Stop Saying Transactionalism Like It’s A Bad Thing!!!

I recently had the opportunity to appear on a Webinar hosted by the Foreign Policy Research Institute on transactionalism in foreign policy and the carrots and sticks the US might deploy.  The discussion followed a theme that I had raised  (with some annoyance) in response to a cover story I read in The Economist last spring. This story denounced “The Transactional 25” — a group of countries including India, Saudi Arabia, Brazil who were alleged to be seeking equidistance on one or both of the Russia/Ukraine war and US/China Rivalry. As an aside, I consider these two to be very different things, since one is a war, and the other a rivalry, a distinction worth making conceptually and (IMO) preserving in actuality.

I tried (and will try here) to make the case that for all the opprobrium associated with the word, transactionalism has a long history in international relations (perhaps even defining one of the primary activities of its practitioners). I also noted that the word is being deployed — at best disingenuously — as a term to suggest “something that they do, but we would never.” In this regard, one of my pet peeves (their name is legion) is the chorus of sanctimonious tut-tutting that ensues when some poor country, typically in Central America or the Pacific, switches its recognition from Taiwan to China, even as such commentary typically ignores that every member of the G7, NATO, the EU, and the Quad has done so decades ago.

Further, I believe transactionalism describes not just relationships between countries but also the interactions among factions within them. Since states are not just black boxes, a so-called “national interest” is in practice defined (and redefined) by a dance of domestic interest groups. Consequently, rather than interests being “permanent” as Lord Palmerston famously said, they can change according to the outcome of negotiations among different domestic factions. To make this last point more concrete, I would suggest looking at arguments over whether or not extensive tariffs are in the national interest of the US (or of the UK in the 1830s)—the answer will depend on whom you ask and if they are in power when you’re asking. My broader point has been and remains that the term transactionalism should be used as a neutral description of a routine activity, rather than as normative term with negative connotations applied to a presumptively exceptional activity. Yes, I am very aware this in itself a normative statement.

Anyway, according to piece in The Economist that set me off, a key facet of the transactionalism as described above is (to paraphrase), ruthless pragmatism in the realm of foreign policy as a tool for national development. I find it astonishing that someone would actually disapprove of such a course of action, and would submit that where true, this is actually a good thing. To “shake down” one or more potential alliance partners in the service of broad-based domestic economic growth is certainly an improvement over doing the same in the service of personalized kleptocracy and little else. Here are some examples just beginning with the letter M— Mobutu, Marcos, Mubarak.    

Further, a government —even an authoritarian one — engaging in promiscuous transactionalism to seek legitimation through development rather than uncompromising ideology alone is IMO making at least some contribution to broader human welfare.  Among the countries in the infamous Transactional 25, Vietnam would seem to be a particularly illustrious standout in this regard, and one I have whose foreign relations I have found fascinating for a while.  It has elevated its relationships with six countries to the status of “comprehensive strategic partnerships” (whatever that means); the six countries are the US, Japan, Russia, China, South Korea, and India. The country combines an ideological (Leninist Capitalism) and sociological (cheap labor) similarity with the China of around 20 years ago with a history of “frenmity” towards its giant northern neighbor. The two countries fought a brief war in 1977 (Vietnam won) but relations are now much more cordial—both Xi and Biden visited Vietnam last year.  Still, that combination has been enough to bring in not just lots of private US investment but also public support for the same, with the  Biden administration suggesting it is willing to extend Vietnam CHIPS act funding. A more trenchant point is that if someone outside the transactional 25 is routinely transacting with one or more of them, there are at probably least a transactional 26 (if not, as I tend to think, a transactional 200).

But beyond this, Vietnam also illustrates a distinct set of difficulties for US economic diplomacy that stem from the rise of the China and make the current environment very different from that of the Cold War.  Perhaps most important is that for virtually all emerging markets other than those that are current or aspiring members of the EU, China is an internationally visible economic success story in a way the USSR was not.  Take it from someone who grew up in 1970s India (where the USSR was constantly invoked when Indira Gandhi was in office) the country might have had impressive growth numbers, but it did not have the cachet of highly-visible broad-scale import penetration of manufactured goods nudging out local and international competitors around the globe. This might annoy countries, but also serves as a model for "what works.” And for all that the limits of that growth path might be becoming more evident in China, the issue is that no-one else has caught up that fast at scale.

Further, this sense of being a model applies largely to China’s economics. Countries don't necessarily want to replicate Chinese politics, only their pattern of economic growth and technological advance. But unlike the USSR, I also don’t believe China wants other countries to replicate its politics — and it might well assume they are incapable of it.  To be sure China helps authoritarian regimes and its existence and success may be used by such regimes to claim a vicarious ideological legitimation.  It also very likely prefers to deal with them, seeing them as both pliable and predictable in a way that democracies might not be. Then again, it is hard to argue the West has had different instincts in the Middle East, for example. But at the same time, China is distinct from the USSR in that its official ideology has largely shed the political eschatologies regarding regime-type embedded in classic Marxism-Leninism. Meanwhile, at least in public discourse (if not in terms of consistent diplomatic follow-through around the world), US diplomacy seems more driven by a Fukuyamist doctrine of democracy as the natural end-state of international and domestic political order. Conversely, China hews to a more traditionally Westphalian doctrine on such things, which in turn makes it a plausible partner for a broad range of countries engaging in the kind of diplomacy derided as transactional.

But China’s economic success means that it is more than just a model for what countries want to achieve. Its sheer size and the extent of its interconnections with the global economy (on a scale that vastly outstrips anything the USSR achieved) mean it has a whole array of economic tools and pressure points to influence both the public and private sectors outside the US. Conversely, the US’s own ability to deploy carrots and sticks is subject to the relative strengths of domestic factional interests, not just in toto but also at the critical fulcrums of US political power. I tried in a recent piece  to put forth a typology of US interests on the issue of trade, and I think it sufficiently useful to copy and paste in here.

The first group consists of Openers. This comprises sectors and corporations (and government departments ideologically closer to them) whose primary goal is to level the playing field between themselves and foreign competitors. They wish to expand the set of beneficial opportunities provided by globalization and typically care most about increasing access to markets, reducing tariff and non-tariff barriers overseas, and cracking down on intellectual property theft. 

The second group consists of Decouplers. This is primarily a public-sector constituency motivated by the implications for US national security of closer economic integration with China. They see this as having increased US supply-chain vulnerability and as having hastened the technological advances of a strategic rival. The decouplers care mostly about China and have no objection to (and even advocate for) deeper economic engagement with other countries such as Vietnam, Mexico, and India.

The third group consists of Repatriators. These are the intellectual heirs of Richard Gephardt and Ross Perot, for whom the problem is not so much China as just globalization in itself. It includes a relatively smaller set of companies, a larger set of organized labor institutions, and politicians (most prominently from the upper midwest) bent on reversing the trend of offshoring, or even of imports more broadly, and displays inclinations towards a more autarkic economic posture. 

The fourth group consists of Derailers. This group, located primarily in portions of the extended national security community in the executive and legislature, is not content with mere US decoupling from China, but wishes rather to significantly limit or even reverse that country’s technological advances. 

I think a classification such as the above is not exhaustive, and could also be extended to other countries/regions, with other potential nuances as well. It strikes that me that Climate Cooperators (or Collaborationists depending on your druthers) might be another faction. And in the case of the EU, one might wish to add the categories of Atlanticists, Balancers, and Autonomists, depending on how they see the EU’s place in the world both now and in the future. China obviously has its own factional interests, but given  the opacity of how and where these contestations play out, I will not even attempt such a description. But the broader point I am trying to make is that conceptions of interests are in themselves contested, negotiable, and fluid, in turn influencing modes of domestic and international transactionalism.

The delineation of interest groups also hints at some of the issues the US might have to confront in its own deployment of carrots. As noted above, one huge shift from Cold War is that the rise of China (and East Asia more broadly) serves as a reminder of what might be possible. Consequently, the economic carrots of the 1960s, focused on development assistance are unlikely to have as much impact as they once did. But it's not clear that domestic politics in the US will allow a replication of the labor-cost-arbitrage driven offshoring + technological catchup/sorpasso model that played a significant role in Chinese catchup.  I think one big issue in US economic diplomacy with respect to developing countries is going to be them saying “We don’t want to be like China politically. We don’t even think they necessarily want that. Hell, we’re not even sure we like them. But we want they have gotten in 30 years. We want to be the next China.” Against this is fairly strong current of bipartisan opinion in government at least (though perhaps not in corporate America) that thinks “Whew, this is close both domestically and internationally. It doesn’t matter who it is, there’s never going to be a next China.”

And even if the US were to overcome these internal divergences to provide more carrots, there are other issues at play. Although the US is clearly the by far the dominant power in global finance, giving it lots of sticks, it is also a relatively more closed economy than either the EU or China, when measured by trade as a percentage of GDP. It is also more resource sufficient both by itself, and especially when combined with Canada and Mexico. This resource sufficiency has obviously undergirded US strategic power for more than a century, but it also makes it less naturally complementary in economic terms to many countries than is China — the world’s biggest commodity importer, its biggest exporter of manufactures, and a remarkably efficient (at least from the point of view of purchasers) supplier and of capital goods for infrastructure, logistics and the energy transition. This gives China its own economic wherewithal to cultivate transactional relationships, potentially creating a balance of power in terms of transactionalism.

This raises a further question—is it a problem if many countries in the world act according to a logic of “ruthless pragmatism” in pursuit of economic development? It will come as no surprise to those who follow me on X, Bluesky, Substack  that I think ABSOLUTELY NOT. But beyond development itself, I think foreign policy transactionalism has several other things to recommend it, many of which stem from its ability to mutate vices into virtues. This is, of course, an offspring of theories of Doux Commerce that I laid out in greater detail here, where I insisted on the differences between neoliberalism and neoconservatism.

One such case of the transmutation of vice into virtue might be that polyamory in international economic relations regardless of ideology prevents a dangerous petrification of alliance patterns. In so doing, it might also force several useful habits. The first is compartmentalization, i.e., a recognition that the boilerplate phrase of foreign ministry officials everywhere “(in)consistent with our values and interests”  really means “values and/or interests,” raising the bar for enmity or worse to “sharing neither values nor interests.” The second is calibration, i.e., forcing a rank order of interests and their salience and recognizing that others have the same, creating bases for interactions, negotiations, and potentially agreements. A third is entanglement—a rich mesh of public and private connections within and especially across countries that keeps open channels of communication and makes available more interlocutors. The fourth is that entanglement by itself changes the cost and benefit calculations around different courses of action. One might object that such calculation in turn implies a particularly rigorous version of a certain type of rationality, but I would argue that being embedded in transactionalism may well inculcate and further precisely this form of rational thinking. Finally, while I am aware of a “market for lemons” problem (see here for a 19th century geopolitical instance), such thinking also implies that in many instances dealmaking is based on the assumption that non-zero-sum outcomes are possible at least for the primary participants. Meanwhile, the example above should also makes clear that I am aware why I needed to specify “primary participants.” But I also think that, despite being a lapsed aspiring social historian with little expertise in either diplomatic history or international relations, what I have described above is really the day job of people who have worked in foreign ministries around the world for a few 100 years.

So stop saying transactionalism like it’s a bad thing. This post has been brought to you by the one-man consulting firm of Cynical & Old.