On March 26, WorldBoston presented its third Chat & Chowder event of the season. For this installment, Craig VanGrasstek was invited to provide his expertise on a topic related to world affairs. Members of the Boston community gathered at the offices of McDermott, Will, & Emery on State Street to listen to this week’s expert present on the state of U.S. leadership and the rise of economic nationalism, while enjoying classic New England chowder. VanGrasstek, the author of Trade and American Leadership, elaborated on the shift of the United States as the hegemonic power, and the necessary implications of a world power enabling an open global market giving rise to a new economic hegemon.
Craig VanGrasstrek holds a doctorate in Politics from Princeton University (1997), as well as degrees in international relations from Georgetown University’s School of Foreign Service (MSFS, 1983), and the University of Minnesota (BA, 1981). He has been a trade consultant since 1982 and has worked in over four-dozen countries on five continents, with clients ranging from government agencies to corporations and international organizations. Some of those have included the Organization for Economic Cooperation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD), and the World Bank. His areas of expertise include the history and structure of the international trading system, the trade policy-making process, as well as the relationship between trade, power, and development. Furthermore, he currently teaches trade policy at the Harvard Kennedy School (2000-present) but has also taught international relations at the American University (1994-2001), and literature at Georgetown University (2006-2009). Lastly, he serves as President of Washington Trade Reports, a firm that specializes in monitoring and analyzing current issues in trade policy.
Before he delved into the core arguments of his book, VanGrasstek took time to elaborate on his framework of analysis. He disclosed with the audience the three navigating fields he uses interchangeably throughout Trade and American Leadership: power, theory, and history. He uses power, as a political scientist, to explain how countries mediate their relations. In the case of his argument, a theory is used to understand better how the U.S. got where it is today in the global/trade market. Notably, he bases a lot of the arguments in his book on the theory of hegemonic stability, which defined as a theory of international relations rooted in the fields of political science, economics, and history.
The theory indicates that the international system is more likely to remain stable when a single nation-state is the dominant world power (hegemon), which VanGrasstek roots his explanation of a public good on. More specifically, he explains that “an open global market is a public good,” meaning it is “non-excludable” and “non-rivalrous in consumption.” Moreover, because it is a good affecting society as a whole, it tends to be under-provided, especially by the private sector that is unfit and incapable of providing it. Thus, an open market is well supplied by the government of each sovereign nation-state. In his view, the important question to focus on is who (state) gets to provide it in the international system since there is no overarching government above all states, and since “markets cannot exist in anarchy.”
When seen from the supranational perspective, a country will be deemed as a hegemonic power when it can enable global trade, by using its motive (economic efficiency), and the means (its political power) to provide this public good. As such, power becomes an integral part of VanGrasstek's theoretical approach.
Lastly, according to VanGrasstek history is essential in explaining trends in global trade, because “we can’t understand where we are” and “we can’t understand where we’re going if we don’t look at the rear-view mirror.” Relating to the history of trade policy of the United States, it is essential to recognize where history has evolved from and what trends one can anticipate in the future, by understanding theory and power. With this last point, VanGrasstek made the entryway towards his thesis, which he presented as follows:
“The trading system adapts to the global distribution of power, with markets tending towards openness when there is a hegemon and towards closure or discrimination when there is not.”
To explain the significance of the global distribution of power, VanGrasstek explains that each country tries to manipulate imports and exports to serve its interests in attempting to build a trade surplus. En masse, this describes the mercantilist approach that was present in U.S. foreign policy up until the Second World War. In terms of historical context, before the British industrial revolution, there was a heavy focus on mercantilism. Between the British and the American hegemony, there were the 1920s and 1930s. The British were not able to provide the public good, while the United States was not willing. Therefore, the result was economic protectionism and closed markets, eventually giving way to war.
The hegemon has the motive and economic efficiency because it will benefit from the creation of the public good, while it also carries the political power to use in a friendly or unfriendly way (to coerce other countries). According to VanGrasstek, this theory explains the Pax Britannica (when the British Empire became the global hegemonic power) and the Pax Americana (the dominant military and economic position of the United States compared to other states that begun in the mid 20th century).
A secondary point of VanGrasstek’s thesis is what he refers to as “the Trump phenomenon,” or in simpler terms a protectionist type of market, which restricts global trade, instead of enabling it. According to the author, this phenomenon is overdue (“if also overdone”). To back this up with some historical context in the 1980s the school of thought of hegemonic stability centered around the perception that the U.S. was going to advocate for open markets as long as it was in its strategic interest. For the first time, it had taken on the hegemonic responsibilities that had previously been exercised by the U.K. during the Second World War. By the 1970s, the United States started to run a large trade deficit, and the expectation of analysts became that over time there would be a protectionist president. However, contrary to what was expected to happen in the 1980s [electing a protectionist president] arrived much later, in 2016.
The natural question to this is why didn’t it happen until later? VanGrasstek offers three aspects: the consideration of U.S. power and the necessity of being on the same page as its allies, there was a change in the definition of what trade policy is. Rather than going back to a mercantilist approach as the trade deficit worked against the U.S. economy, trade policy was redefined entirely, as today trade deals with services, intellectual property rights, and investment. Third, there is the question of discrimination. It used to be that what we negotiated in trade was on a non-discriminatory, multilateral basis VanGrasstek explains this: “By diverting our attention from multilateral liberalization to discriminatory liberalization, we were able to prolong, for a couple of decades, a more free trade orientation, but a discriminatory trade orientation.”
No matter what fate holds for the president, the United States, and its partners will need to contend with a world in which “relative U.S. power is diminished (and China’s is rising) and trade discrimination is a tempting tool of foreign policy”, but “the utility of both preferences and sanctions is declining, making them less effective.” With this remark, the speaker proceeded to divert the audience’s attention to the following three topics, which he refers to in his book as “Paradoxes.” These are:
1. The Paradox of Hegemony, U.S. Dilemma: A leader hobbles itself or enables its challenges:
Hegemony for the United States begins around 1842 when the United States faces the same dilemma as the United Kingdom did; a leader hobbles itself or enables its challenges. Which essentially translates to the choice of opening global markets or not. If you do open them, you get the economic benefit because you’re the largest, most competitive country. That is because for a time you’ll be in a position to do better for everyone else, but simultaneously you’re creating the environment in which your challengers will rise. The British did so in the 19th century; they created the right environment for the Germans to advance. In a powerful statement, VanGrasstek shared: “What is more remarkable about Beijing’s rise is not only that it is accelerated by the trading system that Washington worked so hard to establish, but that U.S. policymakers had little choice in the matter. They could not have their cake without China eating it too” (Chapter 1, “The Domestic Diplomacy of Trade and the Paradoxes of Power and Wealth”).
2. The Paradox of Sanctions: Political Feasibility and Economic Effectiveness:
A prominent phenomenon in late-modern hegemony is that the United States transitioned from using trade as an instrument of its power on a non-discriminatory basis to a discriminatory way. There are two versions of this discriminatory use of trade: sanctions and preferences. The first paradox exists because sanctions pose a conflict between their political feasibility and their effectiveness. The type of sanction that will be more effective will be one that involves a large amount of trade. Hence, when we impose sanctions on other countries, we increase our vulnerability, as we impose costs on ourselves. In 1992, total trade constituted about one-fifth of the U.S. GDP, while today it makes up for approximately 30%. As the numbers suggest, the United States has a vastly lower capacity to use sanctions today than what it used to. As VanGrasstek went on to explain, “our vulnerability has increased by 50% in the last generation.” There are two ways to interpret this vulnerability: 1) every time the United States imposes sanctions, it is imposing costs on itself, in hopes that these costs will lead to a more favorable outcome. Alternatively, in terms of international relations, the U.S. hopes that it will get the other state actor to change its policy, and 2) the state we impose sanctions on having the ability to counter-retaliate.
According to VanGasstrek: “If Washington were to impose across-the-board sanctions today, the pain inflicted on China would be about one third less than that same action would have achieved in 1995, but the price imposed on the U.S. economy would be more than four times greater. More information on the paradox of preferences is present in Chapter 10, “The Strategy and Domestic Diplomacy of Sanctions” of Trade and American Leadership.
3. The Paradox of Preferences:
Preferences are similar to discrimination, in which way a state can use discrimination and access to its market as a means of trying to leverage something from the other party [state]. Preferences are inherently “nicer,” and their paradox lies in that they are less used in international politics today compared to the past. In the case of the U.S., VanGrasstek explains that the willingness to use discrimination expands as its value declines. According to him, we have used preferences as a tool in our foreign policy at the wrong time to do so. To demonstrate the Paradox of Preferences, VanGasstrek looks at the correlation between vulnerability, or the “total trade as a share of U.S. GDP,” and the leverage, examined by the “share of world trade in goods.” The graph presented certain circumstances of the fall of the U.S. as hegemon on the global trade market.
No matter what fate holds for the president, the United States, and its partners will need to contend with a world in which “relative U.S. power is diminished (and China’s is rising) and trade discrimination is a tempting tool of foreign policy”, but “the utility of both preferences and sanctions is declining, making them less effective”.
After the conclusion of his talk, VanGrasstek opened the floor to the audience to ask questions. The audience included WorldBoston members, some of VanGrasstek’s students from the Harvard Kennedy School, and other guests. Once the presentation finished, the attendees had the opportunity to purchase VanGrasstek’s book, while he was available to sign it and speak in person and answer further questions. If you would like to buy your own copy of Craig VanGrasstek’s Trade and American Leadership, you can do so here.