American businesses and consumers should move away from Chinese dependency and demand that supply chains be oriented towards what I call “Freedom Trade”, a system based on the idea that the rule of law, national free markets, human rights and environmental standards are necessary for global prosperity and peace.
Supply chains work best when there is predictability and peace – and the only way to guarantee this is to ensure that countries operate within the framework of the free trade system.
Post-Cold War prosperity for much of the world
The most productive and secure period in human history has unfolded in the past 30 years, thanks to the foundations that America helped build during the Cold War. The implosion of communism in what was then the Union of Soviet Socialist Republics (USSR) left the world an undisputed superpower (at least for a time). China’s entry into the World Trade Organization in 2001 marked the beginning of a new era of global economic integration.
Capitalism has spread wealth widely, benefiting almost every civilization and every country. The standard of living has reached unprecedented levels. The world moved towards market economies and countries participated in free trade. Technology and information networks designed in the United States have proliferated, providing e-commerce and the ability for countries and entrepreneurs to sell their products to a global audience.
The world has become connected in ways few would have imagined during the Cold War era. Countries that have reoriented their economies to global markets have been amply rewarded with capital investment and prosperity.
The United States has played the policeman of the world; we weren’t perfect, but the international order was much more predictable than in the close-to-peer great-power conflicts of the past few centuries. The world has become a much more peaceful place under the American system of globalization than it was before. (And that doesn’t mean there haven’t been conflicts within or between nations and that terrorism has been a cancer across the world.)
The U.S. Navy aircraft carrier groups that were built after World War II and have since practiced “gunboat diplomacy”, ensuring trade lanes were open and protected from those who would compromise trade and (relative) peace.
World economies since the end of the Soviet Union
Since the breakup of the Soviet Union, America’s main expectation of other countries has been to allow world trade to proliferate. If a country participated in the international trade regime led by the United States, it gained far more than it gave up.
Countries that were once mired in poverty due to lack of capital found that if they participated in the American free market system, they would generally be rewarded with peace and prosperity. And many countries participated.
This was first seen in Germany and Japan, the nations that lost World War II. The United States helped rebuild its economies, and since then it has prospered mightily. Others followed, including China, Vietnam, Russia, Colombia, Mexico, the Philippines and countries in Eastern Europe. All have experienced rapid growth and prosperity – often benefiting from America’s free trade system far more than America itself.
When nations joined the American free trade system, they were expected to create open and free markets at home. Countries were also expected to guarantee (to one degree or another) human rights, environmental, and rule of law standards that were more common in advanced Western-oriented economies.
The strength of the American free market system was that it relied less on hard (military) power and more on market power and consumer opinion. American free markets have always relied on proxy power in the form of a global currency and the purchasing power of global consumers. If a country broke the rules that the market or consumers had established, the offending country or company would be punished by losing US dollars.
And for the first 20 years after the fall of the Iron Curtain, the proxy power of American free markets worked exceptionally well. Countries and companies that operated under this model were rewarded with unprecedented prosperity. In almost all parts of the world, the standard of living has risen rapidly.
The People’s Republic of China does things differently
No country has benefited as much as the People’s Republic of China.
China, which suffered under some of the most incompetent and unjust rulers of the period from 1949 to the Cold War, began to transform from an impoverished backwater into a global economic and military power. From 2000 to 2010, China’s per capita GDP more than quadrupled.
In the early part of its rise to economic prosperity, China developed a stronger orientation toward American free markets. It even developed a domestic semi-market economy that allowed Chinese citizens to significantly benefit from prosperity and acquire property.
But as China grew wealthier, the American version of the free market became far less attractive to the Chinese Communist Party (CCP). The CCP wanted the prosperity of the American free market, but without offering the rule of law, national free markets, human rights, or environmental standards. The Chinese wanted to withdraw from the free market but offered little in return.
The United States has paid a huge price for allowing China “to have its cake and eat it too”. The American working class has been squeezed out as jobs and production have been outsourced to Chinese manufacturers. Moreover, Chinese markets have never been truly open to American companies and China’s human and environmental rights record is abysmal.
And the world was ready to play along…As long as China was willing to build the infrastructure and systems that enabled global supply chains to benefit from cheap labor and manufactured goods, the market free looked beyond the failures of the Chinese government and its reluctance to participate in American standards.
But that has recently changed.
When China locked down about half of its economy, it exposed the world to a disturbing reality: the more we depend on Chinese supply chains, the more vulnerable America’s free market system becomes, putting peaceful trade and commerce at risk. global prosperity.
China attacked the very system that allowed it to thrive and declared its intention to create a new system, based on the principles of Chinese government. He longs for a world not based on American economic principles, but rather on centralized control and artificial prosperity. China’s version of a prosperous system pays little heed to individual rights, environmental standards or free markets.
Therefore, Freedom Trade demands that autocratic regimes stop trying to manipulate the markets in which they operate. Otherwise, they artificially impact the supply chains that global businesses depend on and can cause serious damage to the entire system of free trade.
And since supply chains thrive when all parties have mutual understanding and aligned goals, the world will once again benefit from supply chain prosperity and transparency.