In 1982, the Soviets had an empire stretching from Havana to Hanoi, but their hard currency revenue totaled only about $32 billion a year—roughly one-third the annual revenue of General Motors at the time. They were spending about $16 billion more annually than they were making, with the funding gap—the USSR’s life support—being financed by Western governments and banks.

President Reagan had long believed that the Soviet Union was economically vulnerable, because he knew it lacked the entrepreneurship, technological dynamism, and freedoms that are the prerequisites of a strong modern economy. And when he learned that we in the West were financing its brutal regime, he committed to slowing, and ultimately terminating, that flow of discretionary cash. Our European allies had a completely different approach. Their belief in Ostpolitik, as the Germans called it, presupposed that commercial bridge-building would lead to geopolitical cooperation.

The story with China today has certain similarities, but with one big difference: the U.S. has been playing the role of the naïve Europeans.

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