The Endangered Asian Century
America, China, and the Perils of Confrontation
TODAY it seems an extraordinary thing that when the Trade Agreements Act was first passed in 1934 its preambulatory statement of purposes was innocent of the words "defense" or "security." It is even more extraordinary that the Act lacked any specific reference to these subjects until its ninth renewal in 1954. In a broad sense, of course, security considerations did play a part in the original conception of the Act. Cordell Hull rarely spoke of the program without voicing the view that increased international trade would reduce the risks of war. And much of the public support for trade agreements in the years before World War II derived from a widespread conviction that Mr. Hull was right.
It was not until after World War II, however, that the security theme came to dominate the presentation of the trade agreements program to Congress and the public. As one Administration after another was confronted with the task of obtaining Congressional consent to the program's renewal, the emphasis on its security aspects was gradually increased. A trade program which once was justified to the Congress largely because it might sell more American goods to foreigners began to be based on the contention that it built up defense strength, increased the mutuality of interest of the free nations and reduced the risk that any of them would be trapped by economic dependence on the Soviet bloc.
But what was sauce for the program's proponents was sauce for the protectionists as well. If Administrations could argue for the program on broad security grounds, particular industries could argue against it on narrow ones. Accordingly, contentions multiplied that this or that industry was essential and needed protection. Some of the contentions, of course, were close to absurd. In the name of defense, the dairy lobby succeeded in restricting imports of foreign cheese. The lace manufacturers claimed defense status because they manufactured mosquito netting; the glove manufacturers because they made soldiers' gloves; the cutlery producers because they manufactured machetes; and the lead-pencil producers simply because pencils were "indispensable." But other pleas, whether more plausible in the end or not, demanded a closer appraisal. Producers of chemicals, heavy electrical equipment, microscopes, watches and others protested that increased imports were weakening their industries for defense.
Pressures of this sort could not be forever denied. Early in the postwar period, representatives of the defense agencies were added to the Trade Agreements Committee, the inter-agency group which directed the trade program. Still the pressures persisted; and when the Trade Agreements Act was renewed in 1954, it contained a new provision admonishing the President not to reduce the tariff on any article "if the President finds that such reduction would threaten domestic production needed for projected national defense requirements."
A few months later, the watch producers succeeded in their long, carefully-directed campaign to obtain more protection from imports. On July 27, 1954, the President proclaimed an increase in jeweled watch duties, basing his action partly on the claim that it would "have an important collateral effect in contributing to the maintenance of a satisfactory industrial mobilization base. . . ." And having thus recognized in principle the possibility that new restrictions on imports might be necessary to permit the development of an adequate defense establishment, the President had no choice this spring but to endorse an amendment to the Trade Agreements Act specifically authorizing him to restrict the imports of any product whenever such imports threatened "to impair the national security."
The watch decision may have represented an aberration in policy reluctantly undertaken in a close Congressional campaign, or it may have been deliberately arrived at after a profound weighing of all its defense implications. But the original circumstances and motivations of the decision do not matter very much. What matters more is that the decision establishes a precedent which, under the new amendment to the Trade Agreements Act, could well be widely applied. Because this is so, there is need to reconsider some of the fundamental relations between our foreign trade and our national defense.
The basic pattern of United States security planning is too obvious to demand much recapitulation. Our evident strategy, as reflected in our NATO commitments and other military arrangements, is to maintain a solid coalition of nations against the Soviet bloc; to try to hold Western Europe and Japan in the face of attack, despite the enemy's heavy manpower resources; and to rely in part on the ground troops of our allies for this purpose, supported by United States air power and, if need be, by nuclear weapons. No doubt our Joint Chiefs have plans for a last-ditch defense as well, to deal with the contingency that our forces may be pushed off the face of Western Europe and out of Japan. But though one may guess that our forces will always be deployed so as to permit such a plan to be put into operation if necessary, the concept of an independent second line of defense is not the dominant feature of our military policy.
The economic counterpart of these policies of global defense is to be found in various programs of our government. The European Recovery Program of the 1940's, the Offshore Procurement Program of the early 1950's and our current defense-support and developmental aid undertakings all are grounded in part on the premise that the strengthening of foreign economies is helpful, even indispensable, to our own security. This thesis is supported by the familiar propositions that economies in process of growth will resist Communism more stanchly than stagnating economies and that economically vigorous nations will make a better showing in wartime than those which are flabby.
But our international economic policies, shaped in part by haphazard political forces, seem to suffer from schizophrenia in their defense implications. Unlike our military plans which are based on global strategy, our economic defense plans seem to be influenced much more heavily by the assumption that in wartime the economy of the United States may be expected to stand alone. This is in evidence not only in the evolving pattern of our Trade Agreements Act but in other governmental programs as well. For example, we have a stockpile program, the objective of which is to develop emergency supplies of scarce raw materials within the continental limits of the United States. This stockpile program takes some account of the resources and prospective needs of our allies; and in some cases nearby foreign sources of raw materials may be encouraged by United States funds for defense purposes. But far-off sources of supply are discounted, even when they are located close at hand to our allies. The underlying conception seems to be of a continental bastion, relying on no one else to help supply its own needs and those of its surviving friends.
Beyond this, the administration of the so-called Buy American Acts has recently been tailored to the principle of defense autarky. These Acts were originally adopted in the depressed 1930's to force government agencies to make their purchases at home; recently the administration of them has been codified by an Executive Order. Although the general effect of the Executive Order was clearly intended to reduce the handicap of foreigners in bidding on United States Government business, an apparently unlimited priority was granted at the same time to domestic suppliers wherever "necessary to protect essential national security interests."
The United States merchant marine policy is another case in point. The lavish subsidies extended to our shipping and the various provisions of law which require that our ships be given a preference in the handling of certain types of cargo are commonly justified mainly on defense grounds. Yet these grounds would not have much validity unless we were contemplating the possibility of fighting without the help of the ships of the world's principal seafaring nations.
We are justified, of course, in planning for the contingency of the last-ditch fight. For, if we and our allies are pushed out of Europe and the Far East, our defense may have to be based largely on our own industrial resources. But the difficulty is that the emphasis on autarky, when it is developed unilaterally by us rather than by common consent, can undermine the possibilities of maintaining our preferred plan of battle--collective defense supported by collective economic strength.
Obviously, the free world is held together by economic as well as political and cultural ties; the strength of these economic ties depends in good part on trade; and an independent autarkic policy on the part of the United States would weaken both the sense of interdependence between us and our allies and the material strength of the free world. It is hard to think of maintaining the security of our forward attack bases in the United Kingdom, France, Japan, Greenland and Pakistan while shrinking the exchange of our goods with these countries. If in our trade policy we plan for an autarkic defense, therefore, that very fact may reduce the possibility of pursuing less dangerous and less damaging alternatives.
The insurance provided by autarkic policies has to be questioned not only from the viewpoint of its cost but also of the amount of protection that it really provides. Suppose we assiduously pursue a policy of reducing imports of commodities which do not seem to have a "satisfactory industrial mobilization base," what consequences may we reasonably expect in terms of the strengthening of such industries?
In the raw materials field, the case for restricting imports of critically short raw materials seems, on first glance, to be close to absurd, for such a policy would appear to reduce our reserves even before hostilities had begun. But this may be regarded as only a superficial reaction, since the size of the domestic supplies of an exhaustible raw material available in an emergency depends on a number of factors. Exploitation in peacetime will, of course, reduce the supplies available in wartime, but peacetime imports can also reduce the amount which an economy could readily produce in wartime. For in a market economy, the reduction of domestic production is usually accompanied by the abandonment of diggings, which sometimes reduces domestic reserves through flooding, cave-ins and the underground leeching of deposits. The dispersal of a trained work force and the scrapping of mechanized equipment also reduce production potentials, at least until mines and processing plants can be put back on an operating basis. And the curtailment of domestic operations, whenever it is accompanied by a decline in exploration and in the proving out of added reserves, has a like adverse effect.
The relative importance of these conflicting forces differs from one commodity to the next, but some preliminary generalizations may be justified. In the case of crude oil resources, a prima facie case seems to exist that the heavy draining of domestic reserves through consumption has been offset, at least up to the present time, by the stimulus which such consumption has given to the full utilization of such reserves and to added exploration. Proved reserves of petroleum in the United States, which represented about 12 years' supply in 1921, have risen fast enough since that date to maintain the same relation to consumption in 1951. This is a remarkable record, achieved in the face of a persistent concern that our reserves may finally peter out.[i]
But there have not been many commodities in which domestic reserves have kept pace with domestic needs. In the next decade or two, allowing for continued exploration and for the development of substitutes, our domestic reserves of manganese, copper, lead, mercury, zinc, uranium, vanadium, tungsten, antimony and sulfur can reasonably be expected to decline, both absolutely and relatively to consumption;[ii] or, to put it more precisely, the real cost of extracting usable ores of these types from domestic sources is likely to increase very rapidly if we continue to draw upon domestic reserves to supply our growing civilian economy. In an emergency, we would probably have to divert inordinate quantities of badly needed manpower and equipment to supply our needs or to fashion substitutes. The economic loss in foregoing foreign sources of such materials in peacetime could be very high.
However, as we suggested earlier, import restrictions in the interests of defense have been proposed and applied not only with respect to raw materials but also with respect to fabricated products whose manufacture requires difficult skills. To maintain these skills in being, it has been argued, domestic manufacturers must be allowed to operate at some minimum level of production; otherwise, the skills will be almost irretrievably dissipated into other occupations. This contention, of course, underlay the classic jeweled-watch affair but it has also been claimed repeatedly for other industries as well. Any industry may be pardoned for contending that it provides the vital nail on which hangs the kingdom's fate, but mobilization planners must go deeper into the facts. The blitz experiences of World War II illustrated again and again the general proposition that the ability of industrial nations such as Germany, the Soviet Union and Japan for emergency improvisation is extremely high. Where, as in the United States, the industrial craftsmen facing foreign competition constitute a minute fraction of the skilled labor force, we are dealing with mobilization factors which may have minimal importance.
This is not to belittle the importance of generalized machinist, engineering, scientific and managerial skills in wartime. On the contrary, such skills are absolutely indispensable to flexible production in an emergency. These are the skills which turn washing-machine factories into bomb-casing plants and which find a way to use plastic for tin plate. To foster them is altogether consistent with the needs of wartime production. But they are not the skills for which protection is sought. It is the glass-blowers, the watchmakers, the cable-winders and the lens-grinders on whose behalf import restrictions are more commonly demanded--the little pools of skill which run to specialization rather than to flexibility and which are relatively incapable of being applied in other industries. And the evidence of past wars suggests that craftsmen of this sort are relatively dispensable.
As a matter of fact, there is every reason to suppose that, in an emergency, our capacity to produce by unorthodox methods products which had previously been regarded as requiring high degrees of specialized skill would exceed that of the Soviet Union and Germany, remarkable as were the accomplishments of these nations. Our capacity in this respect was illustrated in World War II when aircraft construction, lens manufacture and many other types of production previously regarded as the craft products of highly skilled workmen were converted by our engineering methods into mass production industries; indeed, by the war's end, some lens-grinding teams were being trained in as little as six weeks to do the job which individual craftsmen once had learned in a training period of four or five years. This experience was being duplicated in Germany, where Soviet women and other unskilled foreigners were being quickly and successfully trained in the machine tool and optical goods industries to replace the dwindling supply of skilled German males.
But the case for maintaining imports rests on more than the contention that it would have a minimal impact on industrial skills. The fact is that a number of our industries respond to continued pressure of competition from abroad by making the very adjustments that are needed to reduce their dependence on rare and expensive industrial skills. United States industries which have been under competitive pressures to reduce costs and prices commonly have had one main recourse--to reduce the labor cost of their product. This has been done in two ways: by reshuffling job requirements to permit the substitution of lower skills for much of the work previously done by higher-skilled workers; and by developing highly specialized machine tools which could be substituted for skilled and semi-skilled human labor. Cost-pruning developments of this sort have occurred in many industries as a way of meeting competitive pressures, domestic or foreign. The photographic industry represents a major case, in which a substantial part of the pressure for change has come from abroad. Manufacturers of organic chemicals, heavy electrical equipment and microscopes are being goaded to find cost-saving devices to compete with imports. None of these industries will disappear from sight if foreign competition continues. But, in each of these cases, it seems reasonable to conclude that a reduction of imports would lead to a reduction in cost-cutting pressures and to the continuation of our dependence on a high labor content in these products.
But there is a more general and a more significant point to be made on the impact of foreign trade on United States skills. Increased foreign imports could well stunt the growth of our hat-making, glass-blowing, bicycle-fabricating, watchmaking, cable-winding, lace-making, and high-grade textile-weaving industries. On the other hand, the United States industries which benefit from foreign trade by their increased exports include trucks, agricultural implements, chemicals, drugs and machinery. From a defense mobilization viewpoint there is no doubt which of the two industrial groups would be more useful. Not only are the end-products of the second group of industries more relevant to the efforts of a nation at war; it is also the fact that the characteristics of versatility and adaptability which would be needed in the critical phases of any future war are to be found much more commonly in the second group than in the first.
What follows is the familiar conclusion that things are seldom what they seem. Situated as is the United States, a movement toward autarky would surely not strengthen its industrial base for conventional war nor would an increase in foreign trade inevitably weaken that base. The weight of the evidence, in fact, runs the other way. The continental bastion may well derive added potential strength by husbanding its scarce raw materials and exposing its processing industries to the pressures of foreign competition.
In the debate over defense and the trade policy, neither side as yet has tried seriously to assimilate the implications of nuclear warfare. This is to be expected. Only a beginning has been made on educating the public to the meaning of nuclear warfare, and the odds are that much of what is publicly assumed today will prove in time to have been distorted, incomplete or imperfectly understood. Moreover, it is at least conceivable (though it may not be likely) that thermonuclear weapons would not be brought into play in another major war; or that, by mutual consent or practice, they would be confined to tactical rather than strategic uses and would not greatly alter the grand pattern of conventional warfare. Yet a start has to be made in exploring the trade implications of nuclear warfare; the issues at least have to be defined. For few things are more dangerous to a nation's survival than cultural lag, and it would be a tragedy if the trade policies now being pursued in the name of defense proved after all to have been undertaken for the wrong war.
To sharpen the issues, we may set aside the possibility of the restrained use of nuclear weapons and consider their uninhibited use by both sides. On this assumption, can defense production planners think in terms of prolonged warfare?
The importance of this issue, of course, stems from the fact that most concepts of an "adequate mobilization base" are meaningful only if one is thinking of a prolonged war. The efforts of government defense agencies to stimulate the domestic production of scarce raw materials such as mica, mercury, beryl, monazite, tungsten, antimony and talc, as a supplement to stockpiling, are inescapably based upon the assumption that hostilities would be of long duration--many months or perhaps years--at any rate long enough to mine and refine these materials, to process them into end-products and to deliver them to their point of use. The United States Government stockpile program, in accordance with which minimum supplies of scarce raw materials are being stored for use, is also based upon the assumption of many months of war. Similarly, the concern for maintaining adequate domestic watchmaking, lens-grinding and heavy electrical equipment facilities also seems to imply that future wars might well last a considerable time.
Whether these are realistic assumptions is something for experts in nuclear warfare to determine. But if the answer is that the outcome of the war would have to be decided in a relatively brief period, then our concept of the "mobilization base" would need a drastic overhauling. For then our defense problem would be primarily how to stock the end-products--guns, planes, clothing, food and medical supplies--in sufficient quantities at points near their place of use, to be available in the period while the war's outcome was still at issue. The availability or absence of talc or antimony in this brief period would hardly be relevant.
The chances are that the possible length of a nuclear war will depend in part on the size of the battlefield. Warfare concentrated by the enemy upon the continental limits of the United States could not be expected to last for very long. Then whether or not our watchmaking establishments were fully equipped and ready to produce would have very little bearing. Such, at least, is the evident implication of much of the published analysis to date. To begin with, the greater part of our industry is concentrated in a relatively small land area. Five metropolitan areas account for over 30 percent of our total industrial production; 15 account for 45 percent of all our manufactures and 52 percent of our hard goods manufactures. The instrument industry (which includes the watchmakers protected by the President's decision of July 1954) has 52 percent of its production in three cities.[iii] There is no evidence that the recent public disclosures of the damage potentiality of nuclear weapons is doing much to affect this picture. Recent pronouncements by representatives of a number of large industrial companies clearly indicate that the controlling criterion in choosing new plant sites is still the cost of doing business.
Nor is there any program now on foot which gives promise of any greater dispersion of our industrial plant on D-Day than exists at present. The governmental devices available for the encouragement of geographic dispersion are not of sufficient consequence to matter very much in the general pattern of industrial growth. Certain limited types of plant--those immediately associated with defense production--may be entitled, in effect, to a postponement in the payment of some of their taxes by the availability of accelerated plant amortization. The location of a plant may also be influenced in a few cases by governmental policy in allocating contracts. But that is all. In an economy devoted to the principle of free private enterprise it is difficult to envisage a domestic program in peacetime vigorous enough to affect this pattern very much.[iv] We must assume that the American industry which faced a nuclear attack at the outbreak of war would be distributed in much the same pattern as it is today.
On this assumption, the published analyses provide cold comfort. It is estimated, for instance, that even if our air defense could be raised to a level at which half the attacking bombers could be intercepted, a few hundred bombers could destroy about half our industrial capacity.[v] In addition, the fall-out phenomenon would have to be reckoned with; actual or potential lethal fall-out areas created by nuclear explosions have been variously described as running from over 2,000 to 100,000 square miles. On these facts, it could well be that substantial reliance upon United States industry in wartime is no longer a realistic basis for planning.
Perhaps the concept of an "adequate mobilization base" might still have meaning, even in nuclear warfare, if industrial facilities could be sufficiently dispersed through the whole of the free world. It is not at all self-evident, however, that such dispersion would reduce the vulnerability of our industry to attack. For the dispersion of such facilities would call as well for the dispersion of the planes and other devices for their defense. Moreover, on almost any assumption as to the geographical pattern of such dispersion, the need for transportation probably would increase. Whether these factors would add to or detract from the vulnerability of our industry probably involves some very complex military judgments.
If the experts saw merit in greater industrial dispersion over the free world, however, this could have at least two implications for our trade policy. One is obvious. We would have an added reason to pursue the kind of policy which would increase the likelihood that the other areas would remain in our camp; otherwise their productive facilities could not be counted on in an emergency. The other implication for our trade policy is much fuzzier. We would want to pursue a trade policy which contributed to the desired dispersion pattern, or at any rate did not conflict with it.
It is not easy to define the policy which would contribute most to this latter objective. A persuasive case might be made out that, if trade were allowed to develop free of governmental obstacles and the forces of comparative cost were allowed to determine the international location of industry, the resulting pattern would be about as close to the ideal as one could hope to achieve. But this is not above dispute, for industry located in accordance with comparative cost might be poorly located in terms of air miles from the enemy's attack bases. What is more, the international specialization brought about by the comparative cost criterion would probably tend to increase the concentration of particular industries when dispersal might be better from a military viewpoint.
Another possibility, of course, might be considered. We might attempt to blueprint an "adequate mobilization base" for the free world as a whole; we might locate its components in their "proper" geographic position; and we might plan to bring this blueprint into being by the skillful use of tariffs, quotas and subsidies. In short, we might attempt to apply on an international scale the devices now implicitly available to the President to foster an "adequate mobilization base" in the United States.
Those familiar with the limitations of governmental investment planning, especially of planning in terms of specific industries and specific products, may well shudder at such a prospect. Moreover, the risks that such a program would eventually be perverted to protectionist ends, however wisely it may be conceived in the beginning, seem overwhelming. Nevertheless, if it should prove that the international dispersion of resources would contribute to the security of the free world, there would be a challenge to be met in devising the trade policy most consistent with the objective. In the end, however, we may find it feasible to do no more than our international programs so far have sought to do, albeit with reservations and internal contradictions, over the past decade: to help increase the human and material resources of our friends, and to keep the international channels of trade relatively free of the clutter of egregious governmental restraints which hold down the opportunities for such trade and the potential gains from it.
It is clearly too early to draw hard-and-fast conclusions on the implications of nuclear warfare for our international trade policy. But a negative conclusion at least is clear. The elements of defense autarky which are beginning to run as a visible thread through the fabric of that policy are a perilous atavism. The political and military elements of our defense are now irreversibly multinational. The economic aspects of our defense must fit the same pattern.
[i] See "Resources for Freedom," President's Materials Policy Commission, v. I, p. 107, and v. III, p. 5.
[ii]Ibid., v. I, p. 26.
[iii] M. K. Wood, "Industry Must Prepare for Atomic Attack," Harvard Business Review, v. 33, no. 3 (May-June 1955), p. 120.
[iv] But see Karl Kaysen, "The Vulnerability of the United States to Enemy Attack," World Politics, January 1954, p. 190, for proposals designed to stimulate dispersion over the long run.
[v] M. K. Wood, op. cit., p. 117.