Say believed that "All nations are friends in the nature of things" their more conservative mercantilist opponents considered economics a vital founda­tion of national strength in a world where international competi­tion decided not just the fate of business enterprises but of entire societies.

List wrote his seminal study while living in the United States. He came to America at the suggestion of Marquis de Lafayette, who introduced him to Andrew Jackson, Henry Clay, James Madison and other national leaders. List found in the previous works of Alexander Hamilton, especially the Report on Manufactures, a line of reasoning similar to his own. List saw in the U.S. the best model for economic progress and joined several groups promoting science and industry. After becoming a citizen, he went back to Germany as a diplomat in the service of his adopted country.

The classical liberals, the "popular school" in List's phrase, seek a world without borders, where everyone is considered to be living in a single polity. In its revival during the post-Cold War euphoria, followers of this school often argued that trade (and investment) should be no different between the U.S. and China as it is between Ohio and Texas. Just hearing such a claim sends a shiver down the back of a realist who sees a globe still very divided. To a "transnational" corporation, it may not matter where it locates a factory or research lab, but it does matter to nations and communities where important work is done. Jobs can be moved overseas, but workers will not follow them; the work will go to entirely different people. The strategic benefits of science and industry then determine the balance of power between nations.

British historian Correlli Barnett, in his book The Collapse of British Power, criticizes Smith because "he could not foresee that national defense would come to depend not just on seaman and naval stores, but on total industrial and economic capabilities." This complaint is not entirely justified, inasmuch as Smith left the door open for an expanded application of mercantilist doctrine as the industrial revolution (then still in its infancy) advanced. He wrote: "It may be advantageous to lay some burden upon foreign imports for the encouragement of domestic industry, when some particular industry is necessary for the defense of the country... It is of importance that the kingdom depend as little as possible upon its neighbors for the manufac­tures necessary for its defense." Smith lived in an age where it was still possible to be both a liberal and a patriot. The more radical classical liberals who came after him are more to blame for the sophistries of the open borders ideology. It was thinkers like List who stood against them and inspired America's rise, even if today most of its people have never heard of him.    

In the international arena, economics is not a purely private matter because there are wider consequences. In China this is explicit in Beijing's "comprehensive national strategy." The annual Military and Security Developments Involving the People’s Republic of China 2019 published by Office of the Secretary of Defense states "China’s leaders seek to align civil and defense technology development to achieve greater efficiency, innovation, and growth. In recent years, China’s leaders elevated this initiative, known as Civil Military Integration (CMI), to a national strategy that incentivizes the civilian sector to enter the defense market. The national CMI strategy focuses on hardware modernization, education, personnel, investment, infrastructure, and logistics." This is a companion to the "Made in China 2025" program which is an evolution of how Beijing has always managed trade. If foreign firms want to sell in China, they must build in China. The next step is to create national rivals who will drive them out now that they have served their purpose of transferring technology and management skills.

It was thus amusing when the state-owned People's Daily on June 5 accused the U.S. of abandoning the spirit of Adam Smith, alleging "The 'invisible hand' of the market is currently being held back by the 'hegemonic hand' of Washington." There is no "invisible hand" in China, only an iron fist. There were many supposed "experts" who thought Deng Xiaoping's "capitalist" reforms meant the Communist Party was mellowing and would soon adopt Western values. They closed their eyes when the progressive Deng ordered the People's Liberation Army to massacre the students gathered in Tiananmen Square thirty years ago. Hope and ideology kept their eyes closed as Beijing used the gains from trade to boost its military and expand its influence in world affairs in ways hostile to American interests and allies. Today, President Xi Jinping wants to "share" his "China Dream" on a global scale while promoting his neo-Maoist "Thought" cult at home. As a modern tyrant, Xi requires Communist Party members to read his pronouncements online, then take a test to confirm they understood what he said.

Those American firms that plunged into China, hoping to profit as they helped Beijing rise to Great Power status, are now lobbying politicians and the public against policies that would place national security ahead of their private interests. For example, the Chamber of Commerce has claimed that tariffs on China "will  hit American consumers and businesses -- including manufacturers, farmers, and technology companies -- with higher costs on commonly used products and materials, and as a result, it stands to slow the United States’ recent economic resurgence. The tariffs on imported Chinese goods is the latest in a string of potentially economically crippling trade developments." But whose fault is that? The blame falls on those firms which outsourced production to China and became dependent on supply chains controlled by a regime they knew (or should have) was a rival to their nominal home country. They took a foolish risk, based on an apparent ignorance of the true nature of Beijing's ambitions. Now they will pay for that blunder and no one should mourn for them.

The world is a dynamic arena. As conditions change, so must national policies to ensure America and its people remain secure, the prerequisite for freedom and prosperity. And as policy changes, so must business if it is to survive and remain credible with the American people. Trading with the enemy has never been seen as an honorable practice.

William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former staff member on the U.S. House Foreign Affairs Committee.

"We ask, would not every sane person consider a government to be insane which, in consideration of the benefits and the reason­ableness of a state of universal and perpetual peace, proposed to disband its armies, destroy its fleet, and demolish its fortresses? But such a government would be doing nothing different in principle from what the popular school requires from governments when, because of the advantages which would be derivable from general free trade, it urges that they should abandon the advantages derivable from protection." This statement by Friedrich List in his 1844 book The National System of Political Economy sets out the basic difference in assumption about how the world works held by Free Traders and Nationalists. While Free Traders such as the French economist Jean-Baptiste Say believed that "All nations are friends in the nature of things" their more conservative mercantilist opponents considered economics a vital founda­tion of national strength in a world where international competi­tion decided not just the fate of business enterprises but of entire societies.

List wrote his seminal study while living in the United States. He came to America at the suggestion of Marquis de Lafayette, who introduced him to Andrew Jackson, Henry Clay, James Madison and other national leaders. List found in the previous works of Alexander Hamilton, especially the Report on Manufactures, a line of reasoning similar to his own. List saw in the U.S. the best model for economic progress and joined several groups promoting science and industry. After becoming a citizen, he went back to Germany as a diplomat in the service of his adopted country.

The classical liberals, the "popular school" in List's phrase, seek a world without borders, where everyone is considered to be living in a single polity. In its revival during the post-Cold War euphoria, followers of this school often argued that trade (and investment) should be no different between the U.S. and China as it is between Ohio and Texas. Just hearing such a claim sends a shiver down the back of a realist who sees a globe still very divided. To a "transnational" corporation, it may not matter where it locates a factory or research lab, but it does matter to nations and communities where important work is done. Jobs can be moved overseas, but workers will not follow them; the work will go to entirely different people. The strategic benefits of science and industry then determine the balance of power between nations.

British historian Correlli Barnett, in his book The Collapse of British Power, criticizes Smith because "he could not foresee that national defense would come to depend not just on seaman and naval stores, but on total industrial and economic capabilities." This complaint is not entirely justified, inasmuch as Smith left the door open for an expanded application of mercantilist doctrine as the industrial revolution (then still in its infancy) advanced. He wrote: "It may be advantageous to lay some burden upon foreign imports for the encouragement of domestic industry, when some particular industry is necessary for the defense of the country... It is of importance that the kingdom depend as little as possible upon its neighbors for the manufac­tures necessary for its defense." Smith lived in an age where it was still possible to be both a liberal and a patriot. The more radical classical liberals who came after him are more to blame for the sophistries of the open borders ideology. It was thinkers like List who stood against them and inspired America's rise, even if today most of its people have never heard of him.    

In the international arena, economics is not a purely private matter because there are wider consequences. In China this is explicit in Beijing's "comprehensive national strategy." The annual Military and Security Developments Involving the People’s Republic of China 2019 published by Office of the Secretary of Defense states "China’s leaders seek to align civil and defense technology development to achieve greater efficiency, innovation, and growth. In recent years, China’s leaders elevated this initiative, known as Civil Military Integration (CMI), to a national strategy that incentivizes the civilian sector to enter the defense market. The national CMI strategy focuses on hardware modernization, education, personnel, investment, infrastructure, and logistics." This is a companion to the "Made in China 2025" program which is an evolution of how Beijing has always managed trade. If foreign firms want to sell in China, they must build in China. The next step is to create national rivals who will drive them out now that they have served their purpose of transferring technology and management skills.

It was thus amusing when the state-owned People's Daily on June 5 accused the U.S. of abandoning the spirit of Adam Smith, alleging "The 'invisible hand' of the market is currently being held back by the 'hegemonic hand' of Washington." There is no "invisible hand" in China, only an iron fist. There were many supposed "experts" who thought Deng Xiaoping's "capitalist" reforms meant the Communist Party was mellowing and would soon adopt Western values. They closed their eyes when the progressive Deng ordered the People's Liberation Army to massacre the students gathered in Tiananmen Square thirty years ago. Hope and ideology kept their eyes closed as Beijing used the gains from trade to boost its military and expand its influence in world affairs in ways hostile to American interests and allies. Today, President Xi Jinping wants to "share" his "China Dream" on a global scale while promoting his neo-Maoist "Thought" cult at home. As a modern tyrant, Xi requires Communist Party members to read his pronouncements online, then take a test to confirm they understood what he said.

Those American firms that plunged into China, hoping to profit as they helped Beijing rise to Great Power status, are now lobbying politicians and the public against policies that would place national security ahead of their private interests. For example, the Chamber of Commerce has claimed that tariffs on China "will  hit American consumers and businesses -- including manufacturers, farmers, and technology companies -- with higher costs on commonly used products and materials, and as a result, it stands to slow the United States’ recent economic resurgence. The tariffs on imported Chinese goods is the latest in a string of potentially economically crippling trade developments." But whose fault is that? The blame falls on those firms which outsourced production to China and became dependent on supply chains controlled by a regime they knew (or should have) was a rival to their nominal home country. They took a foolish risk, based on an apparent ignorance of the true nature of Beijing's ambitions. Now they will pay for that blunder and no one should mourn for them.

The world is a dynamic arena. As conditions change, so must national policies to ensure America and its people remain secure, the prerequisite for freedom and prosperity. And as policy changes, so must business if it is to survive and remain credible with the American people. Trading with the enemy has never been seen as an honorable practice.

William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former staff member on the U.S. House Foreign Affairs Committee.