The Conquest of the United States by China

In 1898, after the United States’ quick victory in the Spanish-American war, the great Yale social scientist William Graham Sumner gave a speech titled “The Conquest of the United States by Spain.” He told his audience, "We have beaten Spain in a military conflict, but we are submitting to be conquered by her on the field of ideas and policies."

He argued that early Americans “came here to isolate themselves from the social burdens and inherited errors of the old world” and chose to “to strip off all the follies and errors which they had inherited.... They would have no court and no pomp; no orders, or ribbons, or decorations, or titles. They would have no public debt. They repudiated with scorn the notion that a public debt is a public blessing; if debt was incurred in war it was to be paid in peace and not entailed on posterity.”

The American citizen “was, above all, to be insured peace and quiet while he pursued his honest industry and obeyed the laws.”

But, he said, if America became a colonizing nation like the empires of Europe, we would become afflicted with “war, debt, taxation, diplomacy, a grand-government system, pomp, glory, a big army and navy, lavish expenditures, and political jobbery – in a word, imperialism.” And in that day we would have thrown away the American principle of liberty for “a Spanish policy of dominion and regulation.”

I was reminded of Sumner’s warning when I read a column in the Washington Post by Eswar Prasad, a prominent trade economist at Cornell University and the Brookings Institution. Prasad warns that in its trade war with China the Trump administration seems determined to emulate China:

China might seem in a better position to cope with a trade war, since it is a heavily managed economy and the government squashes political resistance. Yet its every maneuver carries enormous risks. Meanwhile, Trump, who manages a durable and flexible economy, is not exactly seeking victory for the American way of doing business. His approach, in some ways right out of Beijing’s playbook, would make our economy quite a bit more like China’s.

Prasad enumerates some of China’s “advantages” in a trade war: a state-dominated economy, with state-owned banks, and an autocratic government that can shut down dissent and censor bad news. Trump, on the other hand, has the advantage of an “enormously flexible and resilient” economy and bipartisan support for “getting tough on China.” But Prasad warns:

Yet in exercising his power, he could end up making America’s economy a bit more like the state-dominated one operated by Beijing — and, in so doing, permanently damage the U.S. free market. To rescue the agricultural sector from the consequences of the trade war, Trump has already dispatched $28 billion in government subsidies. He has also jawboned American companies to move their production bases back to U.S. shores, rather than letting them make their own commercial decisions. Trump has even pressured the Federal Reserve, whose independence is seen as sacrosanct, to lower interest rates and suggested that the Fed should help drive down the value of the dollar. With such moves, he risks undermining the true strengths of the United States: the institutions that make the U.S. dollar and the American financial system so dominant.

What’s worse, Trump suggests that the rule of law is up for negotiation. After imposing sanctions on Chinese technology companies such as ZTE and Huawei for running afoul of U.S. rules, he hinted that those sanctions could be negotiated away as part of a trade deal.

Much as Sumner worried in 1898 that the United States was trading its peace and liberty for “a Spanish policy of dominion and regulation,” Prasad fears that

China has made its lack of independent institutions a source of strength in dealing with external economic aggression. In that model, Trump sees something Washington should copy — and seems ready to abandon what makes the United States special. 

We faced a similar challenge in the 1980s when powerful American voices called for an industrial policy similar to the one they credited with the success of the then-booming Japanese economy. But critical analysis from Cato scholars and others across the political spectrum stopped that campaign, just in time for us to watch Japan sink into its “lost decade” of economic stagnation.

Sumner got a lot right. The United States did become a globe-circling imperial power burdened by war, debt, taxation, regulation, and rent-seeking. Will Prasad prove equally prophetic? Will we fight a trade war with China, only to discover that we have adopted “a Chinese policy of dominion and regulation”?