David Green is CEO of Civitas.
The age of unfettered globalisation is now over. It is now widely accepted that buying whatever we want at the lowest price available anywhere in the world now comes second to national security. Above all, nations that fight wars of conquest against weaker neighbours are not worthy trading partners.
But is this change of direction just a temporary response to Vladimir Putin’s unforgivable aggression, or are permanent changes in the world order implied?
The great champions of free trade in the Nineteenth Century, such as Richard Cobden, used to argue that trade led to peace. The First World War shattered that illusion. But what we can call the naïve theory of free trade came back in the 1980s and 1990s, symbolised by Thomas Friedman’s famous claim that ‘No two countries that both had McDonald’s had fought a war against each other’.
He reasoned that the prosperity that resulted from free trade created a middle class that had too much to lose from war. The wars in the Balkans soon contradicted his hypothesis.
It turns out there is a causal connection between trade and peace, but champions of the naïve theory got it the wrong way round. Trade does not necessarily make peace more likely, but a commitment to peace does make free trade more likely. The underlying imperative is that nations that want peaceful existence are more likely to seek mutually beneficial trading arrangements.
It has been well recognised at least since the time of Adam Smith that trade can be looked at in two ways. It can be a method of gaining advantage at the expense of others, usually called mercantilism, or it can be a means by which both parties benefit from transactions.
Russia has been storing up its gains from trade in order to expand its empire. The question we now need to confront is the motivation of China.
Is it wise to allow Beijing to become even more powerful through trade so long as it is an authoritarian dictatorship with openly declared ambitions to expand its territory, with Taiwan the next target? Moreover, its Belt and Road initiative is not a device for spreading prosperity in less-developed parts of the world, but rather a way of creating conditions of dependency that can be used to exert political pressure when the need arises.
Our reliance on Chinese imported manufactures is now so great that every foreign policy decision has to take into account the preferences of the Chinese Communist Party (CCP). All Chinese companies are under the influence of the CCP, whether they are nominally private or not; a Chinese company controls about 25 per cent of North Sea oil, and others own suppliers of gas, water and electricity.
A study in 2020 estimated our ‘strategic dependency’ on China. Such dependency arose when a nation was a net importer of a product and imported more than 50 per cent from China when China controlled more than 30 per cent of the global output. The conditions were met for 57 categories of goods and services.
Moreover, Chinese economic power is partly a result of Western investment. A 2017 study by Professor Michael Enright of the University of Hong Kong looked at the contribution of foreign direct investment, ‘foreign invested enterprises’, and foreign affiliates, and estimated that it accounted for about one-third of China’s GDP and over one-quarter of China’s employment in the years up to 2014.
We should reconsider all our trading relationships and ask whether we are empowering a potential aggressor, or putting ourselves in a position that allows us to be strong-armed. The case for free trade remains strong – but only with peace-loving peoples.
What should we do? First, we should stop investing in China. Second, we should end our reliance on China for so many goods. We should aim to have at least one home producer so that we can’t be pressurised. Third, we should exploit all our own resources, notably oil and gas.
Fourth, we should trade with countries committed to peace and who have renounced wars of conquest. This rules out China until it gives up all claims to Taiwan. And fifth, we should press for China to be expelled from the World Trade Organisation while it remains a state-dominated economy.