The strength of any nation is reinforced and magnified by the strength of its allies. It’s not wise for a country to go it alone, but warning signs of fractured friendships are cropping up around the globe. Consider this picture:
Germany’s economy shrank in the second quarter of the year and is expected to shrink even further in the third quarter.
China’s economy has slowed, with industrial production now growing at its lowest level in 30 years, and its debt has Chinese banks near a crisis stage, while unrest in Hong Kong threatens what many experts believe is the world’s bastion of economic freedom.
Britain faces the possibility of splitting from the European Union with no trade deal in place.
In the United States, tariffs and the threat of tariffs have increased prices, slowed growth and given the stock market fits, prompting the Federal Reserve to talk about bringing interest rates back down toward zero — a move that would leave it with few other tools available to combat a recession, should it come.
Meanwhile, Vladimir Putin seems relentless in his drive to make Russia relevant again on the world stage, and his meddling in places as far flung as Ukraine, Syria and U.S. social media and election processes pose more than a simmering threat to the free world.
Against this backdrop, leaders of the G-7 nations met this week in France. Despite the smiles and reassurances, world conditions ought to make one thing clear: The historical allies need each other now as much as at any time in the past.
Despite the smiles and reassurances, world conditions ought to make one thing clear: The historical allies need each other now as much as at any time in the past.
History is a guide to what can happen when nations turn inward. The United States countered the economic slowdown of 1929 and 1930 with tariffs that were intended to protect domestic farmers, workers and markets. A lot of economists and historians believe it led to the Great Depression, instead, and the resulting global turmoil (other nations responded with tariffs of their own) led to poverty and gave rise to nationalism and totalitarianism, which ultimately led to war.
It’s far too premature to predict a similar pathway today, but it ought to be clear that protectionism protects nothing and that global cooperation and trade, even in the face of economic stagnation, is the best path forward.
The late economist Milton Friedman may have been the clearest voice yet on this matter. In an essay he wrote for Newsweek in 1970, he argued that proposed tariffs and import quotas on Japan were wrong-headed, as is the idea that it’s wrong to trade with nations that won’t trade freely in return.
“The proponents of quotas say, ‘Free trade is fine in theory but it must be reciprocal. We cannot open our markets to foreign products if foreigners close their markets to us,’” he wrote. “The argument sounds reasonable. It is, in fact, utter nonsense. Exports are the cost of trade, imports the return from trade, not the other way around.”
Friedman clearly understood that it is a fallacy to believe a nation can serve its best interests by going alone, and that applies whether the subject is economic growth or military strength.
The United States may indeed benefit from a reappraisal of where it has focused its strength. Perhaps a careful drawdown in Afghanistan would allow a better use of influence elsewhere.
And it’s helpful to address China’s propensity to steal U.S. corporation secrets or its alleged use of Huawei for nefarious purposes. But tariffs are not effective tools against every problem, and they are not economically benign.
Decades of cooperation with European allies has effectively protected the United States and the European continent, while enriching the allies and other nations. Without NATO, the history of the mid- to late-20th century likely would read differently.
And for the 21st century to be prosperous, nations must learn the lessons of the 20th century and avoid the politically popular but ultimately fallacious temptation to go it alone.