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Would a U.S.-China War Mean the End of U.S.-China Trade?

U.S.-China War Trade
Maj. Garrett Schmitz, pilot for the F-16 Viper Demonstration Team, performs aerial maneuvers with an F-16 Fighting Falcon at Joint Base Langley-Eustis, Va., May 16, 2019. Air Combat Command pilots must complete rigorous training and receive certification from four levels of U.S. Air Force leadership before they can earn the title of Demonstration Team Commander. (U.S. Air Force photo by Airman 1st Class Marcus M. Bullock)

What does great power competition (GPC) mean for the future of the global economy? Put simply, the U.S.-China trade relationship has fueled a considerable portion of the world’s economic growth for the last forty years, and the prospect of a serious disruption of that relationship (which has yet to happen) should be disconcerting for everyone. GPC could have a range of outcomes from relatively restrained political nastiness to a Cold War-style disconnect to a punctuated series of hot wars. The question has particular resonance today given that extensive trade contacts between China and the United States have not prevented a growing sense of alarm about the prospects for war.

A recent article by Mariya Grinberg in the journal International Security points out that the idea that war means the end of trade is both recent and of uncertain accuracy. Nations at war can continue to trade if they require imports for long-term economic well-being and if they believe that exports cannot immediately be transformed into military gains. The reticence to completely cut off trade extends to the modern-day; Yugoslavia and Croatia continued to trade even as they conducted their messy war in the 1990s.

Britain and France famously traded with one another during the Napoleonic War, with the core logic of the Continental System being to amass a favorable balance of trade by increasing exports and reducing imports. This meant that Britain tried its best to smuggle goods into Europe, while France was happy to export foodstuffs and other goods to Britain during times of shortage.  Despite the naval blockade, the United States traded extensively with the Confederate States during the Civil War, only sometimes in the form of smuggling.

Of course, during the 19th century a different understanding of the relationship between war and trade held. But even in World War I, the British struggled to come to the conclusion that they needed to cut off trade with Germany, and especially with third countries that essentially laundered British goods for the German market. Restraining trade meant using instruments of policy that the British business community was uncomfortable with, and also meant handing over markets to American competitors. Moreover, disentangling the British and German systems of finance was even more difficult, as British businesses dealt regularly with German businesses in neutral countries around the world. Even as the armies were slaughtering one another in France, British finance and trade helped keep the German economy afloat. Only as the war extended past its second year did Germany and Britain embark on efforts to starve one another.

In this sense, World War II is unusual for the almost complete trade disconnect between the warring parties. The United States and Japan largely severed trade before the war, as did the U.S. and Germany (although U.S. subsidiaries operated in Germany and German-occupied Europe during the war). The USSR and Germany traded until virtually the hour that they went to war, but then cut ties almost completely. As in World War I, Germany sought to isolate Britain from international trade via a submarine campaign. This thinking about trade extended into the Cold War, which was unusual in the relative weakness of trade between the major rivals. The Soviet Union was relatively disconnected from the global trade networks of the West, and both sides seemed happy to maintain that arrangement for the duration.

But obviously, China and the United States have adopted a different approach to trade. What we can say about war we can probably also say about great power competition. We can thus envision ways in which the massive trade relationship between China and the United States could persist despite great power competition, even if that competition is punctuated by violence. Financiers and corporations in both countries will wonder about the length of the war, and the cost of rebuilding relationships and supply chains. Chinese and American firms in third countries will, in all likelihood, continue to trade robustly with one another, at least for a time. Indeed, China’s central strategic goal in most conceivable conflicts will be a short, sharp victory followed by a return to the antebellum status quo, at least where trade is concerned.

And this is where Grinberg’s argument points to a danger; the fact that commercial ties between countries may continue even after hostilities have begun suggests that hopes that trade can prevent conflict are misplaced. We like to think that Washington and Beijing can be dissuaded from war by the prospect of economic catastrophe even if military catastrophe isn’t sufficiently frightening, but if the commercial relationship can hold either way, war may not be scary enough.

Now a 1945 Contributing Editor, Dr. Robert Farley is a Senior Lecturer at the Patterson School at the University of Kentucky. Dr. Farley is the author of Grounded: The Case for Abolishing the United States Air Force (University Press of Kentucky, 2014), the Battleship Book (Wildside, 2016), and Patents for Power: Intellectual Property Law and the Diffusion of Military Technology (University of Chicago, 2020).

Written By

Dr. Robert Farley has taught security and diplomacy courses at the Patterson School since 2005. He received his BS from the University of Oregon in 1997, and his Ph.D. from the University of Washington in 2004. Dr. Farley is the author of Grounded: The Case for Abolishing the United States Air Force (University Press of Kentucky, 2014), the Battleship Book (Wildside, 2016), and Patents for Power: Intellectual Property Law and the Diffusion of Military Technology (University of Chicago, 2020). He has contributed extensively to a number of journals and magazines, including the National Interest, the Diplomat: APAC, World Politics Review, and the American Prospect. Dr. Farley is also a founder and senior editor of Lawyers, Guns and Money.

7 Comments

7 Comments

  1. Slack

    August 3, 2021 at 11:32 pm

    Unlikely for US-China trade to continue in event of war. UNCLE SAM or least CBP would seize any goods coming into the country from china and regard as free stuff or even war booty. Way to go.

    The US already has fully prepared plans for waging war on china to break its economy just like what Biden has said – “China will not be allowed to overtake us during my watch”.

    The trade war initiated by Trump and his cabinet (peter navarro et al) ironically has led to a even bigger thirst or hunger for china goods as revealed in recent air freight charge increases from china to US.

    Biden and austin could be tempted to make a military lunge on china (afrer suitable provocations) using japan and korea as springboard for the attack much in the same way hitler and his generals used occupied Poland as their springboard to attack the Soviet Union.

    We all know how that ended. The war by biden wil put AN END to any trade between US and China. Zilch. Zero.

  2. Jimmy John Doe

    August 3, 2021 at 11:48 pm

    Great Power Competition (GPC) for the U.S. has only ONE MEANING or OUTCOME or RESULT – the U.S. and no one else sitting on top of the hill.

    The U.S. after the great delirious victory in 1945 appointed itself as the guiding light of the world and proceeded to explode 67 fission and fusion bombs on the Marshall Archipelago. Samw with trade.

    Nixon abolished the gold standard and set the U.S. dolkar as the world’s safe haven asset. And today, this asset continues to rise in value despite massive deficits.

    With these successes, the U.S. has no need for competition or competitors and together wuth its niw unrivalled ability to impose sanctions has made one prophesy come TRUE – those without the mark of the beast will not be allowed to trade, sell or buy in the marketplace or earn a living in the daylight.

    Go figure.

  3. Jimmy John Doe

    August 4, 2021 at 12:05 am

    A US-Chinaa war will spell the end for global trade

    The US will corral its alies or vassals to participate and as a consequence, global trade will collapse.

    But will the war force china to its knees? The US must remember it has a very very long overland border and thus china can still trade or at least do barter trade even during a war and thus the desire to force it to its knees will fail.

    In the end, the US will get EXHAUSTED by its war exertion and china will trade with its neighbors but not with the US and its vassals. Thus global trade will get killed by the (coming) US-China war and the US-and-allies will be able to trade only among thenselves and with much acrimony as they will be unable to replicate china’s model of low-cost production of goods.

  4. FRAZIER STALL

    August 4, 2021 at 1:11 am

    Biden doesn’t have the grey cells to understand that his coming US-China will be a big FAILURE and only 2 thungs will result. One, places like japan and south korea will be turned into GROUND ZERO, and therefore leading to the second result, the US will enter the poor house as without japan and korea, the US is like a cart without a horse.

  5. Joe Comment

    August 4, 2021 at 10:57 am

    One thing’s for sure, great power competition and potential war looks like it’s great for the wumao business (see most comments below).

  6. David L Newland

    August 4, 2021 at 11:57 am

    Yes, a likely starting scenario for a war between the US and China would be a sneak attack by the latter, and it could be horrendous. If Chicom rhetoric is any indicator, it could be some kind of nuclear and cyber attack. But even a conventional attack would guarantee that the US side immediately goes to total war with unconditional surrender as the end goal.

  7. Commentar

    August 4, 2021 at 11:38 pm

    Global trade today is under control
    (increasingly) by a hegemon.

    Over 2,000 years ago, before many of today’s modern nations had even existed, mankind was given several warnings, including being warned about the ‘beast’ or entity or being that would put itself under the services of the great one called Lucifer.

    The warning was mankind would come under the (moral) oppression of the beast which would seduce and gather everyone under its influence and put a mark on them as being under its ownership.

    Those without the mark of the beast would be excluded from the marketplace, not even allowed to sell or buy goods, or do business out in the open. They would have to trade among themselves furtively lest they be caught by the beast.

    It is for sure that Washington is not known as babylon on the potomac for nothing.

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