The New Age of AutarkyWhy Globalization’s Biggest Winners AreNow on a Mission for Self-Sufficiency
April 26, 2021
Hat Tip: Rip McIntosh
The most striking geopolitical feature of the past four years has not been bipolarity or multipolarity—or even great-power conflict. It has been the spectacle of major economies pursuing self-sufficiency and a partial retreat from globalization in order to ensure their security, innovative capacity, domestic stability, and economic prospects. The United States, China, and India are each now engaged in what seems like a paradoxical enterprise: the quest to increase their global status while also turning inward to become more self-sufficient.
After the Cold War, the conventional wisdom held that a global economic convergence was inevitable—that countries would only grow more economically interdependent. In hindsight, it is clear this was not the case. Yet few would have predicted even a few years ago that three of globalization’s leading beneficiaries would turn to variations of autarky—or that a global trend toward self-sufficiency would come to dominate geopolitics.
China, India, and the United States are now the world’s three most populous countries and their largest economies. Together, they account for about 60 percent of the global economy, a far greater share than they did during the Cold War era. Yet the United States under President Donald Trump embraced “economic nationalism,”while China under President Xi Jinping and India under Prime Minister Narendra Modi opted for “self-sufficiency”: zili gengsheng in Mandarin and atmanirbhar in Hindi. Unlike most major economies, all three countries have increased their GDP per capita over the past decade while reducing their trade exposure, as measured by their trade-to-GDP ratio. This pattern of differential globalization points to the rise of a new autarky that could prevail among these major economies for the next decade or more.
AN AUTARK TRADITION?Although they embraced globalization in the 1990s and the first decade of the new millennium, all three would-be autarks have long-standing traditions of relative isolation from world markets. The United States has always been an importer of capital and labor and an exporter of commodities, but its main source of growth has been its domestic market. In the 1960s, trade accounted for just ten percent of U.S. GDP, not far off from the rigidly autarkic communist societies of the Soviet Union (four percent) and China (five percent). The United States was unique among its rich peers in this respect. Other wealthy countries with smaller domestic markets had much higher trade-to-GDP ratios in the 1960s—25 percent in France, for instance, and 41 percent in the United Kingdom. The United States grew steadily more globalized until 2011, when its trade-to-GDP ratio peaked at nearly 31 percent. It has since declined to 27 percent, and President Joe Biden’s policies seem destined to continue this downward trajectory.
Self-sufficiency has long been a goal in China as well, albeit an often elusive one. From the late seventeenth century to the mid-nineteenth century, imperial China cultivated the productivity of its domestic market, as well as a controlled but lucrative export sector. But its internal march of progress ended abruptly with the beginning of the Opium War in 1839, when China entered a “century of humiliation”at the hands of foreign powers. This century ended in 1949 with the Chinese Communist Party’s victory over its nationalist rivals and their foreign supporters, notably the United States. But as early as 1945, communist leader Mao Zedong stressed the nationalist and sovereign aspect of self-reliance: “On what basis should our policy rest? It should rest on our own strength, and that means ‘regeneration through one’s own efforts’ (zili gengsheng).” President Xi Jinping revived this idea in 2018, claiming that “unilateralism and trade protectionism have risen, forcing us to travel the road of self-reliance.”
In this spirit, Xi has championed the development of a high-technology military-industrial base that will prevent a second humiliation of China, this time by the power of U.S. technical innovation.
Like the United States and China, India has nurtured a vision of itself as a nation that can prosper on the strength of its large domestic market, with a judicious measure of exports. India produced almost a quarter of global GDP around 1700, according to historians, but then endured two centuries of humiliation during which the United Kingdom steadily degraded its industrial base in order to extract raw materials and create a market for British manufactures. After independence in 1947, India developed a government-led semi-autarky under the guise of “nonalignment,” which began as a political and military policy but grew into a development model that embraced the then fashionable ideas of infant-industry protection and import substitution.
India began to open its economy in the early 1990s, but through a managed process that became increasingly Hindu nationalist after Modi’s election as prime minister in 2014. Home to almost 18 percent of the world’s population, India remained committed to nonalignment through the era of globalization, making use of both Chinese and U.S. technology and investment to develop its own alternatives. The goal of Modi’s atmanirbhar is to achieve something like China’s level of indigenous innovation and self-sufficiency, creating a secure home base from which Indian companies can pursue foreign business, much as their Chinese (and, more distantly, U.S.) predecessors have done.
COMPETITIVE SELF-SUFFICIENCYChina, India, and the United States all have traditions of self-sufficiency that set the stage for the recent turn toward autarky—but more proximately, all three nations are responding to new security concerns that have emerged as competition among major powers intensifies. China’s core narrative since the 1980s has been security based, focusing on a return to great-power status after its subjugation at the hands of Western powers and then Japan. In 2015, Beijing announced a policy of “civil-military fusion,” which explicitly framed national-industrial development as part of China’s plan to free itself from dependence on outside powers and secure a future of technological self-sufficiency.
Confronted with China’s military modernization and the extraordinary success of its technology sector, the United States began to find the presence of Chinese technology in U.S. defense supply chains alarming and became increasingly suspicious of China’s role in constructing Internet infrastructure around the world. The prospect of large swaths of the digital world map falling under Chinese influence pushed the United States to take a much more security-driven approach to China’s economic rise. Soon, both nations began to exert more government control over even the most dynamic and globalized parts of their economies. China brought its tech giants to heel through a campaign of “rectification,” while the United States engaged in a bipartisan “techlash” against the power of Silicon Valley.
Security concerns are increasingly driving India’s tech policies as well, as Modi’s government pursues what might be characterized as “digital nonalignment.” Over the last 20 years, Chinese tech companies and venture capitalists, and to a lesser extent their Western counterparts, built much of India’s tech sector and infrastructure. Now that Indian tech companies are able to compete, however, Modi’s government has begun to manage the foreign presence—in the Chinese case, even expel it—with the goal of fostering India’s technological self-reliance and safeguarding Indian security.
THE AUTARK DIFFERENCEAll three of these countries have found autarky a viable response to increasing security concerns in part because of the size of their economies. They have large enough domestic markets to sustain broad diversification across industries without sacrificing the benefits of specialization—in other words, to be relatively self-sufficient. But size alone does not explain how these countries have managed to become less dependent on trade while most other large economies have become more dependent on it.
In India and China, culture, industrial policy, and other structural factors have further facilitated an autarkic turn. Both countries have very large labor markets with high levels of mobility, low levels of worker organization, strong top-down policies that disperse industry geographically, and cultures that value skill and entrepreneurship. They also have at least two generations of businesspeople who believe that their prosperity depends on participating in global value chains, acquiring intellectual property, and selling products into the domestic market. These qualities are not unique to India and China, but India and China are the only countries that combine them with large domestic markets and active government support for local companies.
The governments in both countries not only protect domestic firms from foreign competitors but also work to prevent companies from monopolizing particular sectors at home. In this way, they preserve at least some of the benefits of domestic competition.
Nonetheless, China and India depend on aspects of the networked, globalized economy. They are both deeply enmeshed in the disaggregated global supply chains that made their growth possible. Their engines of prosperity were not the huge state-industrial projects that powered the rise of Japan and South Korea in an earlier era of globalization but rather the networked, mix-and-match world of replaceable vendors competing across borders for each and every link in the global supply chain. Yet as Xi said in a July 2020 speech to entrepreneurs in Beijing, what differentiates China from other countries is its “domestic super-large market,” which he intends to boost “through the prosperity of the domestic economy and unblocking the domestic cycle . . . [to] drive the recovery of the world economy.” Self-sufficiency, in this sense, is an objective of Chinese foreign policy. Among other things, Xi intends to harness domestic demand for final and intermediate goods to make his country a sustainable, protected, and controllable market that can engage internationally at its discretion. His aim is not globalization, in other words, but a globalized, networked mercantilism, which is also the goal of Modi’s atmanirbhar.
The picture is somewhat different in the United States, where the slide into economic nationalism has stemmed less from cultural or structural factors than from rising popular dissatisfaction with neoliberalism, which in turn helped build political support for new industrial policies. Trump’s “economic nationalism” mostly manifested itself in the form of detrimental tariffs and trade wars (his campaign promises of major infrastructure spending never materialized). But these policies broke the spell of globalization—and at a seemingly low price. U.S. consumer confidence hit a historic high prior to the COVID-19 pandemic, while unemployment hit a low of 3.5 percent. Average worker pay grew by three percent annually in the first three years of Trump’s presidency. Job gains went disproportionately to Black and Hispanic Americans, particularly women, bringing excluded groups further into the economy. Middle-class incomes grew, and GDP growth outpaced that of peer economies.
Trump’s apparent economic success helped legitimize the idea of government intervention in the economy. In 2020, Jake Sullivan, a veteran of the Obama administration who would soon be Biden’s national security adviser, cowrote an article in Foreign Policy observing that “advocating industrial policy (broadly speaking, government actions aimed at reshaping the economy) was once considered embarrassing—now it should be considered something close to obvious.” On the campaign trail, Biden promised to spend $400 billion on procurement in a “Buy American” policy and $300 billion on state-directed research and development aimed at increasing technological self-reliance and securing the defense-industrial base. Now that Biden is in office, his administration has advocated enormous investments in increasing domestic capacity, particularly in infrastructure. “Not a contract will go out,” Biden said as he unveiled his $2 trillion infrastructure proposal, “that will not go to a company that is an American company with American products, all the way down the line, and American workers.”
THE INNOVATION CHALLENGEHow long this new era of autarky will last depends in part on the length and intensity of major-power competition. The “Big Three” governments will likely continue to push for self-sufficiency for as long as there is heightened security competition—which in the case of the United States and China, and of India and China, could be a very long time.
But while political forces seem likely to reinforce the trend toward economic nationalism, market forces could work in the opposite direction. Autarky stifles innovation and, by extension, long-term growth. India’s hopes for sustained growth hinge on the continued good fortunes of its information technology sector and its capacity to innovate. The U.S.-Chinese rivalry is itself propelled by the imperative to innovate, in the sense that each country fears the other will outdo it technologically and thereby militarily. But innovation often requires heavy private investment—especially in India, which lacks the government and academic research and development infrastructure of China and the United States—and private investment requires markets. The logic applies to China’s Huawei, which built itself in foreign markets, as much as to the United States’ Qualcomm, which gets two-thirds of its revenue from China.
U.S. tech giants earn roughly half of their revenues in foreign markets. Without such revenues, large tech companies struggle to finance their own R & D while also maintaining their competitive edge. And of the top ten large U.S. companies with China exposure, only one—Wynn Resorts—is not a highly innovative tech company. The technologies that these U.S. companies produce, and which China consumes, have military as well as commercial applications, and China’s dependency on them is a source of American leverage. Beijing seeks to undermine that leverage by becoming more technologically self-sufficient. As those efforts progress, U.S. companies on which the U.S. military and the U.S. economy rely will themselves lose revenue. American innovation will suffer unless companies can find alternative markets to replace China.
The result will be stiffer competition between U.S. and Chinese tech companies outside of their domestic markets and heightened efforts by the governments of both countries to exert some level of control over technology in order to mitigate security concerns. The United States will focus on richer, allied nations in North America, Europe, and Asia. China and India will focus on the poorer parts of Asia, the Middle East, Africa, and perhaps Latin America. If Western and East Asian companies neglect those regions, then Chinese, Indian, and other non-Western tech companies will increasingly shape globalization in the age of autarky. This new globalization will not be like the old globalization. It will be based as much on self-sufficiency as on openness, and it will replace internationalism with nationalism, mercantilism, and something approaching imperialism.
NOT YOUR PARENTS’ GLOBALIZATIONSuch a world would not necessarily be more dangerous. Major-power autarky is, after all, chiefly defensive and could lead to military conservatism and industrial competition that would benefit everyone. The greater danger is that major powers might attempt to block their competitors’ access to resources, as China has repeatedly threatened to do with the rare-earth metals necessary for many high-tech products. More subtly, major powers might try to hoard intellectual property or prevent technological diffusion by continuously widening the definition of “strategic resources” to include, for example, anything having to do with artificial intelligence chip design. The United States did something like this to the Soviet Union during the Cold War, prompting both a decline in the Soviet economy and large-scale Soviet industrial espionage.
It is hard to see that drama recurring in quite the same way. There are too many important players outside the Big Three who would much prefer technological nonalignment and can generate innovations of their own. Moreover, the autarks’ companies need foreign revenues for their own defense-industrial bases. As paradoxical as it sounds, in that sense, the autark that globalizes best will be the autark that thrives.
“Economic self-sufficiency,” the American historian George Louis Beer wrote in 1917, “contemplates a state of war.” The world was then halfway through the worst war in history, a war driven in part by the efforts of major powers to avoid dependence on one another. A little more than a century later, the diffusion and fragmentation of production across borders has made a repeat of this tragedy much less likely. Yet major powers longing for autonomy should be careful what they wish for, as self-reliance can be a source of weakness as well as strength.
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