Originally published at Project-Syndicate | April 29th, 2022
By calling for supply chains to be shifted away from strategic rivals, US Secretary of the Treasury Janet Yellen has implicitly rejected the notion that trade with one’s adversaries fosters peace and diplomacy. But that old idea still has much to recommend it.
PRINCETON – Russia’s invasion of Ukraine has challenged the international order, but so has the response from large industrial countries. In a striking speech at the Atlantic Council earlier this month, US Secretary of the Treasury Janet Yellen cited China’s ambiguous response to Russian aggression as a reason to “friend-shore” more production. The idea is that the United States and its partners and allies should take more control over critical supply chains by shifting their trade relations away from strategic competitors.
Yellen’s friend-shoring principle contrasts starkly with the long-term Western orthodoxy that emerged during the Cold War. For decades, US and European leaders pursued a globalization strategy, shaping trade relations on the understanding that previously marginalized or adversarial countries could be brought into a single stable international order through commercial and financial ties. Nowhere was the hope that economic growth would smooth the rough edges of ideological and security conflict more influential than in Germany.
With its policy of Wandel durch Handel (“change through commerce”), Germany has long pursued a trade-first approach to managing relations with Russia, and with the Soviet Union before it. This has always been a source of tension among Western powers. Ever since Ronald Reagan’s presidency 40 years ago, the US has voiced concerns about the impact of Russian-German pipeline projects on transatlantic security objectives. Of course, Germany’s economic and diplomatic engagement also may have softened the Soviet Union’s position by the late 1980s, thus bringing an end to the Cold War.
Later, Britain became the leading exponent of applying the globalization strategy to China. In 2015, after rolling out the red carpet for Chinese President Xi Jinping, Prime Minister David Cameron’s government hailed a new “golden era” in which the United Kingdom could be China’s “best partner in the West.” But within just a few years, Britain had begun its departure from the European Union, and US President Donald Trump’s administration was attempting to lay waste to the international order. It thus fell to German Chancellor Angela Merkel to keep the flame of globalization alive by working with Xi.
It is neither implausible nor wrongheaded to think that trade can persuade and pacify in cases where other methods would fail. This strategy was articulated most brilliantly in the 1970s, when international tensions had been brought to a boil by the Yom Kippur War and Middle Eastern oil exporters’ own strategy of economic extortion and blackmail. US Secretary of State Henry Kissinger advocated a policy of letting the oil exporters earn while encouraging them to deposit their growing revenues in the Western banking system. They might not become friends to the West, but they would at least become more reliable.
For very particular reasons, this philosophy has come to seem hopelessly naive. Everyone is now focused on the vulnerabilities that economic interdependence creates. The Nord Stream 2 gas pipeline from Russia to Germany was finally coming online just as Russian President Vladimir Putin launched his invasion. It may now be remembered as the great symbol of a historic miscalculation.
It is easy to heap opprobrium on the Germans who pushed for the project despite objections from the US and elsewhere. Former Chancellor Gerhard Schröder defiantly refuses to admit that Germany’s dependence on Russian energy has become a problem. He is still happy to serve as the well-paid chairman of Rosneft, the Russian state-controlled oil company, and depict himself as a potential mediator between Russia and the West.
But Germany’s big mistake was not that it built a pipeline; it was that it made a series of other policy decisions that left it overly dependent on a particular energy source. Following the 2011 Fukushima disaster in Japan, Germany abruptly exited from nuclear power. But because wind and solar could not supply enough energy to meet demand (the country is not particularly sunny or windy), these sources needed to be supplemented by imported gas. And in importing gas, Germany put efficiency before resilience, relying on pipelines from Russia instead of building new liquefied natural gas terminals to enable shipments from the US or Middle East.
More broadly, if trade is to promote peace, multilateralism needs to prevail over bilateral relations. Kissinger’s strategy in the 1970s relied on the fact that Europe would be developing its own energy resources in the North Sea, and that the US would be expanding domestic production in Texas and Alaska, as well as trading more with Mexico and Venezuela.
Early during the wave of European revolutions in 1848, the British statesman and strategist Lord Palmerston argued that, “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.” This maxim is timeless. In the twenty-first century, as in the nineteenth, it is impossible to predict how any country’s domestic politics or trade policies will develop.
Consider the double shock of 2016, the year of Brexit and Trump’s election. Who can guarantee that there won’t be another Trumpist administration in 2024? Similarly, who can be sure that Russia won’t undergo a profound political reorientation – even a democratization – in the wake of a disastrously mishandled war?
Identifying one’s international friends will always be a problematic exercise. US and European leaders have been dismayed at the long list of countries that did not support censure motions against Russia in the United Nations General Assembly. But it would be unwise, and costly, to let those votes influence the future direction of trade.
Prohibitions against trading with the enemy make sense in an all-out conflict. But when dealing with common problems – such as diseases and emissions that move across borders and between continents – there are no enemies, only potential (and necessary) partners. The same is true for the threat of hunger, one of the many terrifying consequences of Russia’s war. At the end of the day, friend-shoring won’t feed people; if anything, it will make more enemies.
Harold James: Is Professor of History and International Affairs at Princeton University. A specialist on German economic history and on globalization, he is a co-author of The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle,Krupp: A History of the Legendary German Firm, Making the European Monetary Union,and The War of Words.