China‘s state capitalism is no match for the US
Since the dawn of international economic interactions, a recurring chorus of voices has made it their mission to act as alarmed prophets, warning of the imminent demise of economic freedom and openness. These voices caution that states, exploiting this openness for their own malign purposes, pose a grave threat.
This was the rationale for the mercantilists of 18th-century Britain, France, and Prussia. It was the justification for 19th-century Hamiltonians in the United States, and for France and Britain turning to their exclusive colonial empires for trade in the 1930s, during the Great Depression. The same spirit animated protectionist calls in response to Japan’s economic rise in the 1980s—an era that also shaped many of Trump's flawed intuitions about globalization and trade.
Now, history appears to be repeating itself, this time against the backdrop of Chinese state capitalism.
It is only natural for those already skeptical of free markets and trade to embrace this narrative. However, those who believe that discriminatory economic nationalism and deglobalization will advance America's or the free world’s strategic interests must reflect on the lessons of recent history.
Beginning in the 18th century, when Britain surpassed both France and China to become the world’s most powerful nation, history shows that the dominant global power has always thrived in a more economically open and liberal system compared to its peers among the great powers.
Britain's dominance was fueled by its unwavering commitment to trade, commerce, open markets, and financialization—values that allowed it to sustain a powerful navy, block France from global trade, and project military power across Europe. Without Britain’s deep bond markets and naval strength, Waterloo would never have occurred, and many more Europeans might still be speaking French today.
The same principles were at play during the Crimean War (1853-1856), where a more economically open and liberal France joined Britain to combat the state-capitalist, autocratic Tsarist Russia.
This pattern repeated itself in World War I, where state-capitalist Germany defeated a less efficient Russian economy—ultimately triggering the 1917 Bolshevik revolution. Yet, the economically open market economies of the West—the UK, the US, France, and Italy—defeated the statist powers of Germany, Austria-Hungary, Bulgaria, and the Ottoman Empire.
World War II further demonstrated the resilience and superiority of open, liberal economies over closed, autarkic state-capitalist models, as seen in Nazi Germany, fascist Italy, and militarist Japan.
Even during peacetime, Japan did not surpass the US in the 1980s. Instead, Japan’s economy stagnated, and today, its GDP per capita is lower than that of Mississippi.
It is true that smaller liberal economies have often been tragically crushed by larger, predatory statist powers. However, these instances occurred before the advent of the liberal world order. Small nations like the Netherlands, Belgium, Luxembourg, Denmark, Norway, Northern Italy, Switzerland, the Baltics, the Czech Republic, and Portugal were repeatedly victimized by larger autocratic states, reminding us of the need for caution.
Thankfully, history has given us an extraordinary gift: the most powerful country on Earth, not a small, defenseless microstate like Costa Rica, happens to be a market democracy. (Though both the free market and democracy are currently under internal assault in the US.)
This means that the US no longer needs to fear the fate of the 18th-century Dutch Republic. As long as the US does not undermine itself—by weakening the dollar, closing itself off to immigration, trade, and investment, neglecting basic R&D, or attacking its world-class universities—the nation will continue to outperform China where it truly matters, and will remain in a position to deter catastrophic conflict.
This was the rationale for the mercantilists of 18th-century Britain, France, and Prussia. It was the justification for 19th-century Hamiltonians in the United States, and for France and Britain turning to their exclusive colonial empires for trade in the 1930s, during the Great Depression. The same spirit animated protectionist calls in response to Japan’s economic rise in the 1980s—an era that also shaped many of Trump's flawed intuitions about globalization and trade.
Now, history appears to be repeating itself, this time against the backdrop of Chinese state capitalism.
It is only natural for those already skeptical of free markets and trade to embrace this narrative. However, those who believe that discriminatory economic nationalism and deglobalization will advance America's or the free world’s strategic interests must reflect on the lessons of recent history.
Beginning in the 18th century, when Britain surpassed both France and China to become the world’s most powerful nation, history shows that the dominant global power has always thrived in a more economically open and liberal system compared to its peers among the great powers.
Britain's dominance was fueled by its unwavering commitment to trade, commerce, open markets, and financialization—values that allowed it to sustain a powerful navy, block France from global trade, and project military power across Europe. Without Britain’s deep bond markets and naval strength, Waterloo would never have occurred, and many more Europeans might still be speaking French today.
The same principles were at play during the Crimean War (1853-1856), where a more economically open and liberal France joined Britain to combat the state-capitalist, autocratic Tsarist Russia.
This pattern repeated itself in World War I, where state-capitalist Germany defeated a less efficient Russian economy—ultimately triggering the 1917 Bolshevik revolution. Yet, the economically open market economies of the West—the UK, the US, France, and Italy—defeated the statist powers of Germany, Austria-Hungary, Bulgaria, and the Ottoman Empire.
World War II further demonstrated the resilience and superiority of open, liberal economies over closed, autarkic state-capitalist models, as seen in Nazi Germany, fascist Italy, and militarist Japan.
Even during peacetime, Japan did not surpass the US in the 1980s. Instead, Japan’s economy stagnated, and today, its GDP per capita is lower than that of Mississippi.
It is true that smaller liberal economies have often been tragically crushed by larger, predatory statist powers. However, these instances occurred before the advent of the liberal world order. Small nations like the Netherlands, Belgium, Luxembourg, Denmark, Norway, Northern Italy, Switzerland, the Baltics, the Czech Republic, and Portugal were repeatedly victimized by larger autocratic states, reminding us of the need for caution.
Thankfully, history has given us an extraordinary gift: the most powerful country on Earth, not a small, defenseless microstate like Costa Rica, happens to be a market democracy. (Though both the free market and democracy are currently under internal assault in the US.)
This means that the US no longer needs to fear the fate of the 18th-century Dutch Republic. As long as the US does not undermine itself—by weakening the dollar, closing itself off to immigration, trade, and investment, neglecting basic R&D, or attacking its world-class universities—the nation will continue to outperform China where it truly matters, and will remain in a position to deter catastrophic conflict.
