The Melting Point of American Empire | What future has in store for the United States

The Melting Point of American Empire

The ‘clash of empires’ between the US and Soviet Union, which characterized the post-war era and that culminated in more bitter conflicts and a race for control over Asia, ended in more of a whimper than a full-fledged armed conflict. The Soviet empire collapsed with the surge of a reinvigorated Anglo-Saxon belief in its moral and economic principles and with the failure of the socialist economic system. An impetus was added to this collapse by the Afghanistan war that had been rattling Soviet economic prowess. Meanwhile, China, once an ally of the Soviet Union, was brought from the edge of chaos to a market–based economy by Deng Xiaoping. The Cold War had produced an unquestionable winner: the USA, which had become the world’s only ‘superpower’, though in reality it returned to the position of global supremacy that it enjoyed as early as 1918.

The terrorist attack on the World Trade Centre in 2001 and the sharp divisions created by President Bush’s decision to invade Afghanistan and Iraq obscured the fact that since 1990, the world has largely moved toward a collective responsibility system envisioned by President Roosevelt. The United States and other emerging powers (Europe, China, India and Russia) all have Muslim populations. Although only some misguided, crooked individuals are defaming Islam and the Muslims, given the combined economic and military strength of these powers, the threats of terrorist groups like Al-Qaeda and ISIS present only a minor disturbance to the world order as compared to those of the post-war threat of the Marxist-Leninist states. More importantly, all of the world’s major power blocs share a vested interest in containing the threat of terrorism.

For the long run, it is perhaps more important to observe that China, Russia, India and Europe all supported the UN resolutions aimed at limiting Iraq’s access to WMDs. These powers appear united also in their wish to deny both Iran and North Korea any access to nuclear capability.

With economic growth within the structure of an increasingly global free market, for the time being at least, the issues that unite the world’s most powerful nations are far greater than those which divide them. It’s a trend towards ideological convergence that was identified by Francis Fukuyama in his seminal book, “The End of History”.

It is interesting to note that today the defining issues that divide nations revolve around climate change, carbon emissions, agricultural subsidies, competition for already-scarce resources and trade liberalization. The ideological divisions of the Cold War have all but disappeared; even in Europe the semi-autarkic, Colbertist economic system championed by France in the post-war period, now seems largely discredited. With the end of the era of post-war political leaders such as François Mitterrand, Jacques Chirac and Helmut Kohl, the rise of President Sarkozy in France and Chancellor Merkel in Germany heralded a generational change toward a less parochial and more pro-American stance. The election of the liberal and highly articulate Barack Obama as president of the USA seemed an encouragement to this trend. As Martin Walker recalled almost regretfully in The New Yorker:

“Now the age of geopolitics has given way to the age of what might be called geo-economics. The new virility symbols are exports and productivity and growth rates and the great international encounters are the trade pacts of the economic superpowers.”

By defeating the Soviet Union, the United States also set off for the dissolution of its own Asian empire.

The real strength of the American empire was its economic and financial structure including aid, which President Truman and his successors established in the post-war period under Bretton Woods. The World Bank and the IMF were the arms of this empire. However, the move by the Asian countries towards model of liberal democracy — now largely complete — was mainly autonomous. The combination of the retreat of the Marxism-Leninism to areas like North Korea, Myanmar and Nepal, along with the rapid economic rise of the Asian nations, has loosened the bonds that once tied Asia to the US.

This was almost immediately apparent in Japan after 1991, where a United Nations voting record, which had almost always been with the US, veered to an independent track. The change in mood was anticipated in an essay ‘The Japan That Can Say No’ written by Akio Morita (founder of Sony) and Shintaro Ishihara (former governor of Tokyo). They asserted that Japan should provide for its own defence and follow its own strategic interests. It was a view to which all Asian nations, because of their rising wealth, could increasingly subscribe.

America’s ‘sub-prime’ credit crisis of 2007-09 indicates that the postwar growth of US consumption and Asian imports as well as the financing by dollar debt have reached their limits; this has, in fact, been the mechanism — formed at Bretton Woods — by which commercial and political hegemony of United States over Asia had sustained. The seemingly unshakeable dollar which has formed the economic backbone of US domination of Asia, may never regain its former role. A noted economic strategist Christopher Wood predicted from the outset that the American credit crisis could mark ‘the final death throes of the US dollar paper standard.’ Also, George Soros, a renowned financial and economic commentator, has cogently argued that the 60-year super-boom in credit will end America’s global economic and political power which will, in turn, shift to the creditor nations of Asia. It is nevertheless worth pointing out that one of the perverse effects of the global credit crisis, in the short term at least, was to precipitate a flight to the US dollar even though American institutions were the cause of the financial panic.

The use of the US dollar as the world’s reserve currency may take some time to die. While it was clear to a UN commission comprising Joseph Stiglitz, former chief economist at the World Bank, that the Bretton Woods system, which created a global reserve currency based on the US dollar and enabled Americans to finance consumption from the savings of those countries which sell goods to America, is not a sustainable model, there remains limited appetite for change. This ‘vendor’ finance system, which has built vast pools of dollar savings outside of America, means that the US Federal Reserve never had full control over its monetary system. Meanwhile, global savers are financing the US deficit at minimal interest. The size of the capital and trade imbalances between the United States and Asia were certainly contributory factors in the unusually deep global recession which started in 2008.

In spite of the scale of the crisis, the Chinese proposal for the creation of a new world reserve currency was strongly rejected by Tim Geithner, President Obama’s treasury secretary. However, Russia, China, India, Brazil and the Middle Eastern petro-states have started a bandwagon of support for looking at ways to reduce the omniscience of the US dollar. Even former IMF Chairman Dominique Strauss-Kahn has indicated that such discussions are ‘legitimate’. A long-term move away from the use of the US dollar as the world’s dominant reserve currency now seems certain.

With every passing year, America’s weight of economic power relative to Asia is diminishing. After the war, America’s GDP represented over half of global GDP; by contrast, as measured on a purchasing power parity basis in 2004, the combined GDP of Asia’s ten largest economies was US$ 19.6 trillion versus US$ 12.37 trillion for the US and US$ 12.18 trillion for the European Union. Asia will soon exceed the combined GDP of the US and Europe. With China, India and most Asian countries currently achieving annual GDP growth some two to three times greater than the US, it is clear that the economic gap between Asia and the US will widen.

Given that the population of Asia’s ten largest economies is approximately 3.22 billion compared with just 295 million in the US and 456 million in Europe, it is not difficult to ascertain — as long as these Asian countries continue to pursue a free market model — that the region will soon dominate global economic activity. As Samuel P. Huntington noted in the ‘Clash of Civilizations’, “Power is shifting from the long

predominant West to non-Western civilizations.” Although this shift in economic power has not been sudden and in real GDP terms has been in process since the 1950s, it is only now that the geopolitical impact is being recognized.

At current growth rates, Chinese aggregate GDP (on a purchasing power parity basis) will exceed that of the US within 20 years, while aggregate Indian GDP can be expected to overtake America’s within 50 years. Far from being part of American hegemony, Japan, China, India and the smaller ‘tiger’ economies have already become fierce competitors to America; in particular, as Chinese commercial power expands, its regional influence, particularly in the Asian countries with a large Chinese diaspora, is increasingly posing a challenge to the US.

The 2007-09 American credit crisis should not lead observers to dismiss America’s future influence in Asia entirely; the US economy had been written off before and it would be a mistake to underestimate America’s power of recovery. Unlike

Europe, Americans and their leaders have an unflagging belief in capitalist endeavour. Both Republicans and Democrats are largely resistant to the moral arguments offered for high taxation. Also, with regard to global influence, America remains the only country in the world able to project its military power on a global scale.

Nevertheless, the financial crisis in the US, with the humiliating semi-nationalization of some of its financial institutions and auto-manufacturers, has almost certainly speeded up the diminution of American hegemony in Asia. With the seemingly unstoppable relative decline of the US economy, it could also be argued that the world is moving toward the five power blocs (America, Russia, China, Europe and India) envisioned by Henry Kissinger in Diplomacy. What is evident from the current economic trends is that America, often described as the world’s only superpower, will, most likely over the next 50 years, become only a great power among many. The age of America’s global dominance, which, in reality, spanned almost the entire twentieth century, will begin to diminish in the twenty-first century.

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