The Open Door: Bogus Imperial Economics
The Birth of Historical Myth
The Open Door policy of the U.S. government, which was enunciated by Secretary of State John Hay in 1899-1900, was ostensibly designed to prevent the monopolization of Chinese markets by other foreign powers. This is the “official” version of the U.S. Office of the Historian. It all sounds so innocuous and innocent. Who could argue with all nations having equal trading rights within China.
This myth hardened over the decades and has become almost religious dogma among the Republican and Democratic branches of the universal imperial party. It is the bedrock of U.S. policy to promote “free trade” and minimal trade barriers. The idea is that this benefits everyone, not just the U.S., and is therefore a moral policy to pursue. Too bad it is mostly bunk.
The Chink in the Ideological Armor
The first real challenge to this ideological orthodoxy came in 1959 with the publishing of The Tragedy of American Diplomacy by William Appleman Williams. The “Tragedy” Williams refers to isn’t a lack of success, but rather the unintended consequences of America’s worldview. He centers his analysis on the Open Door Policy, originally formulated by Secretary of State John Hay in 1899.
Williams argues that American leaders believed the domestic economy would collapse into depression or revolution without constant access to foreign markets.
Americans convinced themselves that “opening doors” for trade was also “spreading democracy.” This created a moral justification for economic expansion.
However, By insisting that every nation keep its markets open to American goods and influence, the U.S. effectively denied other nations the right to develop their own closed or revolutionary systems.
For Williams, the tragedy is three-fold:
In the name of promoting freedom, the U.S. often supported undemocratic regimes as long as they kept their markets open. This represents a deep betrayal of stated American values.
By demanding a world where every door was open to American interests, the U.S. made conflict with any competing power (like the USSR) inevitable.
American leaders genuinely believed they were acting altruistically, which made them unable to recognize how their actions looked like imperialism to the rest of the world. Thus U.S. leaders dangerously deluded themselves and the U.S. public.
It’s Even Worse Than That
William Appleman Williams was one of the first of the so-called “revisionist” school of history in what became known as the “new left”. This led to much rewriting of U.S. history in the 1960s and 1970s. There was much to commend this approach, if only for challenging stale assumptions about U.S. foreign conduct. They exposed much of the contradictions and self-delusions of policymakers as well as the betrayal of American values. This is all to be applauded.
My problem with many of these historians is that they understand too little of economics to offer a more complete understanding of the history. Williams himself fails to challenge the underlying economic assumptions of U.S. policymakers regarding their economic rationale for the Open Door. He just assumes that there was a level of “surplus production” that needed to be foisted on foreign markets. As I will outline, this is not the case. Much the same can be said for the rest of William’s economic assumptions.
From the perspective of the sound economics of economics (think Mises, Rothbard, and Hayek), the “Open Door” policy of the late 19th and early 20th centuries is viewed less as a triumph of “free trade” and more as a classic example of state-driven mercantilism and economic interventionism.
While the name suggests an opening of markets, Many would argue, and I agree, that it was a calculated move to use state power to secure advantages for specific domestic interests.
Free Trade vs. Managed Trade
To an economist, true free trade requires nothing more than the absence of government barriers (tariffs, quotas, or subsidies). It is a bottom-up process driven by individual consumers and entrepreneurs.
The Open Door Policy, initiated by Secretary of State John Hay in 1899, was a top-down diplomatic maneuver. Instead of allowing American businesses to compete on their own merits, the U.S. government intervened to dictate the terms of trade in China. This isn’t “free trade”; it’s managed trade, where the state acts as the marketing agent for politically connected corporations.
A driving force behind the Open Door policy was the belief that American industry was producing “too much” (overproduction) and needed foreign vents to prevent a domestic collapse.
Sound economics rejects the “under-consumption” myth. According to Say’s Law, production creates its own demand. If goods aren’t selling, it is a signal that prices are too high or that resources are misallocated due to previous state interventions (like the subsidized expansion of railroads or the protective tariffs of the era).
By forcing open foreign markets to absorb “surplus,” the government helped sustain inefficient domestic industries that should have otherwise adjusted to real consumer demand.
Socializing the Costs of Empire
One of the most stinging economic critiques involves the externalization of costs. This is an area that the New Left historians only dimly understood. For a private company to trade in a far-off, unstable region, it should logically bear the costs of insurance, security, and risk assessment.
The Open Door Policy used the U.S. Navy and diplomatic corps to protect private commercial interests in China. The profits remained private (with the exporters), while the costs and risks, military expenditures, the Boxer Rebellion involvement, and geopolitical friction, were socialized (paid by the American taxpayer).
Distortion of the Price System
Economics emphasizes that the price system is a communication tool. When the government intervenes to “ensure” a market exists for domestic goods abroad, it mutes the signals that would tell an entrepreneur to pivot. The policy created an artificial incentive to look toward China rather than focusing on domestic efficiency or more natural trading partners. This led to a misallocation of capital that would not have occurred in a truly unhampered market.
Geopolitical Consequences (The “Road to War”)
Economic, and political thinkers like Murray Rothbard often pointed out that “economic nationalism” and state-led trade expansion lead to conflict. By asserting an “Open Door” in a region where other empires (Russia, Japan, Britain) had established spheres of influence, the U.S. government invited friction.
From this perspective, the Open Door Policy set the stage for decades of tension in the Pacific, eventually contributing to the breakdown of relations with Japan and the path toward World War II.
This Policy is Still Here
From an economic lens, the Open Door Policy and modern “Trade Wars” of today are two sides of the same interventionist coin. While the Open Door Policy was a form of aggressive export mercantilism and modern trade wars are a form of defensive import protectionism, both represent the state overriding the “spontaneous order” of the market to achieve political ends.
The Open Door Policy used the state to force other nations to lower their barriers, effectively acting as a “sales agent” for politically connected American exporters.
In modern trade wars the elites use the state to raise barriers (tariffs) to protect domestic producers from foreign competition.
In both cases, the government is picking winners and losers. Whether the state is forcing a door open or slamming one shut, it is distorting the price signals that would otherwise guide entrepreneurs toward the most efficient use of resources.
We should all be highly skeptical of the phrase “national interest.” The “nation” doesn’t trade; only individuals do. Just as the Open Door Policy benefited a few major industrialists while taxpayers funded the naval presence to enforce it, modern tariffs benefit specific industries (like steel or manufacturing) while forcing all American consumers to pay higher prices. This is achieved by what is known as “concentrated benefits, dispersed costs”, a concept of the “Public Choice School of economics
Modern protectionism is a classic example of what Frédéric Bastiat called “that which is seen and that which is not seen.” We see the “saved” jobs in a protected factory, but we do not see the jobs lost in other sectors because consumers now have less disposable income due to higher prices.
Protectionism as “Open Door” in Reverse
Interestingly, many economists view modern tariffs as a logical, albeit destructive, reaction to the same “surplus” myths that drove the Open Door Policy.
The Open Door era feared we produced too much; modern trade wars fear we import too much. Both fear a “trade deficit.”
A trade deficit is merely a bookkeeping entry. If Americans buy more from China than they sell, it means they value the goods more than the money. The “deficit” returns to the U.S. as capital investment. By fighting “trade wars” to fix a deficit, the government disrupts the natural flow of global capital.
The Dire Consequences of Managed Trade
F.A. Hayek and Ludwig von Mises warned that when economic life is politicized, international friction is inevitable.
The Open Door: Led to friction with Japan and Russia, contributing to the geopolitical tensions of the early 20th century.
Current trade wars: Lead to “beggar-thy-neighbor” policies. From an economic perspective, trade wars are often the precursor to “shooting wars.” When goods cannot cross borders, armies eventually will.”, as Bastiat put it.
If the tailor goes to war against the baker, he must henceforth bake his own bread.
— Ludwig von Mises, illustrating the absurdity of trade restrictions.
A Better Path
The real solution to both the “problem” of closed foreign markets (Open Door) and the “threat” of foreign competition (Trade Wars) is unilateral free trade. This means removing all domestic tariffs and subsidies regardless of what other nations do. This allows the domestic price system to reflect reality, ensuring that capital is never wasted on politically motivated projects.
This is both beneficial economically, as well as politically. It also would put the U.S. on the moral high ground. This could start a virtuous cycle that could see increased economic productivity and other nations following suit into free trade. This is not a guarantee of peace. There are many reasons why nations go to war, even though the economic consequences are always quite damaging. The benefits of truly free trade are that by making everyone wealthier and more productive, and interdependent you vastly increase the costs of going to war, thus reducing its potential occurrence.
All this jibes with what God would have us do. The blessings of peace and wealth accrue to those who cooperate and find themselves dependent upon one another. This is called community. Community is global when we raise it to the level of free trade.
So, we should not fall for the trap of believing an historical myth that from the beginning served as a crude justification for the economic, and ultimately political subjugation of other nations. God’s people should be made of sterner stuff than to fall for rank propaganda. If we know more, we can choose better.
Praise Be to God
