China produces 84% of the world’s solar modules and 86% of its lithium-ion batteries, as well as 67% of the nacelles that join wind turbines' blades to their towers, and 70% of electrolysers for manufacturing green hydrogen. Representative image
Credit: iStock Photo
By David Fickling
How does a great trading nation cope with the realization that its glory days are over?
For the first country to head down that path — Britain — the outcome was an identity crisis that’s still ongoing after more than a century. As the US pauses at the same crossroads, it needs to consider whether free trade or protectionism promises the more prosperous route.
The UK’s marriage of manufacturing prowess and open commerce made it the pre-eminent power of the 19th century. By the closing decades of the century, it accounted for about a quarter of the world’s industrial output. Beneath the veneer of imperial confidence lay deep anxieties, however, thanks to the rise of new powers.
In Chicago, the Union Stock Yards sprawled over an area half the size of the old City of London, employed tens of thousands, and processed enough meat to feed 80 per cent of America’s population. Henry Ford copied the Yards’ production-line innovations in Detroit to build car factories on a scale the world had never seen. In Ludwigshafen south of Stuttgart, Britain lost its early lead in chemicals to BASF SE, whose vast integrated plants gave Germany a near-monopoly by 1900.
Joseph Chamberlain, who’d quit the world’s biggest screw-making business before it lost ground to US and German competitors and had since become one of Britain’s most influential politicians, saw the answer in a retreat from the Empire’s free-trade traditions. “Tariffs! They are the politics of the future, and of the near future,” he told a dinner of parliamentary colleagues in 1902.
The resulting policy was Imperial Preference, which promised to impose steep levies on imports from outside the Empire. It was a dominant political tendency until the Second World War shattered Britain’s pretensions to global hegemony. Its shadow has fallen across the UK’s anguished relationship with the European Union’s trading bloc ever since.
The parallels with present day America as it confronts China’s manufacturing prowess are striking. As in late Victorian Britain, a dominant power is being confronted with a rival that’s better endowed with land and labor, and fast catching up in terms of capital. Furthermore, China is prepared to invest and build on a scale that overwhelms the competition. Like Henry Ford — who consolidated every process in his vast River Rouge complex, and even sought to own coal mines, iron ore pits and rubber plantations to supply raw materials — China’s dominance of the clean technology supply chain looks close to absolute.
It produces 84 per cent of the world’s solar modules and 86 per cent of its lithium-ion batteries, as well as 67 per cent of the nacelles that join wind turbines' blades to their towers, and 70 per cent of electrolyzers for manufacturing green hydrogen, according to BloombergNEF. About 60 per cent of the world’s electric vehicles were sold in China last year, according to the International Energy Agency.
Exports of its cheap, high-quality autos are already roiling the global car industry, causing increasing fears in Washington that they’ll wind up outcompeting homegrown players.
“We’re standing up against the Chinese government’s unfair economic practice and industrial over-capacity,” President Joe Biden told an audience of steelworkers in Pittsburgh April 17, promising higher tariffs on Chinese metals and shipbuilding. “We’re in a stronger position to win the economic competition of the 21st century against China.”
That remains to be seen.
Britain’s attempt to use trade to win a previous century’s economic race was brief. Imperial Preference was only policy from 1932 (when the country introduced a 10 per cent across-the-board tariff oddly similar to the rate now being floated by Donald Trump) until the era of liberalization that followed World War II. For all the angst of the early 20th century, the UK remained a top-five manufacturing power alongside France and behind the US, Japan and Germany until the 2000s, when first China and Italy, and then South Korea, India, Mexico and Russia overtook.
The fate of the nations that committed more firmly to protectionism was less forgiving. Latin American countries started the postwar era richer than most of their Asian counterparts, and introduced high tariffs as a way to build up local industries in contrast to the free-trading approach of Singapore, Hong Kong, Taiwan and South Korea. The outcome was sclerotic manufacturing sectors, growth that sputtered after an initial burst of enthusiasm, and a debt burden that lingered for decades.
The US won’t head down a path as grim as that. Its population, abundance of resources, capital and technological expertise will make it a top-three power for as long as any plausible projections extend. But the situation at the dawn of the colonial era in 1750, when Mughal India and Qing China each accounted for more than a quarter of the world’s industrial production, seems a much more plausible outcome for the 21st century than one where protectionism in one great power cuts another one off from the rest of the world.
Washington’s accustomed hegemony may be harder to maintain in a future where multiple continent-sized industrial economies are jostling for primacy. Still, it will be all but impossible if America retreats into an isolationist shell.