Back in 1985, the USA was grappling with a heavy trade deficit with Japan and was planning to introduce tariffs to balance the situation. The introduction of tariffs was likely to adversely affect trade with other Asian economies. Lee Kuan Yew, the founding father of Singapore and Prime Minister at the time, took it upon himself to deliver a speech to a US Joint Session of Congress in October 1985 that will certainly going down as one the greatest speeches by any global statesman.
Mirroring very much what is happening now with America’s trade imbalance with China and President Trump’s aggressive stance on tariffs and his targeting of Chinese companies, it is worth taking a look at what Lee Kuan Yew had to say. I have taken the liberty of selecting extracts from the speech that is available online from the National Archives of Singapore and embedding the video from the day.
My own takeaway at the time, that resonates even more clearly now after reading it again, is that the USA managed to convince developing countries after World War 2 that capitalism and free trade were that basis for achieving growth and improving the lives of citizens. It fought communist beliefs on many fronts and even succeeded, in the long term, to bring China into the world market where it has since flourished.
However, as Mr Yew pointed out, if the bastion of capitalism and free trade turns its back on the very principles it has preached for decades then the repercussions could be catastrophic for those very countries that followed its example. It’s such a shame he is not here today to present this very same speech from 1985!
“Putting up barriers to America’s markets would halt the economic advancement of the free market-oriented developing countries. It would send a signal that the model provided by the countries of East and Southeast Asia is no longer an available option. It could set off a chain reaction which would result in a downward spiral of the world economy.
“China was a founder member of GATT. The present government of the PRC abandoned its membership in 1950. Recently, it has sent out feelers for re- admission as a developing country member of GATT. If the US cuts down China’s growing trade with her, then China has to rethink her economic strategy. Shutting out China’s products, especially textiles, from America’s markets, will have far-reaching implications. China must then look for other ways of getting foreign exchange to pay for modernisation. If, as is likely, she cannot get enough alternative markets to make up for the loss of America, her modernisation will slow down. She will become restive.
“There are two scenarios for the 21st century. The first is bleak: if, because of domestic problems, the US loses the will to maintain free trade. There are over 300 bills in Congress dedicated to the protection of the US market. Protectionism and retaliation will shrink trade and so reduce jobs. Is America willing to write off the peaceful and constructive developments of the last 40 years that she had made possible? Does America wish to abandon the contest between democracy and the free market on the one hand versus Communism and the controlled economy on the other, when she has nearly won this contest for the hearts and minds of the Third World? Never in its history has the peoples of the world enjoyed such high standards of living. For 40 years the maintenance of political boundaries was made possible because thrusting, and usually aggressive, peoples have been able to fulfil their drive to better their lot through trade. If this method for adjustment and accommodation between societies moving at different speeds is no longer possible, then a return to the traditional ways of conquest or influence is likely.
“Therefore, America will find that the putting up of tariff barriers is not enough. She will have to go one step further: she will have to be the policeman, to enforce order over her sphere of influence, of the world outside the Soviet bloc.
“Let us not forget that protectionism and less trade mean less growth for the developing countries. This means debt burdens cannot be discharged. Defaults may be unavoidable, with incalculable consequences for the international banking system. Even if the banks survive the upheavals, these developing countries will have to abandon all thoughts of liberalisation towards plurality and more democratic freedoms. Severe or repressive government is the other side of austere or negative economic growth.
“America can upgrade her declining low value-added industries or they will continue to decline whether America goes protectionist or not, just as the ancient agricultural societies of pre-industrial China and Japan, with their self-sufficient, subsistence economies base on buffalo power and manpower, had to change with the advent of the industrial age. Rapid and profound change is the kind of world Americans have created by their inventiveness. American legislators have the awesome responsibility of deciding under what rules the peoples of so many different countries should undergo rapid changes in their ways of making a living, and yet avoid violent conflicts.
“It is inherent in America’s position as the pre-eminent economic, political and military power to have to settle and uphold the rules for orderly change and progress. Americans are leaders in a marathon for technological change and product innovation. American enterprise is blazing the trail into the microchip and computerised world of tomorrow. In the interests of peace and security America must uphold the rules of international conduct which rewards peaceful cooperative behaviour and punishes transgressions of the peace. A replay of the depression of the 1930s, which led to World War II, will be ruinous for all. All the major powers in the West share the responsibility of not repeating this mistake. But America’s is the primary responsibility, for she is the anchor economy of the free market economies of the world. In your hands therefore lies the future of the world.