February 15, 2022 Reading Time: 6 minutes

Disagreement among people with widely different priors and principles is commonplace. Much rarer, and frequently more interesting, is disagreement among people who share with each other many of the same priors and principles.

Alex Salter is an economist who shares many – likely most – of my priors and principles. He earned his PhD in economics at George Mason University, where I’ve taught for decades, and he frequently writes for AIER. I’ve long admired his work. He’s an excellent economist and, I believe, also a principled classical liberal.

And so I treat with special attention and seriousness a recent argument of Alex’s with which I disagree – namely, that the US should arrange to have, as he puts it, “less economic engagement with China.” By “less economic engagement,” Alex doesn’t mean simply that the US government should use targeted trade restrictions and subsidies to better secure America’s military arsenal or to weaken the Chinese militarily. Alex instead calls on the US government to orchestrate a significant, economy-wide commercial disengagement of Americans with the Chinese. The purpose – a noble one, to be sure – of this disengagement is to reduce the prospects of a shooting war with China.

Alex’s argument is not the all-too-familiar populist or economically ignorant rant against foreign trade. He understands and accepts the economic case for free trade. As such, he’s explicitly aware that the policy he advocates will make Americans materially poorer than otherwise.

Alex is also aware of the positive connection between trade and peace. International commercial exchange creates cords of mutual dependence that connect together the peoples of the countries who are parties to such exchange. As these commercial connections multiply over time, they also become more complex. An American company that exports engines to China might eventually also import from Canada machine parts that are made with components produced in China with the help of the American-made engines. The more frequently peoples of different countries trade with each other, the more they weave themselves together into a single, globe-spanning ‘fabric’ of civilization, and they thus move ever-closer to sharing a common culture. Prospects of war diminish as the resulting cultural familiarity combines with the self-interest that counsels people against antagonizing their customers and suppliers.

But in reality people’s freedom to trade is typically obstructed by governments. And history has no shortage of governments that pursued evil schemes, against their own citizens as well as against foreigners. Wisdom, I take Alex to say, demands that we Americans recognize that the wielders of power in Beijing are an especially nasty bunch who will likely turn on us and our allies. Better now to disconnect our economy from that of China gradually and on our own terms, than to have our economy suddenly ripped away from China’s by a diplomatic crisis or a hot shooting war.

Alex’s argument would be more difficult to dispute if the US government were operated by omniscient angels. But of course, such angels are nowhere to be found on the banks of the Potomac. Just as we must recognize the reality of the flawed human beings who rule China, we must recognize the reality of the flawed human beings who govern from Washington. We need not assume that America’s politicians and administrative officials are as prone to villainy as we fear is the case with Beijing’s power-wielders. Yet wisdom still recommends wariness of entrusting the US government with more power to obstruct and engineer Americans’ commercial choices.

Because governments throughout history have always been imperfect, and not infrequently wicked, the best scholars and statesmen who made the case for free trade took this history into account. The case for a policy of free trade was not formulated for an earth governed by angels. This case nevertheless justifies a very strong presumption in favor of keeping trade free. More than a listing of possible awful outcomes is needed to overcome this presumption.

Alex, I’m sure, understands and accepts this posture toward free trade. So the question is this: Is his argument strong enough to overcome the presumption in favor of free trade? I think it is not.

The key argument offered by Alex is that America’s continued economic integration with China might well increase the chances of a hot shooting war:

If China achieves regional hegemony, it could use its power to build a commercial bloc that rewards vassal states and muscles out the U.S. Cutting America off from this economically vital region could be devastating for U.S. households and businesses.

To protect commercial interests, the U.S. may very well go to war. This is exactly what we want to avoid. If [Elbridge] Colby is right, we should consider sidestepping, not punching back. There’s no need to fear Chinese economic stonewalling if we economically integrate with other parts of the world, preferably far outside Beijing’s grasp. Public policy should create incentives to do business elsewhere, so the threat of China’s economic shutout rings hollow.

First: A US government that tomorrow will rashly wage war to protect commercial interests is a US government that today likely lacks the wisdom necessary to surgically sever, without unleashing significant unintended consequences, the economic ties that bind Americans to the Chinese. It’s difficult to understand why the same government that would wage war to prevent a harmful severing of productive commercial ties with foreign countries outside of China should be summoned to calmly engineer a severing of productive commercial ties with China – a severing that would also inflict significant economic harm on US households and businesses.

Second: How, exactly, could Beijing “use its power to build a commercial bloc that rewards vassal states and muscles out the US?” While he’s unclear, Alex doesn’t seem to have in mind any military takeover or oppression by China of these vassal states.

So short of military oppression, what might China do? One possibility is that Beijing will subsidize Chinese exports to these vassal states, thereby squeezing out some US exporters. But all such subsidies will simultaneously make China (and Beijing) poorer as they enrich the vassal states. As the vassal states grow richer, their denizens’ demands for US-made goods and services will grow, as will their ability to supply global markets – including the American – with their own exports of inputs as well as of consumer goods.

And the more Beijing subsidizes Chinese exports to vassal states, the richer these countries become at China’s expense.

Alternatively, or in addition, Beijing might subsidize purchases by Chinese households and businesses of imports from these vassal states. By causing the prices of these goods to rise, such subsidies will artificially raise Americans’ costs of importing some goods from these countries, thus obliging us Americans either to produce these goods ourselves or to import them from elsewhere. The consequences for us will certainly be costly, but they’re unlikely to be any more “devastating” than are the tariffs that we often impose on ourselves. Nor would these consequences be more devastating than those that we’d suffer now if the economic disengagement from China that Alex advocates is achieved.

Further, as with subsidized Chinese exports to vassal states, Beijing’s subsidized purchases of imports from vassal states will make China poorer as they enrich the vassal states. Vassal-state industries that artificially expand because of such subsidies might well increase their demands for American-made inputs. More generally, the additional resources that Beijing pumps into the vassal states in the form of these subsidies will, by enriching the denizens of the vassal states, enable them over time to increase both their imports from, and exports to, America.

In summary, nothing short of military oppression by China against the “vassal states” would artificially “muscle out” us Americans from trading extensively with these other countries.

Nothing is guaranteed. Easily imagined are scenarios in which prudent and far-sighted action by the US government today thwarts Beijing’s dastardly plans and, at reasonable cost, avoids a shooting war that would have otherwise erupted. But the language used to describe such scenarios usually hides more than it reveals. It’s easy to write a frightening phrase such as “If China achieves regional hegemony, it could use its power to build a commercial bloc that rewards vassal states and muscles out the US.” Much more difficult is the task of tracing out all the detailed actions and reactions that must occur in order for this fright to be justified.

Despite the gaudy pomp with which they surround themselves, Chinese rulers are just as economically ignorant, politically motivated, and error-prone as are American officials. Indeed, because Chinese society is more closed than ours and its government more autocratic, Beijing officials are likely even worse on these fronts than are American officials. President Xi and his henchmen have no miracle recipe for achieving the impossible – here, using centralized power to create wealth and to economically tie other countries to China in ways destined to harm Americans while simultaneously enriching the denizens of China and of these other countries. Taking due account of these realities preserves, I think, the presumption in favor of free trade.

While Alex is correct to note that cross-border trade doesn’t ensure against belligerence, it almost certainly does make such belligerence more costly and, hence, less likely. We abandon such trade at our peril.

And so in the spirit of Adam Smith, I do not argue that American trade with China is guaranteed to prevent a shooting war. Nor do I here argue against US government efforts to protect American industries plausibly judged to be militarily significant. Finally, my argument here ignores the different, non-economic question of what steps, if any, the US government should take on the trade front in response to Beijing’s abuse of the human rights of the Uyghurs and other groups. But I do here conclude that Alex too quickly endorses, as a means of avoiding a shooting war with China, US government efforts at “[r]edirecting the international division of labor away from China.”

Donald J. Boudreaux

Donald J. Boudreaux

Donald J. Boudreaux is a Associate Senior Research Fellow with the American Institute for Economic Research and affiliated with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.

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