Yes, with a very few exceptions.
Every time there is a war, we see a predictable chorus of pundits calling for the end of globalization. Let’s hope they don’t get their way, because if globalization ends then wars will become much more frequent.
My view is that sanctions are usually counterproductive. One exception is when one country invades its peaceful neighbor, as in the current Russia/Ukraine war or in the case of Iraq’s invasion of Kuwait. In that case, the international community has a clear interest in punishing the aggressor. (Although as David Henderson points out, the current sanctions against Russia are not particularly effective.)
But sanctions don’t work at all unless the target country is linked to the global economy. Free trade creates a situation where bad actors have more to lose from economic sanctions.
Over the years, I’ve argued that Russia is a much greater threat to world peace than China (although China is certainly a non-trivial threat, especially to Taiwan.) Thus I’ve opposed the economic sanctions the US has applied to China, as well as the broader US trade war against China. My critics counter that we can’t afford to be economically integrated with a dangerous country such as China.
I respond that we cannot afford not to be integrated with China, precisely because it is dangerous. We need China to be so deeply enmeshed in the global economy that it would pay a heavy price if it were ostracized. A sullen isolated China, a North Korea with 1.4 billion people, would be a far greater threat to world peace. Our current policy of isolating China makes it more dangerous, not less. After WWII, the victorious powers realized that the best hope for peace was to have Germany closely integrated into the broader European economy. This idea led to the European Common Market, and later the EU.
When I point to recent events as evidence that I was right that Russia is the greatest threat to world peace, my critics respond that Taiwan is next. And then they say that if they are wrong, if China doesn’t attack Taiwan, it’s only because they are held back by the unexpectedly severe sanctions that the West imposed on Russia in recent weeks.
I don’t think they realize that they are making my point.
READER COMMENTS
Jon Murphy
Apr 13 2022 at 7:47am
It’s also worth noting that J.M. Keynes, in his Reconstruction in Europe, was deeply concerned about Germany’s effective exclusion from the world economy (primarily through crippling debt and not allowed their industrial base). Keynes feared (rightfully) such actions would lead to another war.
MarkW
Apr 13 2022 at 9:20am
I respond that we cannot afford not to be integrated with China, precisely because it is dangerous. We need China to be so deeply enmeshed in the global economy that it would pay a heavy price if it were ostracized.
I think we have to recognize that it cuts both ways. What I mean is that, unlike Russia, China may be so integrated and so essential to the functioning of the global economy that it wouldn’t be possible for the rest of the global community to react to a hypothetical Chinese invasion of Taiwan as it has to the Russian invasion of Ukraine. Could we really ostracize China? Could the US and EU refuse to buy Chinese products and not have our own economies crash?
And we probably should keep in mind that the level of economic integration in Europe before 1914 was very high — reportedly at a level that wasn’t matched again until late in the 20th century. And yet that level of integration did not prevent war.
In general I agree that economic integration is preferable to isolation–both because trade makes everybody better off and because it does provide some disincentive to conflict. But it didn’t work with Putin and may not ultimately dissuade Xi. I don’t think there are any obvious correct answers here.
Scott Sumner
Apr 13 2022 at 12:21pm
“But it didn’t work with Putin”
Russia was not closely integrated into the global economy.
MarkW
Apr 13 2022 at 1:27pm
Russia was not closely integrated into the global economy.
But your argument has been that sanctions have been effective with Russia only because it was integrated (no globalization, no effect from sanctions). I agree the level of integration is lower than China’s, but it’s far from zero, and it seems that lower level of integration may have been made it (just) possible for western countries to be able to stomach the (non-trivial) effects of suspending most Russian trade and investment. Could they really do the same with a much more tightly integrated China if the worst should happen?
You’re hoping China will calculate it would be too costly to risk breaking off economic ties. But might not Xi reason that if he did invade Taiwan, the west would be unwilling to accept the enormous cost of breaking ties and believe that we’d be compelled to accept the fait accompli?
Scott Sumner
Apr 13 2022 at 5:33pm
Exporters of manufactured goods are in a weaker position than exporters of oil. I’m not saying you are completely wrong, but I suspect that sanctions would work a bit better against China than Russia.
marcus nunes
Apr 13 2022 at 11:31am
Quick summary: “Keep your friends close and your enemies closer”!
Pierre Lemieux
Apr 13 2022 at 11:39am
Indeed. If Trump, in his glorious ignorance and blind bravado, had not started a trade war with China, the world (and America) would be in a better situation now.
Mark Z
Apr 13 2022 at 1:25pm
The case for economically divorcing China seems to implicitly rest on the assumption (among others) that confrontation with China is inevitable, and the goal is to make China as weak as possible when that inevitable confrontation happens. The power of potential sanctions to dissuade an economically integrated China from invading Taiwan are moot if China is dead set on invading Taiwan no matter what.
Scott Sumner
Apr 13 2022 at 3:33pm
Putting aside the dubious morality of trying to impoverish a nation of 1.4 billion people, the policy is extremely risky from a geopolitical perspective. Taiwan is not the only potential problem.
BS
Apr 13 2022 at 2:24pm
China does what it must to provide energy, but would prefer cleaner air over dirtier air. I imagine international security would be improved if countries with natural gas to export moved heaven and earth to export it to China.
Lizard Man
Apr 13 2022 at 4:03pm
Is it possible for China to make globalization something of a one way street, where it only makes the West dependent on China, but not the other way around? That seems to be what Xi hopes to accomplish with his “Made in China” plans. That seems to me like a statement of intent to regain Taiwan, but perhaps the PRC can never achieve economic independence to an extent to take the risks to invade or blockade Taiwan.
Michael Sandifer
Apr 13 2022 at 4:23pm
Great post. While it’s possible to slow down China’s rise through trade restrictions, it’s not possible to prevent it. Better to have mutually beneficial growth through trade, which also adds motivation for peace, as Scott points out.
johnson85
Apr 13 2022 at 4:59pm
Does it have to be one or the other? It seems to me that we could focus on not being reliant on a hostile country for basic necessities (chips, medicine, medical supplies, military supplies) while still generally being open to trade with them.
I know that might be easier said than done and that in reality we wouldn’t have rational actors trying to decide what needs to be kept independent and how but corrupt politicians and bureaucrats, but it seems like China having the ability to cut off our antibiotics and chips increases the chances of brinksmanship rather than diminishes it. If us cutting China off is economically painful to us and more so to them, then I see that as a pretty strong deterrent on invading Taiwan because we can credibly act on that. If us cutting China off means we have medicine shortages and our economic grinds to a halt because we don’t have access to microchips, that seems like it might convince China that we won’t do anything to stop them from doing something like invading Taiwan. And if we are going to act against them, we have to immediately escalate (or at least threaten to escalate) into something approaching full blown war because we won’t be able to afford to wait.
Scott Sumner
Apr 13 2022 at 5:35pm
Yes, there may be some essential goods for which we should not rely on China. In fact, it is Taiwan that we rely upon for computer chips.
Edgewise
Apr 13 2022 at 9:23pm
Is there really any excuse for an advanced wealthy nation like U.S. to be dependent on other countries for anything?
Why are libertarians so hellbent on putting (or keeping?) the country at risk for an economic hostage situation? Is it actually “ignorance”? Or is it something worse?
Scott Sumner
Apr 14 2022 at 12:56am
International trade is a very important way of raising living standards, both here and overseas. It also helps to promote world peace. The advantages of international trade are so overwhelming that only a few crazy places like North Korea cut themselves off from the world economy.
Just because I buy a product from someone, doesn’t make me a “hostage” to that person.
Jim Glass
Apr 14 2022 at 9:53pm
Is there really any excuse for an advanced wealthy nation like U.S. to be dependent on other countries for anything?
At the beginning of the 20th century Argentina was one of the few richest countries in the world, right up with the USA.
As the world industrialized it embraced the policy of “import substitution”, making sure it was self sufficient in everything. By the 1980s is was a developing country – entirely self-sufficient in producing its own 1960s-model Chevys.
Jose Pablo
Apr 15 2022 at 10:09am
Is there really any excuse for an advanced wealthy state like California to be dependent on other states for anything?
Is there really any excuse for an advanced wealthy county like Fairfax (VA) to be dependent on other counties for anything?
Afterall some of the most vicious wars ever waged were against people of your own “country” (including the American Revolution, by the way).
Depending on your butcher or your baker for feeding yourself instead of being fully independent inside your nuclear proof refuge in the mountains, significantly increase your well-being … and your mental health.
Granted, together with your risk of being held “economic hostage” by your food providers, but in life some risks are worth taking.
johnson85
Apr 14 2022 at 4:46pm
I edited out “or countries in the shadow of hostile countries” for brevity because I couldn’t come up with another example other than chips and Taiwan but obviously that needs to be addressed. A huge percentage of our chips come from China or Taiwan (I think ~90% is what I read). So if China invades Taiwan, and we shockingly respond with significant military force, they could severely hurt us by destroying the chip factories on their way out. That would be painful for them also, but they’d then be a dominant chipmaker and for the short term and have a lot of leverage.
I’m not sure there is a similar dynamic with anything else like chips. Ukraine produces a lot of grain and a good bit of fertilizer, but they are just a big supplier that impacts prices. Not one that can actually shut off supply. And I’m not sure that there are a lot of countries that are really stable enough to be a producer of a key product but also subject to invasions/hostilities. Taiwan, maybe some eastern bloc countries? Israel? But there is probably a product I take for granted that I just don’t realize comes from a very concentrated supply.
James Stewart
Apr 13 2022 at 11:38pm
The biggest challenge to those making the case for free trade is fear mongering by the popular media. It prospers then fails or refuses to correct errors.
A topical instance of this has been the use of nuclear energy. It has been safer than coal for decades but is far more regulated than coal. Germany’s dilemma is entirely due to media fear mongering!
bb
Apr 14 2022 at 2:28pm
Scott,
I agree that the sanctions will accomplish nothing. I also agree that we should do them as a punishment. I am concerned that we don’t have a plan for when or how to lift them. We never have a plan, so we end up with forever sanctions. If it’s a punishment, maybe we should just be explicit and say that it’s a 10, 15 year sentence?
Scott Sumner
Apr 14 2022 at 6:25pm
We lift them when Russia withdraws from Ukraine. Completely.
bb
Apr 15 2022 at 9:09am
Scott,
You wrote: “We lift them when Russia withdraws from Ukraine. Completely.”
That seems like an unlikely outcome. Even if we don’t include Crimea, I expect that it is very possible that the final agreement or the final status quo will involve Russia occupying some portion of Ukraine. Crimea seems like a done deal. If so, that puts us into another forever sanctions like we have in Cuba or even Iran. That seems like a bad outcome.
Also, Ukraine should have some input on when we lift the sanctions.
Jim Glass
Apr 14 2022 at 9:42pm
I agree that the sanctions will accomplish nothing.
They are already working fine and are on the way to working better.
I also agree that we should do them as a punishment.
Punishment? That would be adolescent. To punish whom?
The sanctions have stated practical purposes clearly spelled out when they were issued: (1) To sap Russia’s ability to fight this war over the long run, (2) disable the Putin regime from fighting another such war again in the future, and (3) deter other nations from starting such a war (looking at you, China.)
As to #1, Russia has a GDP smaller than New York State’s with a weak technological sector — including for the military. It is far, far from an autarkic economy. There are reports of Russian military production plants already shutting down for lack of imported parts.
And have you seen the video of the Ukrainians disassembling a Russian drone? “Japanese camera, Japanese engine, English language circuit boards, is there anything Russian in there?” They won’t be flying many more of those. Multiply.
As to #2, Russian GDP is projected to drop 10% right away, in the longer run industries across the board will be hobbled by isolation (Aeroflot’s maintenance hub is in Germany, multiply x 1000), 300,000 of Russia’s youngest and best educated (tech workers!) have fled the country already, taking its future with them, as Russia’s total population plunges.
Putin may stay in power for years to come while reducing Russia’s GDP down to less than Delaware’s — but if he does, he won’t be invading Latvia with it. And the sanctions will have worked fine.
bb
Apr 15 2022 at 9:33am
Jim,
My wording was too simplistic. My point is that the sanctions are unlikely persuade Putin to change his behavior or to lose power, based on the fact that sanctions have a very poor record for successfully changing behavior. I think the sanctions will cause, and likely already are, a tremendous amount of suffering. I also agree that Scott is understating their impact to date. And I agree that they will impact Russia’s ability to prosecute the war, but I’m skeptical that it will be decisive. Providing Ukraine with weapons and training is the most impactful option we have.
And when I say punishment, I’m referring to deterrance for both future Russian actions and other nations.
We have a long history of imposing sanctions, and very few examples in which we successfully changed another nation’s behavior. Cuba, Iran, Iraq, Libya, North Korea….
I don’t think it’s adolescent to recognize that the sanctions are unlikely to produce the results we want, but accept that we still need to do them for a variety of reasons to include punishment.
Can you provide an example in which sanctions caused a nation to change course in a way that is anywhere near as significant as a Russian withdraw from Ukraine? A very likely outcome is that 10 and 20 years form now, Russia will occupy both Crimea and some sliver of Eastern Ukraine, there will be some form of ceasefire, and we will still have sanctions in place. At that point, I will prefer that we had not made the lifting the sanctions conditional on complete withdrawal.
Floccina
Apr 14 2022 at 3:25pm
Isn’t it also true that if we do not trade we will become relatively less rich and therefore weaker?
Floccina
Apr 14 2022 at 3:28pm
BTW It seemed to me a big mistake to withdraw from the Trans-Pacific Partnership (TPP).
Scott Sumner
Apr 14 2022 at 6:25pm
Yes.
Jose Pablo
Apr 15 2022 at 10:54am
There is very little risk of the “economic” and “political” international policy being coordinated by a powerful philosopher king to serve a well-defined rational end.So, don’t worry that much. Businessmen will control trade with international partners to their own benefit and the military establishment will push for more spending to face the armies of the autocracies financed by that very same international trade.
We have the theory that help us to make predictions on that arena https://www.econlib.org/hanania-highlights-i/ . It does not support the emerging of a centrally coordinated totally coherent all comprising international policy. Very likely fortunately.
… but I claim, as an individual consumer, my right to a labeling that allows me to know to what extend my buying is helping to financed bloody authoritarian regimes ruled by egocentric power thirsty killers. Regimes like Russia or China. I have every right to avoid buying the products that finance these regimes, and entrepreneurs have every right to develop “financing authoritarian regimes free” products or services.
And I know that Mai Lai or the McCarthy Committee or Roosevelt’s threat to pack the Supreme Court or Trump supporting the storming of Congress, were all American doings but, although all governments are equally bad, some governments are more equally bad than others … and we know it.
Michael Rulle
Apr 16 2022 at 11:13am
I agree in the abstract with Scott—and we should also not go out of our way to make an already crazy CCP even crazier.
However, my view—which I had temporarily stopped believing—-is that China is out of time and going backward. Perhaps I am too cynical, but a country that was ruled by the Maoists until the late 70s does not strike me as very stable—-(like going from the Czars to the insane Bolsheviks to however one characterizes Putin).
I think we should take advantage of their need to trade with us—-but we cannot trust them to stay consistent—-we should try to build up new trading partners faster—and see if we can skim the best to come to America.
I keep thinking of Shanghai being shut down—-and the FT reporting robot dogs and drones policing the city.
Trade is good—but China? You hate the CCP–so do I–and not just for moral reasons—-they are crazy.
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