Business Must Adjust to Great Power Rivalry
“Order? Somebody should tell Chairman Trump this isn’t the People’s Republic of America,” thundered an editorial in the Wall Street Journal on August 23. What prompted this diatribe was President Donald Trump's tweet "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
The WSJ, however, raised more questions about its motives than about the President's sentiment. It is clear what the Chief Executive wants to see happen to strengthen the United States against the rising power of the Republic of China (PRC). He wants the redeployment of economic capabilities to places where they will not be used against the U.S. and its allies.
The massive transfer of capital and technology across the Pacific has crated an industrial power now claiming Great Power status. Historians looking back at this abnormal period of "free trade" will wonder why Washington allowed such a strategic blunder to occur. Those of us who are living through it have seen the dangerous process hyped by outlets like the WSJ.
2015 military parade in Tiananmen Square commemorating 70th anniversary of China's victory over Japanese invasion.
(photo credit: Kremlin.ru)
For example, the WSJ editorial defended operating in concert with the Communist regime. It argued "supply chains that have been developed over decades can’t be uprooted overnight. And no country has China’s huge relatively skilled workforce, infrastructure and network of suppliers.” There is nothing in this statement about China as an export market for American-made goods that would support jobs and economic prosperity here.
It was all about working with Chinese industry (and government since Beijing controls all key sectors) to substitute "cheap" Chinese labor for American workers. And with that motive, nominally American firms foolishly created the network upon which they now claim dependency. They hoped to profit from helping the PRC rise to challenge the world with power based on its expanding national wealth.
In the current U.S.-PRC confrontation, trade is a tool not an end. Those who focus only on "getting an agreement" with Beijing are missing the much larger point. The issue didn't start with the U.S. Trade Representative, even though the opening shot in the "trade war" was fired by its report on technology transfers resulting from coercion and espionage. The foundation is set in the National Security Strategy released in December 2017:
“The erosion of American manufacturing over the last two decades … has had a negative impact on these capabilities and threatens to undermine the ability of U.S. manufacturers to meet national security requirements. Today, we rely on single domestic sources for some products and foreign supply chains for others, and we face the possibility of not being able to produce specialized components. A vibrant domestic manufacturing sector, a solid defense industrial base, and resilient supply chains is [sic] a national priority.”
This is important because the NSS states, "China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity." Fortunately, Russia has never been called a "big emerging market" and remains an industrial laggard. It ranks 30th in trade with the U.S. (just behind Chile) and is still under sanctions imposed because of its seizure of Crimea.
While it is hoped that much of the realignment of production will bring capabilities back to the U.S., it is also advantageous (as President Trump has said) if trade shifts to friendly countries where the gains are not used to build weapons aimed at us or to fund influence operations meant to undermine America's preeminence. At the G7 summit, President Trump announced a new trade agreement with Japan and worked to advance negotiations with the United Kingdom; both nations being strong allies.
Differences in economic growth, technological advancement and resource availability are central to the "high politics" of the international balance of power, world order and national security. Yet, the media is filled with the "low politics" of the merchants, especially their threat to raise prices if not allowed to perpetuate their China ties. No country, enterprise or person has become rich through consumption. Wealth comes from productive work and investment, the gains from which are then available for consumption. What has really reduced the ability of Americans to improve their living standards is that too many firms have invested overseas rather than in America. There is much more to life than Walmart.
The renowned economic thinker Joseph Schumpeter was a champion of capitalism and a foe of socialism. He feared, however, that the capitalists were alienating themselves within democracy "having destroyed the moral authority of so many other institutions." In his magnum opus Capitalism, Socialism and Democracy he warned:
"The stock exchange is a poor substitute for the Holy Grail. We have seen that the industrialist and merchant, as far as they are entrepreneurs, also fill a function of leadership. But economic leadership of this type does not readily expand, like the medieval lord’s military leadership, into the leadership of nations. On the contrary, the ledger and the cost calculation absorb and confine."
The capitalists are "ill equipped to face the problems, both domestic and international, that have normally to be faced by a country of any importance" which is why Schumpeter believed they need a "master" with a conservative commitment to the broader society.
The irony is that this role has been taken by a fabulously successful entrepreneur who has attained the leadership of the world's greatest nation. President Trump won by elevating his vision beyond that of the commercial ledger as a self-proclaimed nationalist. He is a member of what I fear is a dying breed; the patriotic businessman. Such figures were once considered the pillar of their communities, but then they went "globalist" and destroyed their communities by moving factories and other supporting sectors to China. Today, according to Gallup, only 23 percent of the public has "quite a lot or great" confidence in Big Business (which has gone transnational) compared to 64 percent who have high confidence in Small Business (which is seen as being rooted locally).
The lesson is simple: business does not (and cannot) rule the world as Marxists allege and the WSJ wishes. The purpose of business is to serve the needs of others, profiting in accordance with performance. To be successful, it must adjust to changing global conditions resulting from the rise of an aggressive Chinese regime. U.S. policy must protect its strategic interests, and American business must conform to it.
William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former Republican staff member on the U.S. House Foreign Affairs Committee.