The fiscal transformation has set the stage for a long period of economic decline and zero-sum, polarized politics.
The economic costs of ditching the Trans-Pacific Partnership (TTP) agreement are substantial, but there are geopolitical costs as well. TTP was designed to cement an Asian alliance to contain a rising and yet still communist China. Trade agreements often have political as well as economic purposes. The General Agreement on Tariffs and Trade was initially a Cold War instrument. Its core members were originally those of the anti-communist alliance. Growing their economies faster helped the West have more resources to contain the Soviet bloc. But it also brought officials and citizens of these nations into more common enterprises, promoting their overriding common purpose.
An international trade legal regime is one of the most effective soft power methods of containing adversaries. For instance, in the case of TTP we not only strengthened our alliances but provided incentives to China to open up its economy, if it wanted to become a member. A more open economy provides a long-run counterweight to the Communist Party and foreign adventurism. When we give up such tools, we are left with less palatable alternatives—using more military force or pursuing a balance of power diplomacy. Both require sacrifices.
President Trump’s Secretary of State designate has already suggested that the administration may be inclined to a more robust military approach to China. At his hearing, Rex Tillerson suggested that the United States should prevent China from gaining access to the artificial islands that it is creating to control the South China Sea. But that kind of response risks military confrontation. And even if it does not come to a shooting war, it requires the United States to possess the forces to deter China. That costs money, and while the Trump administration has vowed to build up our military, it faces enormous budgetary problems in sustaining that effort. The United States already has one its highest debt-to-GNP ratios in modern times.
Balance-of-power diplomacy requires dealing even with unsavory regimes if such dealings offer the prospect of containing a greater adversary. That was the logic of President Nixon’s opening to China, when he was willing to shake hands with Mao Zedong, a mass murderer, to help with what was viewed as a greater threat—the Soviet Union. Once the Trump administration abandons trade agreements and other mechanisms of soft power, there is a similar sad logic to creating an opening with Russia. Of course, that opening might well mean sacrificing some of our other interests, like continuing to oppose Russia’s annexation of Crimea. Balance-of-power politics regularly requires such deals.
Now many have criticized the liberal international order of trade, because of the domestic dislocations it creates. I believe such criticisms fail to take account of its economic benefits, even to the less well-off, and that those dislocations, which are not unique to trade in our technological era, are best handled by other policies. In any event, the geopolitical alternatives to this order themselves exact heavy costs.