After filling a high-profile role in the last administration led by his party, the new president decided to revamp America’s Asia policy. In his view, his former boss had been too conciliatory, even supine, as America’s imperial rivals used dodgy infrastructure projects to sink their claws into struggling Asian countries and tear away their sovereignty, one forced concession at a time. Although he could see that the military balance was unfavorable, he hoped that clever diplomatic maneuvering combined with the American business community’s latent strength would be enough to turn the tide. This president, of course, was William Howard Taft.
Today’s China problem is similar to the problem of empire, which has preoccupied American foreign-policy analysts for most of U.S. history. As the Biden administration continues to shape its China policy, it has placed a dirigiste style of industrial policy at the center of its strategy. Through the CHIPS Act, intended to boost domestic production of semiconductors, it made corporate giant Intel into a de facto national champion; and, through export controls and other measures, it is half-heartedly trying to stop China’s bid for tech domination.
For some, these steps do not go nearly far enough. They want the United States to develop a set of national champions in a range of industries to beat the Chinese at their own game; they prod the rest of corporate America to conform to their view of the national interest and push Wall Street to counter Chinese influence by making risky investments abroad. This strategy is similar to Taft’s “dollar diplomacy” — his attempt to have American businesses muscle America’s rivals out of the way. It failed abysmally before, and there are better ways to use the American economy to address the China problem.
Ironically, Taft adopted dollar diplomacy to address a very different China problem from the one Americans face today. Today, a strong and aggressive China threatens Americans and their allies; a century ago, it was China’s weakness that caused instability in Asia. Over the 19th century, European imperial powers seized parts of the Chinese empire, and in the 1890s, Japan began taking pieces of its own. Japan and Russia took advantage of China’s desperate need for infrastructure and agreed to build railroad networks there — as long as they could protect their investments with their own security forces. Japanese and Russian troops fanned out across large swaths of China, and Theodore Roosevelt concluded that there was little the U.S. could do about it.
As he came into office, Taft was determined to freeze Japanese and Russian encroachments in China and, if possible, roll them back by adapting part of the U.S. strategy for the Western Hemisphere. A few decades before his presidency began, European powers had started sending their militaries to resolve disputes in Latin America over borders and debt defaults. This triggered a long-standing American fear of foreign military adventurism in the Americas, which in the 1820s had led to the haphazardly enforced Monroe Doctrine. American capabilities were much greater at the end of the 19th century than at the beginning, so Washington attempted to keep great-power competition out of the Western Hemisphere by sending the U.S. military to enforce contracts and resolve disputes, thereby removing any pretext for European intervention.
Military options were off the table in Asia, though, so instead Taft tried to beat the Japanese and Russians at their own game. He recruited J. P. Morgan and a group of American bankers to build China’s railroads. If all went according to plan, the American banks would make big profits, the Japanese and Russians would be thwarted, and China would stabilize.
This attempt at economic statecraft utterly failed. The Japanese and the Russians joined hands against the new entrants, and eventually Morgan and his partners had to join a consortium with the imperialists to avoid losing out entirely. Dollar diplomacy proved to be a dead end. During Woodrow Wilson’s tenure, the problem of empire grew more urgent and more dangerous for Americans. The scramble for overseas colonies had threatened to set off a major war in Europe, but few had imagined the sheer horror of World War I.
The next major American attempt to end European empire through economic statecraft came during the Franklin D. Roosevelt administration. Although the Nazis were endlessly inventive at creating new horrors, in some respects they were a manifestation of an old problem. As historian Adam Tooze shows in The Wages of Destruction, European thinkers of all stripes were still struggling to wrap their heads around the historic consequences of capitalism and the industrial revolution. Many thought that the unprecedented period of global economic growth could not continue and that the only sure path to prosperity at home was to conquer a large, captive market. As the Nazis looked at Britain’s global empire, the enormous American domestic market and its high tariff wall, and the seemingly endless expanse of the Soviet Union, they decided that the Germans would have to subjugate Europe to protect their economic future from these rival juggernauts. In this sense, Nazism was just the latest and cruelest form of imperialism.
Senior members of the Roosevelt administration, particularly Secretary of State Cordell Hull, thought that they had found a new economic solution to the problem of empire. The imperialists feared that, if they did not gain exclusive access to markets and raw materials, a rival would eventually cut them off from those assets and starve their economy. As Roosevelt’s close adviser Harry Hopkins remarked in the middle of World War II, “nations which are economic enemies are not likely to remain political friends for long.” But with universal free trade, every country would have equal access to the earth and its fruits, and empires would become ruinously expensive vanity projects. Accordingly, in 1941, the Americans conditioned Lend-Lease aid to Britain and the Soviet Union on their support for an open post-war economy. By 1942, Washington had forced Britain to agree to end discriminatory “imperial preference” trade practices.
As with most of the American planning for the aftermath of World War II, the universal-free-trade strategy had already failed before it was fully adopted. This failure was only partly due to Joseph Stalin’s general paranoia and his suspicion of American intentions. His ideology was based on the belief that capitalism was unsustainable. A project that depended on creating mass prosperity by allowing capital to reach goods in global markets would have struck him as hopelessly misguided if not a trap. When offered free trade, the Soviets chose empire.
As the Cold War got under way, the Truman administration landed on a new economic strategy to manage the problem of empire. Much like dollar diplomacy, this one did not promise a complete solution, at least in the near term. And like universal free trade, it did not depend on Washington bureaucrats outwitting their foreign counterparts. For most of the Cold War, Washington focused on building up friendly countries through the GATT (General Agreement on Tariffs and Trade) and other measures, including the Marshall Plan. As leading trade negotiator Will Clayton put it in 1947, “if people everywhere are employed, have enough to eat and wear and decent houses in which to live, they are not likely to turn to dangerous totalitarian philosophies and leaders.” At first, this was an emergency measure to prevent Western Europe and Japan from collapsing economically or falling prey to Communist agitation. Gradually, as America’s Western allies grew stronger, these countries took on greater responsibilities in their own right.
This friendly-trade model contributed greatly to victory in the Cold War, but it had its fair share of acrimonious moments. The Bretton Woods arrangement, in which the Americans propped up Allied currencies, came under intense strain in the late 1960s, and Richard Nixon abandoned it in 1971. Shortly before taking that step, he warned a delegation of American businessmen that “we now face a situation where four other potential economic powers . . . can challenge us on every front.” That did not happen, fortunately, but it was clear that this new American-led international system was of an entirely different kind from previous ones: India challenging Britain under the Raj was as unimaginable as Poland rivaling the Soviet Union, but Washington empowered its allies to such an extent that it feared being eclipsed.
For a brief period after the Cold War, the problem of empire appeared to have evaporated along with the Soviet Union. Preventing a new set of rivals from emerging was the order of the day, and the universal-free-trade model seemed admirably suited to the task. Many policymakers hoped that universal free trade would benefit all and that encouraging China to liberalize its economy would lead to Chinese democracy. Accordingly, the Clinton administration led the effort to replace the GATT with the World Trade Organization (WTO), which was similar to the International Trade Organization that Hull and others had yearned for half a century before. Arguing in support of China’s accession to the WTO, President Clinton said that accelerating “the process of economic change will force China to confront” its people’s desire to control their own lives. This desire, he believed, would increase along with China’s prosperity. It did not work: Much like its predecessors in Moscow, the Chinese Communist Party chose empire.
To a greater extent than Beijing would care to admit, it is copying the old European model of imperialism that Americans struggled against a century ago. Much as the Japanese and Russians used infrastructure projects to trespass on China’s sovereignty then, the Chinese Communist Party is now making inroads into developing countries through the Belt and Road Initiative and other efforts. The CCP demanded, among other things, a 99-year lease on the port of Hambantota when Sri Lanka could not make scheduled payments on its loans, and Chinese paramilitary forces are stationed near Chinese infrastructure projects in Pakistan and elsewhere. China has also developed extensive trading relationships across the world — it is the largest trading partner of more than 100 countries — and it abruptly cuts off businesses and entire industries to punish countries that do not follow its diktats. South Korea and Australia, among others, have felt this pain.
In response, the U.S. government has tried to use American companies to fulfill strategic goals in the competition with China. Some of these measures make sense: Sourcing semiconductors for U.S. military equipment from U.S. soil, for example, is prudent, as is preventing American firms from selling to China any technologies with military applications or strategic ramifications. But instead of copying dollar diplomacy, which failed before, we should try a strategy that worked: trade with friendly nations. Making China’s neighbors stronger and wealthier will benefit American national security, just as strengthening our European and Japanese allies helped during the Cold War.
Currently, the Biden administration is vacating the economic field to China. Its current trade initiative, the Indo-Pacific Economic Framework (IPEF), has very little in it that will attract developing countries in Asia. Reducing our supply-chain vulnerabilities by sourcing products from China’s neighbors rather than from China is a worthy goal, but the IPEF has little ability to make that happen. Offering greater access to American markets would counteract China’s economic influence, make friendly and neutral countries more prosperous and less vulnerable, and reduce American dependence on China, but the current and previous administrations have opposed this strategy.
Ironically, the Obama administration had a better economic approach to the Indo-Pacific than did its successors, but it had worse messaging. The Trans-Pacific Partnership (TPP) was designed to keep China from dominating the region economically, but President Obama described it as a new part of the post–Cold War strategy. Instead of telling the American people about its strategic importance, he waxed eloquent about the deal’s effects on Vietnamese labor regulations and other issues of little to no concern for Americans. Entering into the successor agreement that American allies such as Japan spearheaded after the U.S. withdrew from the TPP would have an important effect on the region and advance American objectives.
Much like the Cold War with the Soviets, the competition with China will place enormous demands on the United States and its allies. Americans need to use every tool at their disposal to prevail. Economics can be a mighty weapon; let us not cast it aside.