Trump's 'Liberation Day' Tariffs: Fair trade or global trade war?

FA 2024-8 The Perils of Isolationism The World Still Needs America—and America Still Needs the World Condoleezza Rice Audio available for this article This article is paywall-free At an AI conference in Shanghai, July 2024 Stopping the Next China Shock A Collective Strategy for Countering Beijing’s Mercantilism Aaron L. 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Drezner The Perils of Isolationism The World Still Needs America—and America Still Needs the World By Condoleezza Rice September/October 2024 Published on August 20, 2024 Illustration by Chloe Cushman In times of uncertainty, people reach for historical analogies. After 9/11, George W. Bush administration officials invoked Pearl Harbor as a standard comparison in processing the intelligence failure that led to the attack. Secretary of State Colin Powell referred to Imperial Japan’s attack in making the case that Washington should deliver an ultimatum to the Taliban, saying, “Decent countries don’t launch surprise attacks.” And as officials in the Situation Room tried to assess progress in Afghanistan and, later, Iraq, another analogy came up more than a few times: U.S. President Lyndon Johnson’s disastrous reliance on body counts in Vietnam. Even if history doesn’t repeat itself, it sometimes rhymes. Today’s favorite analogy is the Cold War. The United States again faces an adversary that has global reach and insatiable ambition, with China taking the place of the Soviet Union. This is a particularly attractive comparison, of course, because the United States and its allies won the Cold War. But the current period is not a Cold War redux. It is more dangerous. China is not the Soviet Union. The Soviet Union was self-isolating, preferring autarky to integration, whereas China ended its isolation in the late 1970s. A second difference between the Soviet Union and China is the role of ideology. Under the Brezhnev Doctrine that governed Eastern Europe, an ally had to be a carbon copy of Soviet-style communism. China, by contrast, is largely agnostic about the internal composition of other states. It fiercely defends the primacy and superiority of the Chinese Communist Party but does not insist that others do the equivalent, even if it is happy to support authoritarian states by exporting its surveillance technology and social media services. Stay informed. In-depth analysis delivered weekly. So if the current competition is not Cold War 2.0, then what is it? Giving in to the impulse to find historical references, if not analogies, one may find more food for thought in the imperialism of the late nineteenth century and the zero-sum economies of the interwar period. Now, as then, revisionist powers are acquiring territory through force, and the international order is breaking down. But perhaps the most striking and worrying similarity is that today, as in the previous eras, the United States is tempted to turn inward. THE REVENGE OF GEOPOLITICS While previous eras of competition were characterized by great-power clashes, during the Cold War, territorial conflict was fought largely through proxies, as in Angola and Nicaragua. Moscow mostly confined its use of military force to its own sphere of influence in Eastern Europe, as when it crushed uprisings in Hungary and Czechoslovakia. The 1979 Soviet invasion of Afghanistan crossed a new line, but the move did not fundamentally challenge U.S. interests, and the conflict eventually became a proxy war. Where Soviet and U.S. forces did face each other directly, across the German divide, the extreme danger of the two Berlin crises gave way to a kind of tense stability thanks to nuclear deterrence. Today’s security landscape features the danger of direct military conflict between great powers. China’s territorial claims challenge U.S. allies from Japan to the Philippines and other U.S. partners in the region, such as India and Vietnam. Long-held U.S. interests such as freedom of navigation run into direct conflict with China’s maritime ambitions. Then there is Taiwan. An attack on Taiwan would require a U.S. military response, even if the policy of “strategic ambiguity” created uncertainty about the exact nature of it. For years, the United States has acted as a kind of rheostat in the Taiwan Strait, with the goal of preserving the status quo. Since 1979, administrations from both parties have sold arms to Taiwan. President Bill Clinton deployed the USS Independence to the strait in 1996 in response to Beijing’s aggressive activity. In 2003, the Bush administration publicly chastised Taiwanese President Chen Shui-bian when he proposed a referendum that sounded very much like a vote on independence. All along, the goal was to maintain—or occasionally, restore—what had become a relatively stable status quo. Xi has turned out to be a true Marxist. In recent years, Beijing’s aggressive military activities around Taiwan have challenged that equilibrium. In Washington, strategic ambiguity has largely given way to open discussion of how to deter and, if necessary, repel a Chinese invasion. But Beijing could threaten Taiwan in other ways. It could blockade the island, as Chinese forces have practiced in exercises. Or it could seize small, uninhabited Taiwanese islands, cut underwater cables, or launch large-scale cyberattacks. These strategies might be smarter than a risky and difficult assault on Taiwan and would complicate a U.S. response. The overarching point is that Beijing has Taiwan in its sights. Chinese leader Xi Jinping, who views the island as a rogue province, wants to complete the restoration of China and take his place in the pantheon of leaders next to Mao Zedong. Hong Kong is now effectively a province of China, and bringing Taiwan to heel would fulfill Xi’s ambition. That risks open conflict between U.S. and Chinese forces. Alarmingly, the United States and China still have none of the deconfliction measures in place that the United States and Russia do. During the 2008 war in Georgia, for instance, Michael Mullen, the chairman of the Joint Chiefs of Staff, had ongoing contact with his Russian counterpart, Nikolai Makarov, so as to avoid an incident as the U.S. Air Force flew Georgian troops home from Iraq to join the fight. Compare that with 2001, when a hot-dogging Chinese pilot hit a U.S. reconnaissance plane and forced it to the ground. The crew was detained on Hainan Island, and for three days, Washington was unable to make high-level contact with the Chinese leadership. I was national security adviser at the time. Finally, I located my Chinese counterpart, who was on a trip in Argentina, and got the Argentines to take a phone to him at a barbecue. “Tell your leaders to take our call,” I implored. Only then were we able to defuse the crisis and free the crew. The reopening of military-to-military contacts with China earlier this year, after a four-year freeze, was a welcome development. But it is a far cry from the types of procedures and lines of communication needed to prevent accidental catastrophe. China’s conventional military modernization is impressive and accelerating. The country now has the largest navy in the world, with over 370 ships and submarines. The growth in China’s nuclear arsenal is also alarming. While the United States and the Soviet Union came to a more or less common understanding of how to maintain the nuclear equilibrium during the Cold War, that was a two-player game. If China’s nuclear modernization continues, the world will face a more complicated, multiplayer scenario—and without the safety net that Moscow and Washington developed. The potential for conflict comes against the backdrop of an arms race in revolutionary technologies: artificial intelligence, quantum computing, synthetic biology, robotics, advances in space, and others. In 2017, Xi gave a speech in which he declared that China would surpass the United States in these frontier technologies by 2035. Although he was undoubtedly trying to rally China’s scientists and engineers, it may be a speech he has come to regret. Just as it was after the Soviet Union launched the Sputnik satellite, the United States was forced to confront the possibility that it could lose a technological race to its main adversary—a realization that has spurred a concerted pushback from Washington. Shipping containers in Oakland, California, July 2022 Shipping containers in Oakland, California, July 2022 Carlos Barria / Reuters When the COVID-19 pandemic hit in 2020, the United States suddenly understood further vulnerabilities. The supply chain for everything from pharmacological inputs to rare-earth minerals depended on China. Beijing had taken the lead in industries that the United States once dominated, such as the production of batteries. Access to high-end semiconductors, an industry created by American giants such as Intel, turned out to depend on the security of Taiwan, where 90 percent of advanced chip making takes place. It is hard to overstate the shock and sense of betrayal that gripped U.S. leaders. U.S. policy toward China was always something of an experiment, with proponents of economic engagement betting that it would induce political reform. For decades, the benefits flowing from the bet seemed to outweigh the downsides. Even if there were problems with intellectual property protection and market access (and there were), Chinese domestic growth fueled international economic growth. China was a hot market, a good place to invest, and a valued supplier of low-cost labor. Supply chains stretched from China across the world. By the time China joined the World Trade Organization, in 2001, the total trade volume between the United States and China had increased roughly fivefold over the previous decade, reaching $120 billion. It seemed inevitable that China would change internally, since economic liberalization and political control were ultimately incompatible. Xi came to power agreeing with this maxim, but not in the way the West had hoped: instead of economic liberalization, he chose political control. Not surprisingly, the United States eventually reversed course, beginning with the Trump administration and continuing through the Biden administration. A bipartisan agreement emerged that China’s behavior was unacceptable. As a result, the United States’ technological decoupling from China is now well underway, and a labyrinth of restrictions impedes outbound and inbound investment. For now, American universities remain open to training Chinese graduate students and to international collaboration, both of which have significant benefits for the U.S. scientific community. But there is far more awareness of the challenge that these activities can pose for national security. So far, however, decoupling does not extend to the full range of commercial activity. The international economy will still be well served by trade and investment between the world’s two largest economies. The dream of seamless integration may be dead, but there are benefits—including to global stability—if Beijing continues to have a stake in the international system. Some problems, such as climate change, will be difficult to address without China’s involvement. Washington and Beijing will need to find a new basis for a workable relationship. THE RUSSIAN EMPIRE REBORN In the final 2012 presidential debate, U.S. President Barack Obama argued that his opponent, Mitt Romney, was overhyping the danger from Russia, suggesting that the country was no longer a geopolitical threat. With the 2014 annexation of Crimea, it became clear that Russian President Vladimir Putin begged to differ. The next step, Putin’s invasion of Ukraine in 2022, has brought his ambition to restore the Russian Empire face to face with the redlines of Article 5 of NATO’s founding treaty, which stipulates that an attack on one member is treated as an attack on all. Early in the war, NATO worried that Moscow might attack supply lines in Poland and Romania, both members of the alliance. So far, Putin has shown no appetite for triggering Article 5, but the Black Sea (which the tsars considered a Russian lake) has again become a source of conflict and tension. Remarkably, Ukraine, a country that barely has a navy, has successfully challenged Russian naval power and can now move grain along its own coastline. Even more devastating for Putin, his gambit has produced a strategic alignment among Europe, the United States, and much of the rest of the world, leading to extensive sanctions against Russia. It is now an isolated and heavily militarized state. Putin surely never thought it would turn out this way. Moscow initially predicted Ukraine would fall within days of the invasion. Russian forces were carrying three days’ worth of provisions and dress uniforms for the parade they expected to hold in Kyiv. The embarrassing first year of the war exposed the weaknesses of the Russian armed forces, which turned out to be riddled with corruption and incompetence. But as it has done throughout its history, Russia has stabilized the front, relying on old-fashioned tactics such as human wave attacks, trenches, and land mines. The incremental way in which the United States and its allies supplied weapons to Ukraine—first debating whether to send tanks, then doing so, and so on—gave Moscow breathing room to mobilize its defense industrial base and throw its huge manpower advantage at the Ukrainians. Great-power DNA is still very much in the American genome. Still, the economic toll will haunt Moscow for years to come. An estimated one million Russians fled their country in response to Putin’s war, many of them young and well educated. Russia’s oil and gas industry has been crippled by the loss of important markets and the withdrawal of the multinational oil giants BP, Exxon, and Shell. Russia’s talented central banker, Elvira Nabiullina, has covered up many of the economy’s vulnerabilities, walking a tightrope without access to the $300 billion in frozen Russian assets held in the West, and China has stepped in to take off some of the pressure. But the cracks in the Russian economy are showing. According to a report commissioned for Gazprom, the majority-state-owned energy giant, the company’s revenue will stay below its pre-war level for at least ten years thanks to the effects of the invasion. Thoughtful economic players in Moscow are worried. But Putin cannot lose this war, and he is willing to sacrifice everything to stave off disaster. As Germany’s experience in the interwar period suggests, an isolated, militarized, declining power is exceedingly dangerous. The challenge is complicated by Russia’s growing cooperation with China, Iran, and North Korea. The four countries have a common cause: to undermine and replace the U.S.-led international system that they detest. Still, it is worth noting that their strategic interests are not easy to harmonize. Beijing cannot let Putin lose but likely has no real enthusiasm for his adventurism on behalf of a new Russian empire—particularly if it puts China in the cross hairs for secondary sanctions on its own struggling economy. Meanwhile, the growth of Chinese power in Central Asia and beyond is not likely to warm the hearts of the xenophobes in the Kremlin. China’s ambitions complicate Russia’s relations with India, a long-standing military partner that is now turning more toward the United States. Russia’s dalliance with North Korea complicates its own relationship with South Korea—and China’s, as well. Iran terrifies both Russia and China as it moves closer to developing a nuclear weapon. Tehran’s proxies are a constant source of trouble in the Middle East: the Houthis endanger shipping in the Red Sea, Hamas recklessly launched a war with Israel, Hezbollah in Lebanon threatens to widen that war into a regional conflagration, and militias in Iraq and Syria that Tehran does not always seem to control have carried out attacks on U.S. military personnel. A nasty and unstable Middle East is not good for Russia or China. And none of the three powers really trusts North Korea’s erratic leader, Kim Jong Un. That said, international politics has always made for strange bedfellows when revisionist powers seek to undo the status quo. And they can do a lot of collective damage despite their differences. THE CRUMBLING ORDER The post–World War II liberal order was a direct response to the horrors of the interwar period. The United States and its allies looked back on the economic depression and international aggression of the 1920s and 1930s and located the cause in beggar-thy-neighbor protectionism, currency manipulation, and violent quests for resources—for example, leading to the aggressive behavior by Imperial Japan in the Pacific. The absence of the United States as a kind of offshore mediator also contributed to the breakdown of order. The one effort to build a moderating institution after World War I, the League of Nations, proved to be a pathetic disgrace, covering aggression rather than confronting it. Asian and European powers, left to their own devices, fell into catastrophic conflict. After World War II, the United States and its allies built an economic order that was no longer zero-sum. At the Bretton Woods conference, they laid the groundwork for the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (the predecessor of the World Trade Organization), which together promoted the free movement of goods and services and stimulated international economic growth. For the most part, it was a wildly successful strategy. Global GDP grew and grew, surpassing the $100 trillion mark in 2022. The companion to this “economic commons” was a “security commons” that was also led by the United States. Washington committed to the defense of Europe through NATO’s Article 5, which, after the Soviet Union’s successful nuclear test in 1949, essentially meant pledging to trade New York for London or Washington for Bonn. A similar U.S. commitment to Japan allowed that country to replace the legacy of its hated imperial military with self-defense forces and a “peace constitution,” easing relations with its neighbors. By 1953, South Korea also had a U.S. security guarantee, ensuring peace on the Korean Peninsula. As the United Kingdom and France stepped back from the Middle East after the 1956 Suez crisis, the United States became the guarantor of freedom of navigation in the region and, in time, its major stabilizing force. U.S. and British troops near Nurmsi, Estonia, May 2024 Ints Kalnins / Reuters Today’s international system is not yet a throwback to the early twentieth century. The death of globalization is often overstated, but the rush to pursue onshoring, near-shoring, and “friend shoring,” largely in reaction to China, does portend a weakening of integration. The United States has been largely absent from negotiations on trade for almost a decade now. It’s hard to recall the last time that an American politician gave a spirited defense of free trade. The new consensus raises the question: Can the aspiration for the freer movement of goods and services survive the United States’ absence from the game? Globalization will continue in some form. But the sense that it is a positive force has lost steam. Consider the way countries acted in response to 9/11 versus how they acted in response to the pandemic. After 9/11, the world united in tackling terrorism, a problem that almost every country was experiencing in some form. Within a few weeks of the attack, the UN Security Council unanimously passed a resolution allowing the tracking of terrorist financing across borders. Countries quickly harmonized their airport security standards. The United States soon joined with other countries to create the Proliferation Security Initiative, a forum for sharing information on suspicious cargo that would grow to include over 100 member states. Fast-forward to 2020, and the world saw the revenge of the sovereign state. International institutions were compromised, the chief example being the World Health Organization, which had grown too close to China. Travel restrictions, bans on the export of protective gear, and claims on vaccines complicated the road to recovery. With the growing chasm between the United States and its allies on one side and China and Russia on the other, it is hard to imagine this trend reversing. Economic integration, which after the collapse of the Soviet Union was thought to be a common project for growth and peace, has given way to a zero-sum quest for territory, markets, and innovation. Still, one would hope that humankind has learned from the disastrous consequences of protectionism and isolationism in the late nineteenth and early twentieth centuries. So how can it avoid a repeat of history? ANOTHER TWILIGHT STRUGGLE The United States might take the advice that the diplomat George Kennan gave in his famous “Long Telegram” of 1946. Kennan advised Washington to deny the Soviet Union the easy course of external expansion until it was forced to deal with its own internal contradictions. This was prescient, as four decades later, Soviet leader Mikhail Gorbachev’s attempts to reform a fundamentally rotten system wound up collapsing it instead. Today, Russia’s internal contradictions are obvious. Putin has undone 30-plus years of Russian integration into the international economy and relies on a network of opportunistic states that throw crumbs his way to sustain his regime. No one knows how long this shell of Russian greatness can survive, but it can do a lot of harm before it cracks. Resisting and deterring Russian military aggression is essential until it does. Putin counts on a cowed and poorly informed population, and his regime indoctrinates young people in ways that are reminiscent of the Hitler Youth. The announcement this June that Russian children will attend summer camps in North Korea, of all places, is stunning. Russians, once able to travel and study abroad, now face a different future. They must make sacrifices, Putin tells them, in the service of “Mother Russia.” Yet Russia’s human potential has always been great, despite what often seems like a deliberate plot by its leaders to destroy it. It is incumbent on the United States, Europe, and others to keep some connection to the Russian people. Russians should be allowed, when possible, to study and work abroad. Efforts, open and covert, should be made to pierce Putin’s propaganda, particularly in the cities, where he is neither trusted nor liked. Finally, the Russian opposition cannot be abandoned. The Baltic states house much of the organization built by the activist Alexei Navalny, who died in a Siberian prison in February. He was one of the few leaders who had a real following in much of Russia. His death cannot be the end of his cause. Isolation has never been the answer to the United States’ security or prosperity. The case of Solidarity, the Polish trade union, provides an important lesson in how to nurture antiauthoritarian movements. When Poland’s Soviet-aligned regime declared martial law in 1981, Solidarity’s leader, Lech Walesa, went underground with his organization. The group was sustained by an odd troika: the Reagan administration’s CIA, the AFL-CIO, and the Vatican (and its Polish-born pope, John Paul II). Solidarity received relatively simple support from abroad, such as cash and printing presses. But when a political opening came in 1989, Walesa and company were ready to step in and lead a relatively smooth transition to democracy. The main lesson is that determined efforts can sustain opposition movements, as hard as that might be in Putin’s Russia. China’s future is by no means as bleak as Russia’s. Yet China, too, has internal contradictions. The country is experiencing a rapid demographic inversion rarely seen outside of war. Births have declined by more than 50 percent since 2016, such that the total fertility rate is approaching 1.0. The one-child policy, put in place in 1979 and brutally enforced for decades, was the kind of mistake that only an authoritarian regime could have made, and now, millions of Chinese men don’t have mates. Since the policy ended in 2016, the state has tried to browbeat women into having children, turning women’s rights into a crusade for childbearing—yet more evidence of the panic in Beijing. Another contradiction stems from the uneasy coexistence of capitalism and authoritarian communism. Xi has turned out to be a true Marxist. China’s golden age of private sector–led growth has slowed in large part because of the Chinese Communist Party’s anxiety about alternative sources of power. China used to lead the world in online education startups, but in 2021, the government cracked down on them because it could not reliably monitor their content. A once thriving entrepreneurial culture has withered away. China’s aggressive behavior toward foreigners has exposed other contradictions. Xi knows that China needs foreign direct investment, and he courts corporate leaders from across the world. But then, a Western firm’s offices are raided or one of its Chinese employees is detained, and, not surprisingly, a trust deficit grows between Beijing and foreign investors. China is also suffering a trust deficit with its youth. Young Chinese citizens may be proud of their country, but a 20 percent youth unemployment rate has undermined their optimism for the future. Xi’s heavy-handed propagation of “Xi Jinping Thought” turns them off. This has led them to adopt an attitude of what is known colloquially as “lying flat,” a passive-aggressive stance of going along to get along while harboring no loyalty or enthusiasm for the regime. Now is thus not the time to isolate Chinese youth but the time to welcome them to study in the United States. As Nicholas Burns, the U.S. ambassador to China, has noted, a regime that goes out of its way to intimidate its citizens to discourage them from engaging with Americans is not a confident regime. Indeed, it is a signal for the United States to keep pushing for connections to the Chinese people. Meanwhile, Washington will need to maintain economic pressure on the revisionist powers. It should continue isolating Russia, with an eye toward arresting Beijing’s creeping support for the Kremlin. But it should refrain from imposing blunt sanctions against China, since they would be ineffective and counterproductive, crippling the U.S. economy in the process. Targeted sanctions, by contrast, may slow Beijing’s military and technological progress, at least for a while. Iran is much more vulnerable. Never again should Washington unfreeze Iranian assets, as the Biden administration did as part of a deal to release five imprisoned Americans. Efforts to find moderates among Iran’s theocrats are doomed to failure and serve only to allow the mullahs to escape the contradictions of their unpopular, aggressive, and incompetent regime. WHAT IT TAKES This strategy will require investment. The United States needs to maintain the defense capabilities sufficient to deny China, Russia, and Iran their strategic goals. The war in Ukraine has revealed weaknesses in the U.S. defense industrial base that must be remedied. Critical reforms need to be made to the defense budgeting process, which is inadequate to this task. Congress must strive to enhance the Defense Department’s long-term strategic planning process, as well as its ability to adapt to evolving threats. The Pentagon should also work with Congress to gain greater efficiencies from the amount it already spends. Costs can be reduced in part by speeding up the Pentagon’s slow procurement and acquisition processes so that the military can better harness the remarkable technology coming out of the private sector. Beyond military capabilities, the United States must rebuild the other elements of its diplomatic toolkit—such as information operations—that have eroded since the Cold War. The United States and other democracies must win the technological arms race, since in the future, transformative technologies will be the most important source of national power. The debate about the balance between regulation and innovation is just beginning. But while the possible downsides should be acknowledged, ultimately it is more important to unleash these technologies’ potential for societal good and national security. Chinese progress can be slowed but not stopped, and the United States will have to run fast and hard to win this race. Democracies will investigate these technologies, call congressional hearings about them, and debate their impact openly. Authoritarians will not. For this reason, among many others, authoritarians must not triumph. The good news is that given the behavior of China and Russia, the United States’ allies are ready to contribute to the common defense. Many countries in the Asia-Pacific region, including Australia, the Philippines, and Japan, recognize the threat and appear committed to addressing it. Relations between Japan and South Korea are better than ever. Moscow’s recent agreements with Pyongyang have alarmed Seoul and should deepen its cooperation with democratic allies. India, through its membership in the Quadrilateral Security Dialogue—also known as the Quad, the strategic partnership that also includes Australia, Japan, and the United States—is cooperating closely with the U.S. military and emerging as a pivotal power in the Indo-Pacific. Vietnam, too, appears willing to contribute, given its own strategic concerns with China. The challenge will be to turn the ambitions of U.S. partners into sustained commitment once the costs of enhanced defense capabilities become clear. In Europe, the war in Ukraine has mobilized NATO in ways unimaginable a few years ago. The addition of Sweden and Finland to NATO’s Arctic flank brings real military capability and helps secure the Baltic states. The question of postwar security arrangements for Ukraine hangs over the continent at this moment. The most straightforward answer would be to admit Ukraine to NATO and simultaneously to the European Union. Both institutions have accession processes that would take some time. The key point is this: Moscow needs to know that the alliance does not intend to leave a vacuum in Europe. The United States also needs a strategy for dealing with the nonaligned states of the global South. These countries will insist on strategic flexibility, and Washington should resist the urge to issue loyalty tests. Rather, it should develop policies that address their concerns. Above all, the United States needs a meaningful alternative to the Belt and Road Initiative, China’s massive global infrastructure program. The BRI is often depicted as helping China win hearts and minds, but in reality it is not winning anything. Recipients are growing frustrated with the corruption, poor safety and labor standards, and fiscal unsustainability associated with its projects. The aid that the United States, Europe, Japan, and others offer is small by comparison, but unlike Chinese aid, it can attract significant foreign direct investment from the private sector, thus dwarfing the amount provided by the BRI. But you can’t beat something with nothing. A U.S. strategy that shows no interest in a region until China shows up is not going to succeed. Washington needs to demonstrate sustained engagement with countries in the global South on the issues they care about—namely, economic development, security, and climate change. WHICH WAY, AMERICA? The pre–World War II era was defined not only by great-power conflict and a weak international order but also by a rising tide of populism and isolationism. So is the current era. The main question hanging over the international system today is, Where does America stand? The biggest difference between the first half of the twentieth century and the second half was the fact of Washington’s sustained and purposeful global engagement. After World War II, the United States was a confident country, with a baby boom, a growing middle class, and unbridled optimism about the future. The struggle against communism provided bipartisan unity, even if there were sometimes disagreements over specific policies. Most agreed with President John F. Kennedy that their country was willing to “pay any price, bear any burden” in the defense of freedom. The United States is a different country now—exhausted by eight decades of international leadership, some of it successful and appreciated, and some of it dismissed as failure. The American people are different, too—less confident in their institutions and in the viability of the American dream. Years of divisive rhetoric, Internet echo chambers, and, even among the best-educated youth, ignorance of the complexity of history have left Americans with a tattered sense of shared values. For the latter problem, elite cultural institutions bear much of the blame. They have rewarded those who tear down the United States and ridiculed those who extol its virtues. To address Americans’ lack of faith in their institutions and in one another, schools and colleges must change their curricula to offer a more balanced view of U.S. history. And instead of creating a climate that reinforces one’s existing opinions, these and other institutions should encourage a healthy debate in which competing ideas are encouraged. That said, great-power DNA is still very much in the American genome. Americans carry two contradictory thoughts simultaneously. One side of the brain looks at the world and thinks that the United States has done enough, saying, “It is someone else’s turn.” The other side looks abroad and sees a large country trying to extinguish a smaller one, children choking on nerve gas, or a terrorist group beheading a journalist and says, “We must act.” The president can appeal to either side. On the USS Ronald Reagan in Danang, Vietnam, June 2023 Nhac Nguyen / AFP / Getty Images The new Four Horsemen of the Apocalypse—populism, nativism, isolationism, and protectionism—tend to ride together, and they are challenging the political center. Only the United States can counter their advance and resist the temptation to go back to the future. But generating support for an internationalist foreign policy requires a president to paint a vivid picture of what that world would be like without an active United States. In such a world, an emboldened Putin and Xi, having defeated Ukraine, would move on to their next conquest. Iran would celebrate the United States’ withdrawal from the Middle East and sustain its illegitimate regime by external conquest through its proxies. Hamas and Hezbollah would launch more wars, and hopes that Gulf Arab states would normalize relations with Israel would be dashed. The international economy would be weaker, sapping U.S. growth. International waters would be contested, with piracy and other incidents at sea stalling the movement of goods. American leaders should remind the public that a reluctant United States has repeatedly been drawn into conflict—in 1917, 1941, and 2001. Isolation has never been the answer to the country’s security or prosperity. Then, a leader must say that the United States is well positioned to design a different future. The country’s endlessly creative private sector is capable of continuous innovation. The United States has an unparalleled and secure energy bounty from Canada to Mexico that can sustain it through a reasonable energy transition over the many years it will take. It has more allies than any great power in history and good friends, as well. People around the world seeking a better life still dream of becoming Americans. If the United States can summon the will to deal with its immigration puzzle, it will not suffer the demographic calamity that faces most of the developed world. The United States’ global involvement will not look exactly as it has for the last 80 years. Washington is likely to choose its engagements more carefully. If deterrence is strong, that may be enough. Allies will have to bear more of the cost of defending themselves. Trade agreements will be less ambitious and global but more regional and selective. Internationalists must admit that they had a blind spot for those Americans, such as the unemployed coal miner and steelworker, who lost out as good jobs fled abroad. And the forgotten did not take kindly to the argument that they should shut up and be happy with cheap Chinese goods. This time, there can be no more platitudes about the advantages of globalization for all. There must be a real effort to give people meaningful education, skills, and job training. The task is even more urgent since technological progress will severely punish those who cannot keep up. Those who argue for engagement will need to reframe what it means. The 80 years of U.S. internationalism is another analogy that doesn’t perfectly fit the circumstances of today. Still, if the nineteenth and early twentieth centuries taught Americans anything, it is this: other great powers don’t mind their own business. Instead, they seek to shape the global order. The future will be determined by the alliance of democratic, free-market states or it will be determined by the revisionist powers, harking back to a day of territorial conquest abroad and authoritarian practices at home. There is simply no other option. CONDOLEEZZA RICE is Director of the Hoover Institution at Stanford University. She served as U.S. Secretary of State from 2005 to 2009 and as U.S. National Security Adviser from 2001 to 2005. 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O’Brien A Foreign Policy for the World as It Is Biden and the Search for a New American Strategy Ben Rhodes The Trouble With Allies America Needs a Playbook for Difficult Friends By Richard Haass September/October 2024 Published on August 19, 2024 Illustration by Matt Harrison Clough Immediately after Hamas’s October 7, 2023, attack, U.S. President Joe Biden agreed with Israeli Prime Minister Benjamin Netanyahu that Israel had the right to defend itself. But in the months that followed, disagreements mounted over how that right was exercised. The Biden administration disapproved of Israel’s at times indiscriminate military campaign in Gaza, its restrictions on the flow of humanitarian aid, its failure to stop the construction of new Jewish settlements and settler attacks on Palestinians in the West Bank, and its prioritization of the war on Hamas over negotiations to release hostages. Above all, the administration was frustrated with Israel’s utter failure to put forth a viable strategy for governing Gaza once Hamas is degraded, an omission compounded by its refusal to advance any plan to address the Palestinian desire for self-rule. Israel receives $3.8 billion annually in U.S. military aid, and the United States has been the country’s most dependable supporter for decades. And yet the United States was remarkably reluctant to publicly confront Israel over Gaza. Only after more than four months of seeing its private advice mostly rebuffed did the Biden administration openly break with Israel—and even then, it acted at the margins. It placed sanctions on a few extremist settlers, airdropped food into Gaza, built a floating pier on Gaza’s coast to facilitate aid shipments, and went against Israeli preferences on two largely symbolic UN Security Council resolutions. In May, seven months into the war, the administration placed a hold on the delivery of some large U.S.-made bombs to avoid even more civilian casualties. That same month, it threatened to pause the shipment of other military systems if Israel launched a full-scale assault on the city of Rafah, Hamas’s last stronghold, although it never followed through because it considered Israel’s attacks on the city as less than all-out. If success is defined as persuading Israel to adopt the course Washington wants, then U.S. policy toward the country since October 7 must be judged a failure. The tensions with Israel over the past year are merely one example of a persistent but underappreciated predicament of U.S. foreign policy: how to manage disagreements with friends and allies. In two of the biggest crises the United States faces in the world today—the wars in Ukraine and Gaza—the question is how best to deal with a partner that depends on Washington but at times resists its counsel. In both cases, the Biden administration has responded in a muted, ad hoc way, often with little to show for it. It is ironic that an administration that has put U.S. alliances at the center of its foreign policy has found it so difficult to manage the differences that arise in those relationships. Stay informed. In-depth analysis delivered weekly. To be fair, the problem long predates the Biden administration. It is inherent to alliances, be they de jure or de facto, since even the closest friends do not have identical interests. Over many decades, the United States has developed an extensive playbook for navigating disputes with adversaries, with tactics including everything from arms control agreements and diplomatic summits to economic sanctions, regime change, and war. When it comes to handling disputes with friends, however, Washington’s thinking is far less developed. The United States’ sprawling network of alliances gives it a meaningful advantage over China and Russia, neither of which has many allies; in reality, this advantage often amounts to much less than it should. The good news is that decades of history suggest that certain tactics for managing disputes with friends and allies work better than others. Washington should draw on its ample experience, good and bad, to help it think systematically about such differences so it can prevent them from emerging or, more realistically, better contend with them when they do. In particular, the United States needs to be prepared to act more independently, openly criticizing its friends’ policies if it considers them unwise and advancing alternative policies of its own. If Washington did that, it would have a better shot at achieving what might seem impossible: avoiding ruptures in its valuable relationships while safeguarding its interests. HISTORICAL FRICTION One might expect that the United States’ overwhelming power ensures compliance among allies, and often it does. But at least as often, power does not translate into influence. Sometimes, allies simply resist or ignore U.S. preferences and steel themselves for the consequences. At other times, they attempt to circumvent the administration, mobilizing sympathetic domestic actors—Congress, the media, political donors—to pressure the White House to change course. This was a strategy used by Nationalist China, whose vaunted “China Lobby” exerted enormous influence on Washington early in the Cold War, and Israel has embraced it, too. Another option for American partners is to diversify their diplomatic portfolios, reducing their dependence on the United States by finding new patrons. Both Saudi Arabia and Turkey, for example, have turned to Russia and China as their ties with the United States have deteriorated. Why do allies dare to defy Washington? Because much more is usually at stake for them than for the United States, a disparity that gives them leverage despite their dependence. In many instances, the bone of contention constitutes much of the ally’s security or economic interests, whereas for the United States, it is merely one of many priorities, and so Washington is less likely to go to the mat over the dispute than is the ally. What’s more, if Washington distances itself from an ally, no matter how justified its actions, some critics will allege that it is no longer a reliable partner, perhaps prompting allies to act without taking U.S. interests into account and emboldening adversaries to challenge them. Such considerations restrain the United States. Partly as a result, friction is more the rule than the exception when it comes to U.S. ties with friends and allies. During World War II, the United States clashed with the United Kingdom and the Soviet Union over how best to prosecute the war. It quarreled with Nationalist China over its strategy for defeating the Communists during the Chinese Civil War in the late 1940s; with France, Israel, and the United Kingdom over their invasion of Egypt during the Suez crisis of 1956; with France over NATO’s command structure in the 1950s and 1960s; with South Vietnam in the 1960s and early 1970s over governance and military strategy; and with Japan in the 1980s over trade. For more than 50 years, Washington has been at loggerheads with its NATO allies in Europe over defense spending. During the run-up to the 2003 U.S. invasion of Iraq, it could not bring most of its allies around to support that action. Why do allies dare to defy Washington? Because much more is usually at stake for them. Pakistan is perhaps the epitome of a difficult friend. For the seven decades after its creation in 1947, the country has been a major recipient of U.S. economic and military aid. During the Cold War, Pakistan helped the United States contain the Soviet Union and facilitated the U.S. diplomatic opening to China. After the 1979 Soviet invasion of Afghanistan, it emerged as the United States’ chief partner in funneling arms to anti-Soviet forces there. But the relationship was often characterized by bitter disagreements over Pakistan’s nuclear program, its poor record on human rights and democracy, and its support for the Taliban and terrorism, including its harboring of Osama bin Laden. As a result, Pakistan saw the United States as an unreliable friend—and the United States saw Pakistan as more of a problem than a partner. Turkey offers another example of a relationship between ostensible allies that has intensely frustrated both sides. Turkey was an anchor of NATO during the Cold War, a critical member of the coalition that prevailed against Iraq during the Gulf War, and a country once heralded as evidence that Muslim-majority countries could be pro-Western, democratic, and accepting of Israel. But Washington and Ankara have also fallen out over Turkey’s military presence in Cyprus, its inadequate commitment to democracy and human rights, and, in recent years, its pro-Russian foreign policy, discrimination against the Kurds, and disputes with Israel. When one looks at this long history of disputes between the United States and its friends and allies, six relatively distinct tactics for managing them emerge. Some involve carrots, others involve sticks, and still others accept that the ally’s unwanted behavior won’t be changed—or can be changed only if its regime changes. There is no approach that works for all situations, but some do work better than the alternatives. THE POWER OF PERSUASION Persuasion is the most basic tool of alliance management. A good example of the tactic is the United States’ decades-long effort to dissuade Taiwan from formally declaring independence. Such a declaration would almost certainly trigger Chinese military action, perhaps a blockade or invasion of the island, forcing the United States to decide whether to come to Taiwan’s defense. Any U.S. response, be it action or inaction, would prove costly. Successive U.S. administrations have pointed out to Taiwan how much it has gained despite its lack of international recognition—the island is now a vibrant democracy with a thriving economy that has enjoyed more than half a century of peace—and how much it would stand to lose if it pursued independence. Perhaps even more important, Taiwan has been made to understand that the United States would be far less likely to intervene on its behalf if it is seen as having provoked a crisis. A second successful example of persuasion involves Israel. In January 1991, in the opening hours of Operation Desert Storm, the U.S. military’s campaign to liberate Kuwait, Iraqi leader Saddam Hussein fired Scud missiles against Israel to bring it directly into the war and, in so doing, lead Arab states to drop out of the international coalition that had formed against him. Israeli leaders understandably sought to exercise their right to self-defense, but U.S. President George H. W. Bush persuaded them to hold back, arguing that Israel’s entry into the war would jeopardize a goal more important to them: defeating Iraq. He also pledged that the United States would destroy Iraqi launch sites. Even though Bush and his Israeli counterpart, Prime Minister Yitzhak Shamir, had a strained relationship, the Israeli government made the difficult decision to stand down. But some more recent U.S. efforts to restrain Israel, above all the attempt to rein in its military campaign in Gaza, have had decidedly worse results. The Biden administration’s pleas to dissuade Israel from escalating its conflict with Iran have had a more mixed record. On April 1, 2024, Israel launched an airstrike on an Iranian diplomatic compound in Syria, killing several senior members of Iran’s Quds Force. The Biden administration was given only minimal warning of the attack and worried that it risked transforming what had been an indirect conflict in Gaza into something more direct and dangerous. Two weeks later, Iran retaliated with a barrage of drones and missiles against Israel. Fearing an escalatory cycle even though the Iranian attack caused only negligible damage, the Biden administration privately advised Israel not to respond militarily. “Take the win,” Biden told Netanyahu, adding that if Israel did escalate, it would be on its own. Israel did not stand down, but it did respond in a limited way, firing a handful of missiles from aircraft outside Iran’s airspace, destroying an air-defense battery near Iran’s Natanz nuclear facility, and keeping largely silent about the attack afterward. In short, Israel largely heeded U.S. advice, and an even larger crisis was averted. GETTING TO YES When persuasion alone fails, the United States can turn to incentives, another tool in the alliance management toolkit. A prime example of the successful use of incentives comes from the 1980s, when Israel opposed the U.S. sale of “airborne warning and control system” surveillance aircraft, or AWACS, to Saudi Arabia. The United States wanted to accommodate Saudi desires, but Israel worried about maintaining its military edge over the Arab countries and lobbied hard against the deal. The Reagan administration lobbied just as hard to overcome congressional opposition to it. In the end, a compromise was reached: the sale went ahead, but with conditions, including a guarantee that no information gathered by the AWACS would be transferred to third parties without U.S. consent. In addition to mollifying allies, incentives can be used to encourage behavior that otherwise might not materialize. The United States has provided economic and military aid to Egypt to strengthen the government so it would maintain peace with Israel. It has provided assistance to Pakistan to promote counterterrorism cooperation, maintain collaboration in Afghanistan, and preserve at least some influence over Islamabad’s domestic and foreign policy. And it has provided aid to Turkey to promote restraint in the Middle East and the eastern Mediterranean, bolster NATO, and limit Russian inroads. Sanctions are the opposite of incentives. These measures are normally thought of as weapons wielded against adversaries, yet they have also been used against friends. In 1956, Washington applied such pressure on France, Israel, and the United Kingdom after their invasion of Egypt and attempt to seize the Suez Canal. It levied sanctions against Turkey in the wake of its 1974 intervention in and occupation of Cyprus; against Pakistan in 1990 over its nuclear weapons program; against Israel in 1981 over its bombing of Iraq’s Osirak nuclear reactor and in 1991 over its settlement of Soviet Jews in the occupied territories; and against Saudi Arabia in 2021 over the murder of the dissident (and U.S. permanent resident) Jamal Khashoggi at the Saudi consulate in Istanbul in 2018. Delivering humanitarian aid at the Gaza coast, June 2024 Delivering humanitarian aid at the Gaza coast, June 2024 Amir Cohen / Reuters If the goal was to modify the target’s behavior, the results of these sanctions were generally not encouraging. The one exception was during the Suez crisis, when France, Israel, and the United Kingdom backed down in the face of U.S. economic pressure. But the episode occurred at a time when the British were particularly vulnerable to U.S. economic pressure (the pound sterling could not hold its value without Washington’s backing), France was heavily dependent on Middle Eastern oil, and Israel had yet to amass much political support in the United States. Neither the threat nor the reality of sanctions stopped Pakistan’s nuclear program. The same can be said for the sanctions aimed at ending Turkey’s occupation of Cyprus. Sanctions can have value as a normative tool, however: even if they fail to stop the unwanted activity, they can still raise costs for the friend and signal U.S. displeasure, sending a broader message to other friends about U.S. preferences. A case in point was the George H. W. Bush administration’s policy toward Israel in 1991. The administration had gone to considerable lengths to pressure the Soviet Union to allow Jews to emigrate and was seeking to convene a regional peace conference after the Gulf War. So it was frustrated when the Israeli government put into place subsidies and other policies to incentivize those refugees to live in settlements in the occupied territories—especially since the Israeli government had asked the United States to guarantee $10 billion in loans meant to facilitate their move. The Bush administration tried to get the Israeli government to end policies designed to steer Soviet Jews to settlements; when that failed, it reduced the amount of loans it would guarantee, demonstrating that ignoring U.S. entreaties would come at a cost. The most draconian approach to dealing with a disagreement with a friend is to seek the ouster of the offending government. That was the approach the Kennedy administration took with its troublesome South Vietnamese ally, President Ngo Dinh Diem. The administration had done much to boost Diem’s political prospects, but it soon grew disillusioned with his corrupt and ineffective leadership, viewing him as a liability in the struggle against North Vietnam and the Viet Cong. Matters reached a head in the summer of 1963, when the U.S. officials in Saigon made clear that they and their bosses in Washington would look favorably on a coup led by senior military officers. By November 2, Diem was not just out of power but dead, killed by the soldiers who ousted him. Yet the Kennedy administration’s decision didn’t achieve its desired effect: Diem’s successors proved equally incapable of winning over the Vietnamese people and defeating the North. What the coup did do, however, was associate the United States ever more closely with the government and fate of South Vietnam. A more recent, and infinitely more modest, effort at regime change comes from 2024. Chuck Schumer—the Senate majority leader, a Democrat from New York, and arguably the most prominent Jewish politician in the United States—had grown frustrated with Israel’s seeming lack of concern for civilian lives in Gaza. On March 14, he delivered a speech from the floor of the Senate castigating Netanyahu for the high death toll and calling for new elections in Israel on the assumption that a change in leadership would translate into a change in policy. His call did signal displeasure from a stalwart supporter of Israel, but it failed to induce any change in the country’s leadership or policy. Worse, it had the counterproductive effect of allowing Netanyahu to wrap himself in a nationalist cloak as a defender against outside interference. SEE NO EVIL Another option for dealing with an irksome ally is more passive: looking the other way. Instead of making an issue out of a disagreement with a friend, Washington can ignore the transgression, recognizing that attempts to change a partner’s behavior would be too costly or doomed to fail. Think of this as diplomatic avoidance. Again, Israel provides a good example of this approach at work. In the 1950s and 1960s, the country decided that it needed a nuclear arsenal of its own to counter the enormous conventional military advantages of its Arab enemies, which refused to accept its existence. The United States strongly opposed the Israeli nuclear program, which violated its commitment to nuclear nonproliferation. Over time, however, Washington decided not to make a big deal of the disagreement, concluding that Israel could probably never be persuaded to give up its quest for the bomb. The United States had other, more important Cold War priorities in the Middle East that required cooperation with Israel, and it had other tools (including military aid and nuclear assurances) that could hold back other friends in the region from going nuclear. Officials may also have thought that a nuclear Israel could persuade Arab governments that the Jewish state was in the region to stay, in the process paving the way to acceptance and even peace talks. Looking the other way was made easier by Israel’s decision never to officially acknowledge its arsenal and to avoid obvious testing. More than half a century later, the policy seems vindicated: there is peace between Israel and several of its neighbors, and no other country in the region has yet to follow Israel’s lead and go nuclear. When it comes to other Israeli activity, however, diplomatic avoidance has proved far more costly. After its victory in the 1967 Six-Day War, Israel constructed settlements throughout territories it acquired in the conflict: the Golan Heights, the West Bank, Gaza, and Sinai. Most U.S. administrations viewed these settlements as impediments to any future exchange of territory for peace. Still, no U.S. president (with the partial exception of George H. W. Bush) demanded that Israel stop building or expanding settlements and threatened sanctions if it didn’t. U.S. officials were uninterested in a political fight with Israel and its American supporters in the absence of a promising agreement between Israel and the Palestinians. Not surprisingly, the number of settlements and settlers has skyrocketed over the past 50-plus years. And as predicted, even before October 7, the establishment of a Palestinian state became a much harder sell within Israel, since settlers are a powerful voting constituency, and among Palestinians, who have grown far more skeptical that peace would give them control over significant, contiguous territory. Disagreements with friends cannot be wished away. The United States has also looked the other way with Ukraine. Many U.S. officials doubted the wisdom of Ukraine’s decision to launch a major counteroffensive in 2023, worried that it would not only fail but also divert precious resources away from the task of defending the territory Ukraine already held. Others feared that if the counteroffensive were to succeed, it might prompt Russia to use, or at least threaten to use, nuclear weapons. The administration was also reluctant to press for any diplomatic initiative that would entail Ukraine compromising its goal to recover all its lost territory going back to 2014. But the U.S. government was unwilling to confront Ukraine, lest it appear that it wasn’t doing enough on behalf of a beleaguered friend resisting aggression. In this case, avoidance backfired. As predicted, Ukraine’s 2023 counteroffensive failed to achieve a decisive breakthrough while using up precious ammunition and equipment and costing many lives. That failure also handed an argument to members of Congress who opposed aid to Ukraine, making it easier for them to claim that the assistance wasn’t associated with a policy that stood a chance of succeeding. It would have been better for the Biden administration to have pressed Ukraine to adopt a defensive strategy as soon as the battlefield stabilized in mid-2022 and to indicate what territorial arrangements it might be prepared to accept in exchange for a temporary cease-fire. That approach would have preserved the country’s manpower and resources and persuaded Russia that no amount of offensive effort on its part could succeed. The United States has followed a passive approach toward India, too. In recent years, Democratic and Republican administrations alike have prioritized the U.S. relationship with the world’s most populous country to push back against China, expand bilateral trade and investment, and engender goodwill among the politically active Indian American community. But this strategy has required overlooking India’s growing illiberalism at home, its extrajudicial killings abroad, and its continued economic and military ties with Russia, making the United States appear more opportunistic than principled. Over time, looking the other way comes with risks, since an India that is less devoted to its secular heritage could become less united and stable. Washington’s nonconfrontational approach also increases the likelihood that India will continue to hedge in its foreign policy and remain a less than fully reliable U.S. partner. WORKAROUND If all other approaches fail or are deemed too costly, there is one powerful option left to deal with a disagreement with an ally: independent action. Instead of trying to get another country to alter its behavior, the United States can work around that country, promoting American interests as it sees fit. Frustrated with the military campaign in Gaza, the Biden administration has used the tactic against Israel. In February 2024, after vetoing three UN Security Council resolutions it regarded as unfair to Israel, the United States, over Israeli protests, introduced one of its own that called for a temporary cease-fire. The proposal was promptly vetoed by China and Russia for being too supportive of Israeli concerns, but the next month, the United States abstained on another resolution that Israel had asked it to veto. In Gaza, meanwhile, the Biden administration also acted unilaterally, airdropping food and constructing a floating pier on the Mediterranean coast to circumvent Israeli restrictions on the flow of humanitarian aid. In May, it placed a hold on supplying 500- and 2,000-pound bombs that can cause widespread civilian casualties. The impact of all this independent action was modest: it failed to do much to limit the severity of the humanitarian crisis, but it did signal that Israel did not have a veto over U.S. policy. Another recent example involves Ukraine. In 2022 and 2023, the Biden administration refused to provide Kyiv with aircraft, long-range missiles, and cluster munitions. The policy was not a sanction, since it wasn’t a punishment meted out in response to anything deemed counterproductive. Rather, it was a unilateral decision to hold back weapons that Washington thought would be insufficiently effective and potentially escalatory. Arguably the most dramatic example of independent action was the May 2011 U.S. military raid that killed Bin Laden, who had been hiding in a compound close to Pakistan’s military academy. Assuming that at least some senior Pakistani officials knew of his presence there and sympathized with him, the Obama administration decided not to warn Pakistan of the raid. Instead, U.S. forces flew in without permission, violating the sovereign territory of a friend in what proved to be a successful mission. U.S. officials rightly concluded that the stakes were too high to jeopardize the operation by notifying the Pakistani government and that, at any rate, the U.S.-Pakistani relationship was already so fraught that the marginal effect of this offense would likely be negligible. Independent action can go too far, however. Consider recent U.S. policy in Afghanistan. In February 2020, the Trump administration, seeing no path to either military victory or negotiated peace after two decades of war, went behind the back of the Afghan government and signed an agreement with the Taliban to end the U.S. military presence in the country. The deal wound down the U.S. presence, but at an enormous cost: it undercut and demoralized the Afghan government, paving the way for the Taliban to regain control of the country 18 months later, when the Taliban seized Kabul as the Afghan government collapsed. The Biden administration could have reneged on the agreement with the Taliban; there was a good chance that the Afghan government could have survived had Washington maintained its relatively light footprint of several thousand personnel in noncombat roles. Such a policy promised neither peace nor victory, but compared with what transpired, it would likely have been much better for the people of Afghanistan—and for the United States’ reputation. WHEN FRIENDS FEUD Much of U.S. policy toward allies is built on the assumption that agreement is the norm and disagreement the exception. Finding common ground should almost always be possible, policymakers implicitly believe, given how dependent U.S. allies are and how easy it is for Washington to draw on its considerable resources to penalize or support them. But this confidence is misplaced. Disagreements with friends are a regular feature of U.S. foreign policy, one that cannot be wished away. The first step to addressing the problem head-on is to understand which approaches work and don’t work, and when. Persuasion can be difficult or impossible when the friend sees core interests at stake. Still, genuine strategic dialogue on the most sensitive issues, if done privately and before a policy is decided, can head off crises and surprises in the relationship. And even if the effort fails, it can be cited to justify a decision to turn to other approaches. What might this mean in practice? With Israel, Washington should put forward its thinking on diplomatic and military responses to Iran’s nuclear program and Hezbollah, as well as on what it wants from Israel regarding the Palestinians and the Palestinian Authority in Gaza and the West Bank. It should also hold honest, if difficult, discussions with Ukraine, making the case for a largely defensive military orientation and a diplomatic initiative that reflects realities on the ground. Incentives naturally make persuasion more effective, and the tool appears to be working with Saudi Arabia: Riyadh is considering normalizing its relations with Israel and limiting its relationship with China in exchange for a U.S. security pact and civilian nuclear help. With Ukraine, the United States could pledge to reduce restrictions on the use of American weapons and offer long-term military aid and security assurances, all to persuade Kyiv to adopt a more defensive military strategy and declare its readiness in principle to accept an interim cease-fire. With Taiwan, it could more explicitly promise to come to the rescue in the event of a Chinese invasion (a policy sometimes known as “strategic clarity”), while making clear that Taipei needs to exercise restraint on cross-strait issues and invest more in its own defense. With Israel, it could agree to buttress a stabilization plan for Gaza or offset the costs of any peace agreement with the Palestinians, offering additional military assistance to meet any increased threats stemming from a loss of territory and economic assistance to compensate those who would be required to vacate settlements. The track record for sanctions does not inspire confidence; when used against friends, they are better at signaling U.S. displeasure than at changing behavior. If the offending behavior continues after sanctions are imposed, over time, other considerations take precedence and the measures are eased or removed altogether, making the United States look weak and hypocritical. As a rule, before imposing a sanction on a friend, Washington should consider whether it will want to sustain a sanction, given that other interests will inevitably intervene. And if it does decide to go that route, the sanctions should be narrowly targeted. Biden with leaders from Middle Eastern countries in Jeddah, Saudi Arabia, July 2022 Biden with leaders from Middle Eastern countries in Jeddah, Saudi Arabia, July 2022 Mandel Ngan / Pool / Reuters The Biden administration’s reaction to the Khashoggi murder is an example of getting it wrong and right. It was completely predictable that relations with Saudi Arabia would have to take into account Iran, Israel, the war in Yemen, oil prices, and China, all of which made it unsustainable to treat the kingdom as a pariah. But then the administration wisely pivoted. It showed its unhappiness with what had taken place and its commitment to principle (something the Trump administration did not do) by releasing the CIA’s investigation into the murder and sanctioning a number of Saudi senior officials who were not central to the workings of the relationship. But it did not introduce sanctions or conditions that would have made it impossible to cooperate. The harshest instrument, regime change, should be avoided. It is unlikely to result in new leadership, and even when it does, there is no guarantee that the new regime will be both preferable and enduring. Few things in foreign policy are harder than engineering the internal workings of another country. Trying to do so with an ally is all but sure to backfire, taking the focus off substantive disagreements, handing the target a nationalist card to play, and raising uncomfortable questions in other allied capitals. Looking the other way can make sense when it would be nearly impossible to influence a friend’s behavior or when other large interests are at stake that argue against a confrontation. The tactic does not make sense, however, when the United States possesses ample influence or when the costs of ignoring the problem are high. Persuasion, incentives, sanctions, and looking the other way have something in common: they all leave the initiative with the friend or ally, which explains their poor track record. The one option that hands control to the United States is independent action. Working around an ally can be attractive when the other options fail or are ruled out and U.S. interests still call for something to be done. With Israel, the Biden administration could build on its existing workarounds and go much further. It could, for example, require that goods made in Israeli settlements be labeled as originating in the occupied territories rather than as “made in Israel,” restoring a policy that the Trump administration reversed. The United States could stop sugarcoating its objection to settlements and describe them as “illegal” rather than as merely “obstacles to peace” or “inconsistent with international law”—and support a UN Security Council resolution saying so. It could do more to reform and strengthen the Palestinian Authority. And it could publicly articulate and push for its vision for governance in Gaza and for the resolution of the Israeli-Palestinian conflict more broadly. Working around an ally can be attractive when the other options fail. In Ukraine, similarly, the United States could stipulate that none of the arms it provides could be used for a new counteroffensive and that military aid would be continued only if Ukraine committed to accepting an interim cease-fire based on the current territorial division. (To be clear, Ukraine would not have to give up its territorial claims, its ability to rearm, or the option to join alliances as a condition of aid.) What would result would not be peace, but as the experience of the Korean Peninsula has made clear, an armistice can at least stop the war. Independent action should also include a willingness to publicly criticize behavior or even join the other countries’ domestic political debates. The leaders of Israel, Ukraine, and Taiwan have all worked legislators and the media; U.S. presidents should take a page from their books and do the same thing. In 2015, Netanyahu spoke to Congress to argue against the Obama administration’s Iran nuclear deal, and in June 2024, he recorded a video falsely accusing the Biden administration of threatening Israel’s security by holding back arms and ammunition. Obama should have asked for equal time in the Knesset to take his case for the nuclear deal to the Israeli people, and Biden ought to have marched into the White House briefing room and demanded an apology from Netanyahu for misrepresenting the facts. In situations like these, what is called for is tough love—or at least tougher love. Independent action is no panacea, since it doesn’t stop the offending behavior, although it could lead the partner to back off. But it does allow the United States to shield itself from and offset some of the adverse consequences. It also helps preserve the relationship while reminding the friend that the United States has options of its own. And in the long run, this tactic can demonstrate the costs of not taking U.S. preferences and interests into account. That, after all, should be the thrust of any U.S. strategy toward an ally with which it disagrees: to pursue its interests without doing irreparable damage to a valued relationship. RICHARD HAASS is President Emeritus of the Council on Foreign Relations, Senior Counselor at Centerview Partners, and the author of The Bill of Obligations: The Ten Habits of Good Citizens. More By Richard Haass More: United States Diplomacy Geopolitics U.S. Foreign Policy Biden Administration Israel-Hamas War Israeli-Palestinian Conflict Benjamin Netanyahu War in Ukraine Most-Read Articles The Trouble With Allies America Needs a Playbook for Difficult Friends Richard Haass The Innovation Fallacy In the U.S.-Chinese Tech Race, Diffusion Matters More Than Invention Jeffrey Ding Ukraine on the Offensive How Kyiv’s Attack on Russia—and Successful Defense of Its Northern Flank—Has Changed the War Nataliya Gumenyuk The Talks That Could Have Ended the War in Ukraine A Hidden History of Diplomacy That Came Up Short—but Holds Lessons for Future Negotiations Samuel Charap and Sergey Radchenko Recommended Articles The Atrophy of American Statecraft How to Restore Capacity for an Age of Crisis Philip Zelikow German Chancellor Angela Merkel and U.S. President Donald Trump in Biarritz, France, August 2019 The Allies Are Alright Why America Can Get Away With Bullying Its Friends Robert E. Kelly and Paul Poast Stopping the Next China Shock A Collective Strategy for Countering Beijing’s Mercantilism By Aaron L. Friedberg September/October 2024 Published on August 20, 2024 At an AI conference in Shanghai, July 2024 At an AI conference in Shanghai, July 2024 John Ricky / Anadolu / Getty Images Sign in and save to read later Print this article Send by email Share on Twitter Share on Facebook Share on LinkedIn Get a link Page url https://www.foreignaffairs.com/china/stopping-next-china-shock-friedberg Get Citation Request Reprint Permissions Play Download Article Twenty-five years after the beginning of the first so-called China shock, when a surge in Chinese exports disrupted manufacturing and industrial sectors worldwide, Beijing has again begun to flood global markets with a wave of heavily subsidized manufactured goods and materials—including everything from metals and textiles to more cutting-edge products such as electric vehicles, lithium batteries, and semiconductors. In more economically advanced countries, this influx threatens to upend emerging technology sectors and derail post-pandemic plans to “de-risk” economies by shifting supply chains away from China. In the developing world, a new tsunami of cheap imports could disrupt plans for industrialization and modernization. According to the theories of economics and trade that are prevalent in the West, Chinese leader Xi Jinping has little choice but to pull back: China’s economy has become dangerously imbalanced. In 2022, according to the World Bank, the country accounted for 30 percent of global manufacturing value added but only 13 percent of global consumption. But it is a mistake to presume that Xi and the Chinese Communist Party (CCP) think about the Chinese economy the same way Western economists do. The key to understanding Xi’s economic policies is to recognize that they are principally about power, not prosperity. He will almost certainly forge ahead toward concentrating the world’s industrial power within China, even at the risk of provoking a cataclysmic trade conflict with other countries. The emergence of a shared challenge has created an opportunity for enhanced cooperation among the advanced industrial democracies of the West and less developed countries in the global South. Beijing will push back hard against any attempt at policy coordination, seeking to divide, isolate, and overwhelm those who try to stand in its way. But the problems posed by the intensification of Chinese mercantilism are now so great that they cannot be addressed in an enduring way by any one country. Nor can they be solved merely by applying the usual assortment of stopgap remedies. Stay informed. In-depth analysis delivered weekly. Only by banding together in a trade defense coalition—an idea I developed with an economist in Asia—can countries with market-based economies protect themselves against China’s predatory practices. Leading this effort will require the United States and its allies to set aside the post–Cold War dream of building a fully integrated, maximally efficient global economy. But rather than abandon the liberal principles that underpinned the free-trade vision, they must focus on constructing a core subsystem of countries that are genuinely committed to the concepts of openness, fairness, and reciprocity and are willing to defend and abide by them. This kind of coalition will be challenging to create, but the alternative is worse: a world in which democracies are dramatically divided and weakened as the Chinese party-state continues to privilege its interests and enhance its power at the expense of other nations—and the Chinese people. SPEED DEMON Over the past three decades, Beijing has adhered to a growth-target model that relied on net exports of manufactured goods and investments in infrastructure and real estate to drive economic growth and absorb China’s colossal national savings. The first flood of manufactured exports that the country unleashed into the global economy after joining the World Trade Organization in 2001 contributed to a loss of manufacturing capacity and jobs in other industrialized economies, especially that of the United States. At the time, these changes were not effectively resisted because they were widely seen as part of a mutually beneficial process of economic evolution: as older industries withered in the West, new ones would emerge to take their place. Western analysts expected that China would have to shed its statist, market-distorting policies to meet the commitments it made on entering the WTO. Democratic reforms, it was believed, would quickly follow China’s economic liberalization. Needless to say, these expectations have not panned out. In the first decade of the twenty-first century, China sought to pursue more economically advanced nations up the value-added chain by continuing to use subsidies, market-access restrictions, currency manipulation, and other tools to expand its manufacturing capacity and win growing shares of global production in established industries such as steel and solar panels. Despite the initial success of this approach, CCP planners realized that they could not indefinitely sustain it without eventually swamping global markets, degrading domestic productivity, and generating dangerous financial bubbles. As early as 2007, Wen Jiabao, then the country’s premier, warned that China’s economy was becoming “unstable, unbalanced . . . and unsustainable.” Two years later, Beijing openly acknowledged that it had created overcapacity in six state-dominated heavy industries, including cement, steel, and wind turbines. Yet even when export demand collapsed in the wake of the 2008–9 global financial crisis, Beijing doubled down on its familiar model, further diverting national savings into domestic infrastructure, building still more excess capacity in existing industries, driving down returns on investment, and ratcheting up debt. In 2015, Beijing unveiled its Made in China 2025 program, which aimed to capture growing shares of both the domestic and overseas markets for advanced products such as industrial robots and electric vehicles. According to an April 2024 South China Morning Post analysis based on government sources, this plan has already achieved 86 percent of its objectives. This impressive burst of technological and industrial upgrading came at a steep cost. China far outspent its foreign rivals on public subsidies, relaxed its environmental regulations, and spurred provincial and private debt-fueled investment into priority sectors. The approach created a free-for-all of domestic industrial competition that resulted in vast overcapacity—and helped drive China’s total debt to over 300 percent of GDP. In 2021, Beijing did throttle lending to construction firms and property developers out of concern for the oversupply in those sectors. Bursting the real estate bubble may have been necessary, but doing so then contributed to a dramatic post-pandemic slump in consumer demand and economic confidence in China and underscored the central question of how to sustain growth in both the near and longer term. The answer that Xi’s government has settled on has now become clear: yet more investment in manufacturing and another big export push, with a particular emphasis on high-tech sectors. TRADE SECRET Faced with a new wave of Chinese exports, U.S. and European officials have accused Beijing of deliberately cultivating industrial overcapacity. Chinese media outlets deride such allegations as a cover for a strategically motivated effort to contain their country’s rising power. Xi has flatly stated that “there is no such thing” as Chinese “overcapacity.” The acute sensitivity to the term “overcapacity” reveals something essential about China’s political economy. In contrast to their liberal Western counterparts, Xi and his colleagues are not concerned primarily with the pursuit of efficiency or the enhancement of aggregate national welfare for its own sake. Neither market-loving capitalists nor true-believing Marxists, they can best be understood as mercantilist Leninists whose top priority is to acquire and exercise political power. Their economic policies are designed to preserve the CCP’s dominance and control at home while boosting the country’s industrial and technological capacities to transform China into the world’s most productive, innovative, and powerful state. These priorities help illuminate both what Beijing is doing and what it refuses to do. Most Western experts, and some of their Chinese colleagues, have long believed that the only acceptable substitute for domestic investment is increased consumption. According to World Bank figures, household consumption in 2022 accounted for only 37 percent of China’s GDP compared with 68 percent in the United States, and the economist Michael Pettis has estimated that China would have to reallocate as much as ten to 15 percent of its GDP toward consumption to sustain healthy growth. This could be accomplished through greater wealth transfers to households in the form of higher wages, improved health care, and retirement pensions. Xi’s economic policies are principally about power, not prosperity. But China will not take that tack, because shifting a substantial portion of the country’s wealth into the hands of ordinary citizens would empower them at the CCP’s expense. And redirecting resources toward consumption and services, as developed countries eventually do, could diminish China’s industrial prowess and relative power, leaving it less capable of undertaking a military buildup or an emergency expansion of arms production. Losing its position as the irreplaceable link in many global supply chains would also reduce China’s geopolitical leverage. This is why, rather than committing to liberalizing reforms, Xi is relying on China’s so-called new productive forces to turbocharge his country’s already outsize manufacturing base. As it has in the past, Beijing is now deploying massive subsidies (estimated to be three to nine times the levels found in the countries of the Organization for Economic Cooperation and Development, depending on the industry) and a shrewd predatory pricing strategy. The goal is to achieve an unrivaled position in fields such as semiconductors and biotechnology before competitors can react, as well as in the three vanguard sectors in which it already has a commanding lead: solar technology, batteries, and electric vehicles. And China shows no sign of relinquishing its hold on the sectors it has long dominated, including mining, textiles, and shipbuilding. On the contrary, Chinese officials now boast that theirs is the only country that produces goods in every one of the UN’s trade categories. In the near term, Xi is counting on a surge of exports, especially to developing countries, to revive China’s growth. Based on July 2024 estimates from Bloomberg, this approach might temporarily alleviate China’s economic woes, but only on the optimistic assumption that other countries do not resist it. Beijing’s aims, however, are not purely or even primarily economic. By flooding global markets, China aims to drive foreign competitors out of business and tighten its grip over what officials in Beijing describe as “chokepoints,” including lower-end semiconductors and critical minerals. In these officials’ view, boosting manufacturing is part of an urgent “whole nation” effort to achieve self-reliance and reduce China’s vulnerability to technological blockades. Even as Xi seeks to enhance China’s leverage over other countries, he is working to diminish their leverage over China. In the longer run, Beijing is betting that breakthroughs in artificial intelligence, robotics, and other emerging technologies will increase productivity, fuel growth, and permit Chinese companies to dominate global markets for new products. By supercharging science and technology, China aims to leapfrog ahead of current generations of military and intelligence systems to surpass even the capabilities of the United States. DANGER AHEAD Should these plans succeed, China will be able to lock in enduring advantages, creating a perilous concentration of industrial power. Its manufacturing surplus—already approaching two percent of global GDP, a staggering figure—could balloon. The United States and its key allies would find themselves in a position of deepening dependence on China for goods essential to the manufacture of both commercial products and military systems. The harm to other countries would extend well beyond those that are already industrialized. Beijing often claims that its economic development helps poorer nations, but Chinese firms are already feasting on demand that would otherwise be met by local manufacturers. The fact that China is trying to retain control of less advanced as well as advanced industrial sectors means that much of its gains will come at developing countries’ expense, closing off routes to industrialization and relegating them to exporting the raw materials to feed China’s manufacturing machine and then importing its finished products. The first reaction of many economists, commentators, and government officials to China’s new export wave has been to try to persuade Beijing that it now has no choice but to reconfigure its economic strategy to rely more heavily on domestic demand. But such appeals are destined to fail because a wholesale rebalancing of China’s economy toward consumption would weaken the CCP’s power. In theory, Beijing could also diminish friction with other countries through a substantial exchange-rate appreciation, which would drive up the cost of China’s exports, drive down the cost of its imports, and reduce its trade surplus. But the CCP dismisses that option as a deflationary trap of the sort that it claims the United States sprung on Japan in 1985. That year, Washington pressured Tokyo to accept a drastic revaluation of its currency relative to the dollar, triggering an asset price bubble that eventually burst and ushered in a so-called lost decade of economic stagnation. Other Western analysts, especially those in Europe, still cling to the hope that China’s schemes to subsidize overcapacity, the proximate cause of the current crisis, can be addressed through the WTO’s dispute resolution mechanisms. This approach has repeatedly failed, however, even when China was weaker and the trade organization was stronger. Donald Trump has promised that if he again wins the U.S. presidency in November, he will impose steep across-the-board tariffs on all Chinese imports, as well as lower tariffs on other countries, including American allies. But unilateral U.S. tariffs cannot solve the larger problems posed by Beijing’s distortionary trade and industrial policies. Building a dam solely around the American economy would reduce its competitiveness and deflect the impending flood of Chinese exports into other markets. The disputes between advanced democracies that would inevitably follow would merely create fresh opportunities for Beijing to play those countries off one another. U.S. President Joe Biden’s administration has already begun to raise tariffs and use national security provisions in U.S. trade law to restrict certain Chinese imports such as electric vehicles. By carefully tailoring its restrictions to a limited set of products and sectors for which it can make a plausible environmental or national security argument, the administration is trying to avoid setting off another tit-for-tat trade war. Although some officials in Washington have emphasized the importance of coordinating with allies to respond to China’s export wave in a united way, they clearly hope to avoid taking concerted actions that could be seen as discriminatory toward China, violate the multilateral principles of the WTO, or further fragment the global economy. At this point, however, these are precisely the kinds of measures that are needed. UNIFIED COMMAND No country alone can forestall or contain the impending second China shock. The European Union’s competition czar, Margrethe Vestager, is one of the few world leaders to recognize this, openly acknowledging that China’s global trade surplus is a systemic problem that demands a systemic response. Anything less will yield what she aptly calls a “whack-a-mole” approach in which Beijing deflects complaints about particular industries and pursues endless dialogues to evade more serious pressure. Avoiding this outcome will require the formation of a trade defense coalition modeled loosely on a collective security alliance. Its purpose would be to reduce its members’ dependence on China by encouraging the proliferation of productive capacity for a wide array of manufactured goods. As in the military domain, members would seek safety in numbers and through binding rules to reduce the risks of free-riding or defection. In democracies, joining the coalition would require formal legislation rather than executive orders, which can be overturned through a change of government. If key countries chose not to join, their markets would be swamped by underpriced imports from Chinese producers seeking a way through the coalition’s defensive armor, and possibly compel holdouts to reconsider. Although the coalition could grow, its inaugural members should include a core group of liberal democratic allies and an assortment of high-deficit industrializing countries that, regardless of regime type, share the objective of shielding their economies from Chinese mercantilism. For such a coalition to be effective, the United States and the EU would need to take part, along with at least half the world’s 15 next-largest economies, excluding China—most likely, Australia, Canada, India, Japan, Mexico, South Korea, Turkey, and the United Kingdom. These states are already either close U.S. allies or strategically more aligned with the United States than with China. According to the International Monetary Fund, in 2022 these countries together accounted for 62 percent of global GDP and ran a collective deficit of $1 trillion with China and Hong Kong. Potential coalition members would also include other existing or aspiring members of the Organization for Economic Cooperation and Development, such as Argentina and Indonesia, as well as any other nations that seek to industrialize independently of China to safeguard their economic or military security. Electric vehicle production in Wuhu, China, July 2024 Electric vehicle production in Wuhu, China, July 2024 China Daily / Reuters The members of such a trade defense coalition could deploy a variety of tools to restrict access to their markets, including import quotas and regulatory measures such as bans imposed for the purpose of national security grounds or to protect industries endangered by unfairly priced imports. But the most important mechanism would be a system of import tariffs applied to specific product categories that are critical to national defense or essential to the functioning of modern economies and societies and are vulnerable to supply dominance by China. Most countries that would need to take part in the coalition have already developed such lists; these must be integrated. It is critical that this coalition have a unified set of rules and target items; otherwise, trade circumvention or leakage would erode its effectiveness. The purpose of a tariff barrier would be genuinely protective: to buy time and create sufficient commercial incentives for new alternative suppliers to emerge both inside the coalition and beyond its perimeter. Tariffs shield existing producers from predatory pricing, but they might not be sufficient to induce new companies to enter markets. To encourage the latter, the coalition would also need to harmonize industrial policy tools, including members’ technology-sharing arrangements and capital, financial, environmental, and regulatory incentives, perhaps coordinating with aspiring manufacturers in other countries, as well. Given the globalization of manufacturing, it will also be essential to devise a method for calculating the true origin of the value added to each product. Many of the world’s most important goods are now what the WTO defines as “complex products,” such as cellphones and vehicles, which cross at least two national borders before their final assembly. The economist Richard Baldwin has estimated that China now produces about 40 percent of the intermediate components incorporated in these goods, meaning that its actual dominance in many sectors is hidden. Since the U.S.-Chinese trade war began in 2018, many Chinese firms have begun to offshore a fraction of their manufacturing processes to other countries to avoid the higher tariffs that would be imposed on their products if they were exported directly from China. To thwart such tactics and determine the appropriate tariffs on specific products, the trade defense coalition would need to create a much fuller supply chain accounting system. The higher the amount of Chinese-origin content in a final product that arrives at a coalition member’s borders, the higher the tariff should be. Such a system would have been impossible to implement a generation ago. But today’s information systems can track even the smallest of parts as they move through the production process. DESTROY IT TO SAVE IT The likely objections to this proposal are numerous. It cannot be denied that creating a defensive coalition would violate the WTO’s principle of nondiscrimination. Unfortunately, however, China has already warped and distorted the WTO’s principles and now uses the organization’s procedures to shield its own discriminatory practices from scrutiny and avoid compliance. The United States and its allies must not permanently abandon the WTO, but neither can they currently depend on it to protect their economies. The creation of a trade defense coalition would also further fragment the global economy into at least partly separated trading blocs. But the alternative is not the renewal of a march toward a fully integrated, balanced global economy based on the principle of comparative advantage. Xi likes to present himself as the great defender of globalization. What he has in mind, however, is a very lopsided version of it, in which China protects its own market and uses subsidies to expand its already overgrown industrial base while other countries remain open, providing it with the markets, technology, resources, and capital it needs to grow even as their own industrial capacities erode and their dependence on China deepens. Learning from China’s experience so as to better counter its policies need not mean that, through some perverse process of convergence, “we” will become more like “them.” A decade after Beijing unveiled its Made in China 2025 program, other industrialized countries are slowly grasping the reality that Chinese leaders indeed intend to make almost everything in China. Other major economies now have little choice but to adopt trade and industrial policies that mirror some of China’s own successful efforts. In addition to walling off infant or embattled industries, these policies may include offering subsidies, mandating locally made inputs, and requiring technology transfers from any Chinese company permitted to operate inside the coalition’s defensive barriers. No country alone can forestall or contain the impending second China shock. A trade defense coalition would not leave Beijing free to commercially dominate the global South. Nor would it compel developing nations to choose between China and the West. On the contrary, by promoting the broad diffusion of industrial capacity and know-how, a coalition would offer these countries a better deal than the extractive one they currently get from China. It would be in the interests of the coalition to cultivate alternative suppliers in a variety of nations, from Malaysia to Morocco. Everyone outside the coalition would be free to continue buying low-cost goods from China; if they incorporated targeted items into their exports, however, the coalition would levy appropriately weighted tariffs. That would pressure Chinese companies to add more value to products in other countries, permitting companies in those countries to manufacture more components and do more of the work. Meanwhile, multinational companies based in coalition countries would be incentivized to transfer skills and capacity to countries other than China, preferably friendly ones with market economies and a dedication to the rule of law. Although penalizing China’s underpriced exports could slow the world’s shift toward renewable energy, environmental considerations must be appropriately weighed against security concerns. Aided by cheap electricity, much of it generated by coal-fired plants, China’s oversize solar power industry has already driven prices so low that foreign competitors have largely been eliminated from the market. This is not the case yet for wind turbines, however, or even batteries, for which the chemistries are evolving. As the world’s energy systems slowly tilt away from fossil-fuel-dependent grids and internal combustion engines and toward renewable energy technology and distributed storage, most industrialized nations will seek to control the manufacturing, installation, and operation of substantial portions of these critical networks. Beijing will no doubt retaliate against the formation of a defensive coalition, whether by cutting imports from member countries or threatening to limit their access to the supply chains it dominates. But because the countries that would make up the coalition will continue to be the major source of global demand, they will not lack for leverage. Provided that they work together, a group of like-minded countries should have the scale, technology, and resources needed to resist Chinese pressure and sustain their own prosperity. BETTER TOGETHER Rather than simply accepting an outcome in which industrial and technological power inexorably gravitate toward China, this kind of trade defense coalition would shore up the position and protect the autonomy of the United States, as well as other advanced nations. It would also accelerate globalization in the truest sense by encouraging a wider dispersion of production, knowledge, and income. In the United States and other developed countries, however, this kind of coalition will be a tough political sell. Although it would generate good new jobs, its creation would likely spur inflation, and major multinational corporations would feel the pain of China’s retaliation. To ease the path, the coalition’s purview could be established incrementally, starting with just a few industries. This was the approach that ultimately led to the creation of the European Union, which began with a more modest 1951 agreement to form the European Coal and Steel Community. Today, the automotive sector would be a logical place to start. Chinese planners recognized the promise of electric vehicles early on. But because auto industries provide millions of jobs and have direct links to manufacturing sectors critical to national defense, most major economies still want to retain them. Preserving them in the face of cheap Chinese imports will be impossible, however, without tariffs and incentives for alternative suppliers of batteries and components. These methods will be more effective if they are applied in a coordinated fashion. Cars and car parts produced under the policies of a trade defense coalition would likely be more expensive than those imported from China. But the data they collect would be more secure, and they would be built by better-paid workers in liberal, transparent economies. Consumers would have more opportunities to bypass Chinese brands and thereby avoid rewarding the CCP for its mercantilist policies. Ultimately, the strongest argument in favor of a trade coalition is that it is vital for the security of advanced democracies. The world is already dangerously reliant on China for an astounding assortment of essential goods and intermediate components, as the COVID-19 pandemic laid bare. The war in Ukraine has driven home how central manufacturing capacity still is to modern warfare. It takes little imagination to foresee a future crisis or conflict in which China could inflict sudden and potentially paralyzing supply chain shocks on its adversaries. Democracies understand that they must pay a premium to preserve their freedom of action by at times increasing their defense budgets. They must also learn to take steps to defend their economies, even if these are costly. Although Beijing will claim otherwise, a trade defense coalition need not hold China back or stifle its growth. Instead, it would prevent the country from exercising its self-proclaimed right to development in ways that deindustrialize the economies, limit the autonomy, and endanger the security of other countries, rich and poor alike. Ultimately, a trade coalition could even be good for China. Limiting Beijing’s ability to externalize its domestic economic imbalances and use other countries as outlets for its overproduction would increase the odds that the Chinese government will finally abandon its mercantilist model in favor of genuine, liberalizing reforms. Then, China could take its proper place in the open, integrated, and mutually beneficial global trading system that democratic countries envisioned when the Cold War ended three decades ago. You are reading a free article. Subscribe to Foreign Affairs to get unlimited access. Paywall-free reading of new articles and over a century of archives Unlock access to iOS/Android apps to save editions for offline reading Six issues a year in print and online, plus audio articles AARON L. FRIEDBERG is a Professor at Princeton University and a Nonresident Senior Fellow at the American Enterprise Institute. More By Aaron L. Friedberg More: China Globalization Economics Business Economic Development Trade Xi Jinping U.S.-Chinese Relations Most-Read Articles The Trouble With Allies America Needs a Playbook for Difficult Friends Richard Haass The Innovation Fallacy In the U.S.-Chinese Tech Race, Diffusion Matters More Than Invention Jeffrey Ding Ukraine on the Offensive How Kyiv’s Attack on Russia—and Successful Defense of Its Northern Flank—Has Changed the War Nataliya Gumenyuk The Talks That Could Have Ended the War in Ukraine A Hidden History of Diplomacy That Came Up Short—but Holds Lessons for Future Negotiations Samuel Charap and Sergey Radchenko Recommended Articles The Delusion of Peak China America Can’t Wish Away Its Toughest Challenger Evan S. Medeiros Tyler Comrie China’s Alternative Order And What America Should Learn From It Elizabeth Economy The Innovation Fallacy In the U.S.-Chinese Tech Race, Diffusion Matters More Than Invention By Jeffrey Ding August 19, 2024 An AI data sign at the annual Computex technology trade show in Taipei, Taiwan, June 2024 An AI data sign at the annual Computex technology trade show in Taipei, Taiwan, June 2024 Ann Wang / Reuters Sign in and save to read later Print this article Send by email Share on Twitter Share on Facebook Share on LinkedIn Get a link Page url https://www.foreignaffairs.com/china/innovation-fallacy-artificial-intelligence Get Citation Request Reprint Permissions Download Article In remarks in 2018, Chinese leader Xi Jinping highlighted the potential of “disruptive technological innovation” to change history. Key advancements, Xi insisted, had remade the world. He listed the “mechanization” of the First Industrial Revolution, the “electrification” of the Second Industrial Revolution, and the “informatization” of the Third Industrial Revolution. Now, Xi said, breakthroughs in cutting-edge technologies such as artificial intelligence had brought the world to the cusp of a Fourth Industrial Revolution. Those who pioneered the new technologies would be the winners of the era to come. In the following months, Chinese analysts and scholars expounded on Xi’s speech, unpacking the connection between technological disruption and geopolitics. One commentary in an official Chinese Communist Party publication detailed the consequences of past technological revolutions: “Britain seized the opportunity of the first industrial revolution and established a world-leading productivity advantage. . . . After the second industrial revolution, the United States seized the dominance of advanced productivity from Britain.” In his analysis of Xi’s remarks, Jin Canrong, an influential Chinese international relations scholar, argued that China has a better chance than the United States of triumphing in the competition over the Fourth Industrial Revolution. Chinese analysts are not alone in thinking this way about technological innovation and power. U.S. policymakers also see a vital link. In his first press conference after taking office, President Joe Biden underscored the need to “own the future” as it relates to competition in emerging technologies, pledging that China’s goal to become “the most powerful country in the world” was “not going to happen on my watch.” In 2018, Congress set up the National Security Commission on Artificial Intelligence, a body that convened government officials, technology experts, and social scientists to study the implications of AI. Comparing AI’s possible impact to earlier innovations such as electricity, the commission’s final report warned that the United States would soon lose its technological leadership to China if it did not adequately prepare for the “AI revolution.” Stay informed. In-depth analysis delivered weekly. In their obsession to win the future, both Chinese and American leaders risk overlooking a key truth about technology and transformation. They worry about dominating critical technological innovations in new, fast-growing industries, believing that the global balance of economic power tips toward the states that pioneer the most important innovations. In this view, the United Kingdom in the nineteenth century became the world’s most productive economy because it was home to new advances that transformed its burgeoning textile industry, such as the spinning jenny. But innovation only gets you so far. Without the humbler undertaking of diffusion—how innovations spread and are adopted—even the most extraordinary advances will not matter. A country’s ability to embrace technologies at scale is especially important for technologies such as electricity and AI, foundational advances that boost productivity only after many sectors of the economy begin to use them. A focus on the diffusion of technology points toward an alternative explanation for how technological revolutions change geopolitics: it matters less which country first introduces a major innovation and more which countries adopt and spread those innovations. WHO ADOPTED IT BEST The United Kingdom’s rise in the wake of the First Industrial Revolution, which lasted from roughly 1780 to 1840, is often held up as the prime example of how technological breakthroughs can lead to geopolitical supremacy. Conventional accounts tend to attribute the country’s rise to its monopoly over innovation in cotton textiles and other leading sectors. British technological leadership, according to this view, sprang from the institutional capacity to nurture genius inventors. But with improved data and methodologies, economic historians have challenged this prevailing narrative. They argue that the adoption of iron machinery across a wide range of economic activities proved more central to its economic rise than the pioneering of new technologies in textiles, for instance. Although its industrial rivals boasted superior systems of higher technical education for training expert scientists and engineers, the United Kingdom benefited from mechanics’ institutes, educational centers such as the Manchester College of Arts and Sciences, and other associations that expanded access to technical literacy and applied mechanics knowledge to a broader segment of society. The diffusion of technology also defined how countries benefited from the Second Industrial Revolution, which began around 1870 and ended around 1914. The Second Industrial Revolution was spurred by inventions in machine tools—the industrial production of interchangeable parts. During this period, the United States did not produce the world’s most sophisticated machinery, but it surpassed the United Kingdom in productivity by adapting machine tools across almost all branches of industry. In 1907, machine intensity (which measures the horsepower of installed machines per manufacturing worker) in the United States was more than double that of the United Kingdom and Germany. As in the earlier British example, education and public policy played a major role in securing the U.S. advantage. The United States had a wide pool of mechanical engineering expertise, supported by land-grant schools, technical institutes, and standardization efforts in screw threads and other machine components. These institutions broadened the base of expertise, creating more competent engineers and not simply producing a narrow technical elite. Similar dynamics prevailed in chemical engineering, where U.S. institutions of higher education helped cultivate a common language and a professional community of chemical engineers who could help speed productivity in a wide range of industries, including ceramics, food processing, glass, metallurgy, and petroleum refining. DIFFUSION POWER Who will lead the way in the Fourth Industrial Revolution? Preoccupied with monopolizing innovations, thinkers and policymakers in both the United States and China place undue emphasis on three points: how quickly AI and other emerging technologies will shape productivity growth; where the fundamental advances are first pioneered; and the expectation that a narrow range of industries will drive growth by harnessing new technologies. They neglect the real determining factor in this competition: a country’s capacity to diffuse AI advances across a wide range of industries, in a gradual process that will likely play out over decades. When great-power competition over AI is reframed in this way, the United States seems well positioned to maintain its technological edge. American businesses have been much quicker to embrace other information and communication technologies, such as cloud computing, smart sensors, and key industrial software. On one influential index, China ranks 83rd in the world in terms of access to these technologies, trailing the United States by 67 places. When it comes to AI, China has only 29 universities that employ at least one researcher who has published at least one paper in a leading AI conference publication (a rough gauge for whether a university can train AI engineers); the United States is home to 159. The United States has also built tight links between academia and industry that help disseminate AI advances across the entire economy—far more than China has. The United States should prioritize improving and sustaining the rate at which AI becomes embedded in a wide range of productive processes. But instead of sustaining its advantages in the diffusion of AI, the United States is fixated on dominating innovation cycles in leading sectors. U.S. policymakers are engrossed in ensuring that cutting-edge innovations do not leak to China, whether by denying visas to Chinese graduate students in advanced technical fields or by imposing export controls on high-end chips for training large models. Previous industrial revolutions have demonstrated that no one country can monopolize foundational innovations, so it will be unfeasible for the United States to cut China off from AI. The United States should instead prioritize improving and sustaining the rate at which AI becomes embedded in a wide range of productive processes. Washington should focus on policies directed at broadening the talent pool, such as providing community colleges with greater backing to better train an AI-savvy workforce and fully implementing the CHIPS and Science Act’s workforce initiatives that expand training in STEM fields. Investments in applied technology centers, which bridge the gap between basic research operations and industrial needs by providing testing services and conducting applied R & D; dedicated field services, such as the Manufacturing Extension Partnership, which hosts experienced specialists who help businesses incorporate new technologies and diversify their markets; and other technology diffusion institutions can encourage the adoption of AI techniques by small and medium-sized enterprises. To be clear, understanding the importance of diffusion does not exclude supporting the exciting research in a country’s leading labs and universities. Undoubtedly, more R & D spending and better facilities for elite scientists will also indirectly contribute to more widespread adoption of AI. All too often, however, increased R & D spending becomes the boilerplate recommendation for any strategic technology. AI demands a different toolkit. When some of the leading thinkers of the era declare that the AI revolution will be more significant than earlier industrial revolutions, it is easy to get caught up in their excitement. Many people in every generation wind up believing that their lives coincide with a uniquely important period in history. But the present moment might not be so unprecedented. Previous industrial revolutions suggest that real success in the age of AI will come to those countries that best position their populations and industries to embrace new technologies—not simply invent them. You are reading a free article. Subscribe to Foreign Affairs to get unlimited access. Paywall-free reading of new articles and over a century of archives Unlock access to iOS/Android apps to save editions for offline reading Six issues a year in print and online, plus audio articles JEFFREY DING is Assistant Professor of Political Science at George Washington University and the author of Technology and the Rise of Great Powers: How Diffusion Shapes Economic Competition (Princeton University Press), from which this essay is adapted. 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Yet as of mid-August, Ukrainian forces had penetrated dozens of miles into Russia and gained control of 74 villages and towns in the Kursk region, according to Ukraine’s top military commander. Ukraine has also taken more The Talks That Could Have Ended the War in Ukraine A Hidden History of Diplomacy That Came Up Short—but Holds Lessons for Future Negotiations By Samuel Charap and Sergey Radchenko April 16, 2024 Russian and Ukrainian negotiators meeting via videoconference in March 2022 In the early hours of February 24, 2022, the Russian air force struck targets across Ukraine. At the same time, Moscow’s infantry and armor poured into the country from the north, east, and south. In the days that followed, the Russians attempted to encircle Kyiv. These were the first days and weeks of an invasion that could well have resulted in Ukraine’s defeat and subjugation by Russia. In retrospect, it seems almost miraculous that it did not. What happened on the battlefield is relatively well understood. What is less understood is the simultaneous intense diplomacy involving Moscow, Kyiv, and a Enter your email and we'll send a paywall-free link directly to your inbox. Your email address In addition to your unlocked article, you will receive our flagship weekly newsletter Foreign Affairs This Week, as well as occasional updates and offers from Foreign Affairs. You can unsubscribe at any time. For more information, visit our user agreement and privacy policy. Get unlimited access to all Foreign Affairs. Subscribe now. Are you already a subscriber? Sign in. SAMUEL CHARAP is Distinguished Chair in Russia and Eurasia Policy and a Senior Political Scientist at the RAND Corporation. SERGEY RADCHENKO is Wilson E. Schmidt Distinguished Professor at Johns Hopkins University School of Advanced International Studies in Europe. 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