America’s most powerful weapon to beat China and Russia in Cold War 2.0 is free trade

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The U.S. is in a new Cold War with China and something hotter with Russia. But the America’s shift to protectionism and overreliance on implementing economic sanctions are foolish.

After World War II, the U.S. created NATO and alliances in the Pacific, cultivated free trade among allies through the GATT, EU and other regional arrangements and starved the Soviet Bloc of American technology through export controls.

Stalinist central planning and autarky created moribund economies. Only through sheer size did the Soviet Union have the resources to create mischief around the globe. The Soviet Union became Upper Volta with rockets.

The U.S. economy, meanwhile, was large enough to underwrite the entire international system. It supported a military adequate to fight wars across both great oceans and offered allies a significant market to develop their industries.

After the collapse of the Soviet Union, the United States and the EU sought to integrate Russia and China into the West’s commercial system. They assumed that economic integration would instigate democratic reforms.

But Wandel durch Handel proved folly. Europe became tragically dependent on Russian natural gas, while Russia and China exploited access to Western markets and commercial technology to create more modern economies, boost their militaries and bully other nations.

In the words of Japan’s trade minister Yasutoshi Nishimura: “The free trade system ended up increasing the legitimacy of authoritarian regimes” and “amplifying the threat of hegemonic powers.”

The West didn’t give Russia and China free access to its military technology, but so much commercial technology is dual-use that both Russia and China are capable enough of creating lots of trouble.

The U.S. still spends more on defense than China, Russia and several other nations combined, but can’t guarantee the security of Taiwan. In the event of war, the U.S. Navy is incapable of supporting U.S. forces in the Pacific and military commitments elsewhere and also securing U.S. supply chains, which are now much more dependent on ocean commerce.

The U.S. will have to arm Ukraine to strike inside Russia, become directly engaged, or face stalemate and endless war expenses.

In Advantage at Sea, the U.S. Navy, Marine Corps and Coast Guard remarked that securing global commerce and the interdiction of “adversary war materials and commerce” would be dependent on “allies and partners.” The U.S. Navy plans to rent protection of its own economy from Japan, Australia and others. Given the size and menacing character of the emerging Chinese Navy, that’s rich.

At the same time, the U.S. foreign policy establishment has become enamored with economic sanctions as a substitute for kinetic engagement.  It believes sanctions will break Russia before European and American public resolve relents regarding the mounting costs of supporting Kyiv.

Ultimately, the U.S. will have to arm Ukraine to strike inside Russia, become directly engaged, or face stalemate and endless war expenses.

Near term, the Russian economy is stabilizing after the initial bite of sanctions — a 2.3% GDP loss in 2022. The IMF forecasts modest growth for 2023, but the real bite of sanctions against Russia will be the cumulative, long-term loss of technological progress and growth.

Wars are fought in the here and now, Russia can bear the short-term costs and for President Vladimir Putin, winning is an existential imperative.

The real contest over sanctions is President Joe Biden’s escalation toward China.

State of the art semiconductors are central to the creating of superior military weapons, and China has been terribly frustrated in its efforts to develop an indigenous industry to supply its military.

As with securing lanes of commerce, the U.S. must depend on allies to stifle Chinese ambitions. The U.S. no longer manufacturers the most advanced semiconductors—those are made in Taiwan and Korea — but those foundries are dependent on American engineering and Dutch and Japanese machinery.

China has its own cards to play. It is a dominant processor of copper, nickel, cobalt, lithium and rare earth minerals.

China has its own cards to play. It is a dominant processor of copper, nickel, cobalt, lithium and rare earth minerals — these are vital in making many electronic products and semiconductors.

Russia’s war against Ukraine demonstrates that modern warfare goes through very expensive armaments quickly, and as is evident in Ukraine, the U.S. military supply chain is not up to the task of replenishing quickly.

Seen in this context, Biden’s protectionist industrial policies that exclude our security partners are self-defeating.

The United States must redevelop its chips manufacturing and broader defensive-industrial capabilities and secure sources in the West for rare earth minerals and other critical materials. “Buy American” policies — like those embraced for green energy and electric vehicles — hardly cultivate Japanese and European support for cutting out China from the semiconductor supply chain.

Free trade with Russian and China was folly but that does not mean free trade with the rest of Europe and Asia is the same. Drawing our security partners into a common prosperity would make it more likely that we can count on them in a crisis over Taiwan and over the long haul in our efforts to stay ahead of China in military technology.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

Also read: U.S. companies will rely less on China and move manufacturing closer to home as globalization splinters, El-Erian says.

More: Freeing the U.S. economy from China will create an American industrial renaissance and millions of good-paying jobs

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