Washington’s Missing China Strategy
To Counter Beijing, the Biden Administration Needs to Decide What It Wants
THE perplexities of international economic relations do not favor simple prescriptions or encourage bold ones. The facts that must be taken into account are intricate and the circumstances are variable. To attempt even a preliminary sorting out is something like trying to solve a jigsaw puzzle of thousands of pieces in the midst of heavy bombardment. But I believe one clue to the discovery of the pattern is clear -- if the Anglo-American part of the puzzle can be fitted together, much of the rest will fall into place; while if it cannot, the pieces will long remain a jumble. This is so for several reasons.
First. The commercial and financial activity of the United States and of the countries of the British Commonwealth and Empire have been and will be a great part of the total of world activity. The policies they pursue will greatly affect the policies and fortunes of all countries.
Second. The hopes of a large part of the world for securing capital and consumer goods to meet pressing deficits in the immediate postwar period will be largely centered on them.
Third. Their territories contain a large part of the raw material resources of the world, and their citizens also share in the ownership or direction of many resources situated outside their own territories.
Fourth. They both are certain to engage vigorously in undertakings that by their nature are world-wide in compass -- particularly shipping, civil aviation, telephonic and radio communication and the production and distribution of petroleum. In these fields the interests and activities of the two countries will come into direct confrontation at many points.
For these reasons, if the United States and the British nations can satisfactorily adjust their relations, and if they can work together to create and support international economic organizations, an orderly basis will be provided for economic transactions throughout much of the world. If they cannot do so, international economic relations will remain uncertain and turbulent; if they quarrel, others will be involved. I hardly need emphasize, I hope, that the foregoing is said without any suggestion that the United States and the British nations should afford each other privileges or opportunities of a type not afforded to others, or that all like-minded nations should not fully share in the negotiations and resulting accords.
Trade policy is the field in which satisfactory adjustments must above all be attained -- not only as regards the movement of goods between each other's territories but also as regards the trade of each with other countries. The period immediately after the war may prove a favorable one for making them. For there will then be an insistent demand, both domestic and foreign, for goods; and active employment seems assured. Also, we may anticipate that in this period difficulties will be mitigated by aid provided through an international program of relief and rehabilitation.
But presently (unless the economic organizations of both countries find a miraculously improved balance as compared with the past) many branches of production will be found to have capacity in excess of naturally available markets. Circumstances now in the making suggest unpleasant possibilities which can be avoided only by foresight and a mutual determination to prevent them from coming to realization.
We in the United States will emerge from the war with the production of agricultural products, such as wheat and cotton, well beyond our own likely needs. This will be true even though our level of national consumption remains high. We shall have greatly expanded the production of other crops, such as peanuts and soya beans, to take the place of products hitherto imported. Many of our industrialists, especially those making automobiles, machine tools, electrical and marine equipment, refrigerators, road-building machinery, airplanes and chemicals, will look back at their prewar records of production as Lilliputian. Unless we find a satisfactory balance, both as between the different branches of production within the United States and in our exchange of goods with the outside world, a sense of frustration is certain to develop. This might well stimulate an impatient search for foreign markets on any terms, regardless of the fact that the means which others will possess to acquire our goods will depend on their ability to sell their own goods or on our willingness to forego payment.
I shall comment later about loans or gifts as a possible way of helping to bridge certain difficulties; if we make them, they should be even-handed, sparing, and designed ultimately to put an end to their own necessity. As to the use of special devices such as export subsidies and similar measures, I think it is clear that, in the case of commodities sold in competition with efficient foreign producers, they usually defeat their own purposes and cause trouble. Experience shows that the use of them by any important country stimulates offsetting uses by other countries. Should this occur, trade competition between ourselves and the countries of the British Commonwealth and Empire will be a constant source of ill will and reciprocal accusations. There will be fretful disputes over the signature on the sales slip for pins and pipecleaners, patent medicines, planes and parachutes, pears and peanuts. Nor, of course, will the difficulty be peculiar to our relations with the British.
For the United States will not be the only nation of the world that will have an urgent need for exports. The standard of living of the people of Great Britain and the activity of British industries have been and will be dependent upon the importation of a much greater value of goods than they export. During the years 1933-1938, this annual excess of imports into the United Kingdom averaged 330 million pounds sterling. The difference, as is well known, was financed mainly from the proceeds of British investment -- including investments in gold mines -- and shipping. The investment income of the British people and their resources outside the Empire will be much reduced by the end of the war, and shipping earnings cannot redress the loss. They will be compelled to rely more heavily than before the war on the proceeds of exports to countries outside the Empire.
The alternatives are plain: either we and the British nations will work out with each other a program which will justly balance our several necessities, or we will engage in a bitter trade rivalry that will infect our general view of each other. The methods and terms of the adjustment will not be simple or uniform. A compound of numerous and diverse trade and financial measures will be needed. The selection of them must be guided by acceptance of the view that neither will seek to solve its own problems at the serious expense of the other; by a strong intent jointly to favor and assist economic growth in the rest of the world; and by a willingness on the part of each to render, within reasonable limits, financial assistance to the other. Such an attitude can be hoped for only if after the war the two nations are dominated by a sense of having a common economic destiny similar to the present sense of a common military destiny.
The required measures will also have to be in harmony with the general characteristics of the internal economic situation and structure that emerges in the main trading countries. These characteristics we can now grasp only incompletely. But probably both in this country and in many others the costs of production and prices will in a substantial measure be "determined" or "managed" either by public action or by private influence exercised by industrial, agricultural, financial and labor groups. They will be less flexible than they were in the prewar period. Whether or not capital and labor will have the disposition and opportunity to shift easily from branches of production in which competition proves oppressive to other branches will be determined largely by whether there is prosperity and full employment or depression and unemployment. In the latter case, each group will grimly defend its cost and price position against all disturbance, no matter how gradual or moderate, from outside. In the postwar period, the state of employment will be a governing condition of the policy of nations. If there is relatively full employment for all, nations will be considerate of the needs of other nations; if there is not, they will not.
The cautious tariff-maker and the negotiator of international commercial accords will do well in any event to reckon with increased, not lessened, resistance to the impact of unguarded and open-price competition from foreign sources. If international trade is to grow in the face of such a tendency, rather than shrink, various positive measures will have to be devised for joining domestic programs and foreign trade agreements smoothly together. For instance, the perpetuation in some form of government purchasing activities or government-directed purchasing activities seems indicated, perhaps in connection with programs for maintaining stable supply and production conditions.
If the growing tendency towards "management" is accentuated to the point where international trade is unduly limited, then the great benefits of that trade will be wasted. Management could justify itself better by finding the terms and means for extending trade. There must be no wavering on this point if the United States and the British nations are to discharge their economic responsibilities.
Whether or not the United States and the British nations find a satisfactory and conjoined trade relationship will be determined largely by their disposition of monetary and financial matters. Here the question of the rate of exchange between the dollar and the pound sterling will be in the forefront. No great difficulty is to be anticipated in reaching an accord as to what the dollar-sterling rate should be, and in assuring its stability. The view has established itself in both countries, I think, that depreciation of the exchange value of a nation's currency is a poor remedy for economic difficulties; and the view that currency depreciation is a satisfactory means of gaining competitive advantage now meets with scanty favor. In fact, it is probable that a dominant aim in almost all countries after the war will be to try to maintain the relative exchange values of currencies in face of the possible threat of vast increases in currency issues and banking assets. The firm establishment of a stable pound-dollar rate would have a generally beneficial influence. For extremely unsettled economic conditions in many other countries, particularly those of continental Europe, may necessitate a trial period before stabilization of their currencies can be undertaken. That period would almost certainly be lengthened if the pound-dollar relationship was fluctuating. Further, an established pound-dollar relationship would facilitate the early lessening of exchange controls.
The development of international arrangements so that countries may aid each other in maintaining stable currency relations is widely favored. But their form, and the extent to which they should find expression in formalized international accords, are still undecided. They are likely to be considerably more significant than the Tripartite Monetary Agreement that operated as between the United States, Great Britain and France before the present war.
Should the pound-dollar rate be firmly established, and supported, we would desire and expect to see the gradual relaxation of exchange restrictions. However, it may prove useful to retain a system of intergovernmental clearing. Within Great Britain, and possibly in certain of the Dominions, there may well be, during the immediate postwar period, a need of maintaining some restrictions in order to direct the use of available foreign exchange for the most urgent needs of reconstruction. In determining its course in this matter, Great Britain will have to take into account the large accumulation of frozen sterling balances belonging to the banks and treasuries of other countries -- particularly the Dominions, India and the Latin American republics. How long restrictions have to be maintained will depend upon many matters -- the balance of payments position, the political outlook, and the alleviation which may possibly be provided through some international financial institution in which the United States and the British nations participate.
The range of the understanding between the United States and the British nations on monetary and foreign exchange matters should extend beyond the treatment they accord each other. It should include agreement as to the course that each will seek to pursue as regards other countries, though on neither side may it be possible at once to promise to adhere to a rigid uniform line of action during the immediate postwar period. One troublesome question that will present itself is the future disposition of the numerous "payments" and similar financial agreements with other countries to which the United Kingdom is now a party -- as, for example, those with Argentina and Spain. Are they to be retained, modified or absorbed in more universal financial accords? The state of trade and the tendencies that prevail in the political relations between states -- these will bear on the decision that might recommend itself in discussions between the two countries.
This compels consideration as to whether the United States and the British nations (as part of a general United Nations program) will be disposed during the period of postwar readjustment to make available some small fraction of their own national productions to meet the essential needs of other nations. Proposals of that sort may well emerge as the economic counterpart of a mutual assistance political system. How great the need for it will be we cannot tell now. If ample and responsive world markets are available, if a return of order and trust between nations reassures private capital, the burdens which governments would be called on to assume might be small. Once the war-impoverished lands had been aided to start anew, the funds that governments might be willing to provide would be used for the development of natural or capital resources which private capital could not undertake unaided; or they could be devoted to purposes of health and social improvement. Such undertakings would be well justified by the increased production which they would make available to the world.
The seas are broad and the skies are vast. It is comparatively easy to prevent collision of the physical objects which may travel upon or through them; but it is going to require reasonableness and farsightedness to prevent collision between the people who build and operate the physical objects. The United States and the British nations will be among the most active in the operation of shipping, international air transport, and radio and telephonic communications systems. They must agree upon the principles in accordance with which these activities are to be guided if conflict is to be avoided. The task will not be made easier by the fact that the span of these activities includes certain ones which may determine a country's strategic and diplomatic situation.
No dispute is likely to arise over the rights of ships of any national flag to operate everywhere. The well-established rules that kept the ports and seas of the whole world open to the ships of all countries will be restored after the war. Some more specific questions arise, however. To what extent -- now or after the war ends -- should ships be turned over by us or the British to a country like Norway, whose shipping has always been one of its primary economic activities and whose ships are being largely used in the conduct of war operations? To what extent will the construction and operation of ships be left to become a field of embittered competition between Great Britain, ourselves and other contestants -- an unrefereed battle for traffic between ships of different nations, all built at public cost and operated with the help of public subsidy? Can we and other nations agree upon a division of the shipping business, or upon the terms on which governments extend support to shipping? Fortunately, the immediate postwar years may provide an interim favorable to the settlement of these matters, since shipping may continue to be relatively scarce and in demand. Those who undertake to negotiate the necessary settlements will have to take into account military and political circumstances, the details of which are still of course unknown.
In the conduct of air operations the two countries may clash violently if cool minds do not direct developments aright. For activity in the air is excitingly new, and destined to increase in importance as it extends over and into remote and weak and dependent areas of the world. It will change the strategic and economic map. The traffic will be heavy, the operating organizations will be strong, the routes will be numerous, and the landing fields and installations far-flung. The air has proved a natural field for American enterprise -- natural because of our habits of ready travel, our large trade, our ability to produce planes, our skill in operating them, and our experience in establishing international routes. It is also a natural field of activity for the British people, particularly in light of the geographic extent of the Commonwealth and Empire.
A free-for-all and unregulated struggle between nations to extend their own air lines will be enough in itself to plunge the world into bitter imperialist quarrels. There do not now exist any generally accepted premises on which regulations can be based. Rules and agreements to govern the use of the sky for international traffic and to establish and use ground installations still await formulation in large part. The aim is to establish broad and equal rights and obligations for all nations in this field. This can be achieved, I believe, without requiring any nation to endanger its security or to give up its right to exercise justifiable control over the use of the air above its territories and of the ground installations upon them. The prevailing principle should be "equality of opportunity," though there may well be some international routes and some ground positions in regard to which individual countries can justifiably claim some prior or semi-exclusive right or interest. The methods used heretofore in bargaining for transit and landing rights will not be adequate to produce the necessary international agreements. There will probably be a complementary need for accords or understandings regulating competition, sizes of services, taxes and similar matters. In short, a great new body of public and private international law is urgently required. The whole matter can become a test of reason or of strength; a world that knows the sufferings of war will make the choice.
In the field of international communications the task should prove much easier. Nations are not apt to feel that the problems involved have such military or political importance as air problems. Much can be achieved merely by agreements for linking up national systems. But in this field, also, the need for painstaking study and preliminary arrangements is pressing.
I turn now to the matter of how the United States and the British nations are to act as regards access to and control over raw materials. The question has been obscured by the protests and arguments put forward by Germany, Italy and Japan as a justification for their military programs -- arguments made most eloquently at the very time when those nations were importing and stocking up on greater quantities of copper and chrome, of rubber and oil, than ever before in their history.
At the present time almost all nations control the exports of almost all raw materials. In the period immediately following the war some countries will doubtless maintain restrictions over the export of certain raw materials which are in short supply compared with reconstruction needs -- particularly foodstuffs, fertilizers, textile fibers and products of the Far East such as rubber. These restrictions will to some extent handicap the economic recovery of other states and will continue to stimulate the development of high-cost substitute sources. The United States and the British nations will therefore do well to keep any such restrictions to a minimum, and try to influence other countries to do the same.
The emergency period in which the supply of basic raw materials is insufficient will probably in any case be short, for nations will as soon as possible turn their efforts towards producing for peaceful uses. Then, as in the past, raw materials produced anywhere in the world will again become available to purchasers everywhere at the same price. When this is the case, the question of "access" to raw materials boils down to the ability of each nation to gain through trade, on terms that are not oppressive, the means of paying for the raw materials which it needs. Only those who can pay with goods of their own production can induce the miner and farmer of another nation to work and sell, can get a foreign factory's synthetics or plastics. The greater the opportunities which each has to sell its products abroad, the more actual -- as compared with nominal -- will be its ability to secure raw materials from abroad. Of course international trade, no matter how satisfactory, can only modify, not overcome, the difference in effort required of countries of different productivity in order to procure foreign materials. The same pound of nickel wrested from the earth in Canada, for example, will cost the people of China more and harder work than it will Americans.
It may be taken for granted that the United States and the British nations will give each other (and other nations) equality of access, in the foregoing sense, to the raw materials available in their respective territories. In the past, however, the production or export of a few raw materials has been subject to public or private control. I refer to things like rubber, tin and quinine. In the future, controls of this kind must be prevented from establishing a monopoly, with monopoly profits, and existing controls should be brought under review and made genuinely international in character.
The current needs of war have brought under the concentrated light of Congressional investigation the many restraints on production originating in international private business agreements, known as cartels. Until this happened the American public were only dimly aware of their existence. Many European countries long ago came to accept the price and production control features of these arrangements as necessary.
Few of us have mastered the huge outpouring of assertion and counter-assertion as regards the retarding consequences of these agreements upon the production of such commodities as beryllium, magnesium, synthetic rubber, gasoline and pharmaceutical drugs. Nor have most of us mastered the similar material dealing with the effect of internationally controlled patents on the production of enterprises in, for example, the electrical and chemical fields. I therefore leave critical judgment of particular instances in these fields to others. It seems established, however, that agreements of this type have sometimes operated to prevent productive undertakings from being started in many countries, and have given undue price protection to favored producers. There is a feeling abroad that action by governments to review and possibly supervise agreements of this character is urgently needed for the protection of consumers and to assure that all countries will have fair productive opportunities. This is not a question particularly as between the United States and the British nations; but it is one to which they might well jointly address their attention, with a view to seeing which remedial actions are best left in the hands of national governments and which might be made of international concern.
More troublesome could be the questions that may arise as between American, British and other interests in the exercise of control over, or the right to own and develop, resources in their own colonies or in the territories of weak and economically backward states. This matter cannot be disposed of in a brief comment. If the raw materials produced are made available freely to all at the same price, the nationality of the owning or operating interest is of secondary economic importance. Whether or not, as between the United States and the British nations, control or ownership of any particular raw material resource will prove to have military or diplomatic importance, will depend greatly on the state of their political relations. If they are coöperating politically, and if an international system to safeguard peace is in effective operation, most such questions will be easily settled. In such circumstances, the governments could leave them to be worked out by the calculations and negotiations of private enterprise. But political tension would certainly be reflected in, and in turn be heightened by, conflicts over supplies of critical raw materials.
Both countries are pledged to avoid imperialistic adventures. Both are also pledged by the temper of the times to grant a reasonable share of opportunity to the capital and enterprise of other peaceful nations in the development of resources over which they may have decisive influence. These principles should be translated into effective practices.
Since petroleum is the basic fuel of peacetime life and the essential fuel of military action, it is of all raw materials the one apt to command the greatest interest. Every nation will want assurances that under any possible future circumstances of peace or war it will have sufficient supplies available. For such assurance, it must look first to the enlargement of the flow and supply of oil throughout the whole world, and secondly to the sufficiency of its own reserves and the political and military factors which safeguard them. Only by frankly recognizing each other's needs, and by sharing and partnership, can conflict be avoided in this matter, not only by the United States and Britain but by other nations as well. American enterprise has led in oil discoveries and developments throughout the world. We have drawn upon our domestic reserves with freedom. Now we are drawing on them even more heavily in order to supply the war requirements of all the United Nations. It will be essential, therefore, that American oil enterprise go forward in foreign fields, in close agreement with the other governments and peoples concerned, to assure adequate supplies for all countries on favorable terms and to maintain adequate reserves for our own use.
Those who work on some of these problems at desks in Washington can be encouraged by the extensive and effective work carried on by the Anglo-American joint boards established during the present war. Amidst the Washington tumult of various high-pitched and briskly-expressed opinions the following boards are quietly operating: the Combined Raw Materials Board, the Combined Shipping Adjustment Board, the Combined Food Board, the Combined Production and Resources Board and the Combined Munitions Assignments Board, as well as a great number of other joint boards and committees with more restricted assignments.
The work being performed by these boards is, in essence, as follows:
First. To pool the sources open to the United Nations for the conduct of the war, and to guide the distribution of them in accordance with military plans and decisions.
Second. To try to influence and coördinate the production efforts of the United Nations so as to increase the supply of those materials most needed for war purposes and in accordance with standards that will make them most useful.
Evidently this field of operations is large and important. The judgment exercised by the boards determines whether the various munitions industries of each of the United Nations will have the raw materials they need, whether the production of such things as ships, tanks and planes will be well correlated to military undertakings, whether the food supplies available to the populations of the different United Nations shall be sufficient and fairly distributed, and whether shipping is directed to serving war needs as efficiently as possible.
They make their decisions subject, of course, to the approval of the governments they serve, and the execution of those decisions is entirely dependent on the machinery of their governments. Often the concerted action which they have been able to achieve has fallen short of what was necessary, and certainly short of the ideal possibility. It is not easy to merge the efforts of great and cautious nations and to discover the precise terms on which stubborn minds can agree. The fact remains that they have succeeded in a very real measure in translating into action the general pledge of coöperation contained in the United Nations accord: "Each government pledges itself to employ its full resources, military or economic, against those members of the Tripartite Pact and its adherents with which such government is at war."
Each day, each week, the British and American representatives find it possible to reach full agreement on some specific points which determine whether their respective military forces will have more equipment or less, whether greater burdens will be laid on their respective treasuries or less, whether their respective peoples will have to make more sacrifices or less. Their decisions seem generally to have recommended themselves to their governments and to the public, if we can judge by the remarkably small amount of criticism that their work has aroused. Every student of military affairs knows the difficulties of being "allies." The Axis has made unceasing efforts to provoke disagreement between the American and British Governments on just the matters of military interest with which these boards deal. This propaganda has failed. The work of the joint boards -- shaped, of course, to the decisions of President Roosevelt and Prime Minister Churchill -- shows that the pledge expressed in the United Nations accord is being fulfilled.
Apparently there are some persons who long for the time when all machinery for joint discussion and coöperative effort can be boisterously dismissed and each country can indulge in the luxury of talking and acting in reckless independence of the other. Others, however, wonder whether the intergovernmental machinery developed in the stress of war could not serve in the postwar period as the framework around which to build the necessary structure for more lasting coöperation. The answer is not to be found in any textbook of political science. It will be given in accordance with the desire and temper of the two peoples when the war is over.
The achievements of the joint boards to date have been made possible by several favoring circumstances. The main objective, victory, is agreed upon unanimously. This Government and the Governments of the British Commonwealth have pledged themselves to the maximum effort, and the boards have had the firm support of their governments in applying that guiding rule. Further, they have not had to reckon with difficulties of cost and finance, for each country is ready to meet any required outlay to the full extent of its power. Will the peoples and leaders of the several countries carry forward this attitude into the postwar period? Unless they do, even well-staffed boards could accomplish little.
In any case, be it noted, the boards now in operation have found it necessary for practical reasons to include only British and American officials. Many questions of the greatest moment arising out of the concerted war effort and the need of sharing national resources in a common war have been decided in discussions in which the boards have played no part. Such was the case, for example, with the protocols signed by the United States and Great Britain with Russia and with the long negotiations with the Chinese and now with the French. It seems clear, therefore, that any of the existing Anglo-American boards which were maintained in peacetime would necessarily be only a fraction of the total machinery for conference and decision among the United Nations as a whole.
These reflections are necessarily inconclusive. They will have served their purpose if they have brought into the foreground the need for a close concert of economic policy between ourselves and the British nations. But even this concert will be successful only if it is part of a still greater design and effort. The design must include all the United Nations and the effort must solicit their full help and participation in devising economic measures and institutions which will enable all to share in the benefits of prosperity and peace. Neither great nations nor small will find it satisfactory to live in uneasy separateness in the shadow of the airplane -- unwilling to shape their methods of economic intercourse so as to dispel its potential dangers and unable to make full use of its productive promise.