The End of Empire
Deep-running tides of history have been steadily undermining America's economic hegemony for decades. In the years after World War II, as Japan, Germany and many other shattered nations recovered prosperity and acquired world-class production, the US economic position naturally became relatively smaller and less dominant. This shift was achieved in part by America's own self-interested stewardship, leading the non-Communist world and reviving global trade, spreading investment capital and technology through US multinationals and injecting economic demand in overseas markets with cold war military spending. The postwar economic order succeeded brilliantly, on the whole, dispersing economic power more broadly among the leading industrial nations and causing those nations' economies to be more intertwined through globalizing finance and production. Interdependence is not the problem, since it would provide a healthy foundation for maintaining a peaceable planet. The problem is that US leadership acts as though the changes never happened.
Instead of reformulating global governance to share power and burdens more broadly, a multipolar system that matches the economic reality, America still acts as if it runs things--alone. And America pays dearly for the privilege, both through its bloated military spending and by accepting the lopsided trade deficits. Both are implicitly regarded in Washington as the burdens of leadership--defending the world against terrorism on any frontier, upholding the global trading system by serving as "buyer of last resort" for other nations' exports.
Our sinking condition as a debtor nation was not inevitable, in other words, but a function of hubris--the reluctance among US governing elites to give up on the past glory and adjust to the new realities. Dependency might have been averted years ago if US leadership had awakened fully to the financial implications and compelled major trading partners to do the same--that is, to join in adjusting the global trading system so the United States would no longer carry alone such burgeoning trade deficits. Under the original terms of the General Agreement on Tariffs and Trade, for instance, it is legal for a nation to impose emergency general tariffs to correct a dangerous financial imbalance flowing from trade.
If the United States took such a provocative step, however, it would ignite fierce global opposition and also expose decades of triumphant propaganda. Washington would have to confess to voters that globalization had become a negative proposition for the national balance sheet. Above all, facing reality would require US elites to resign their inherited role as the singular superpower that runs things--and begin sharing that power with other nations. Neither political party wants to face such a painful retreat on its watch. Besides, for politicians and policy-makers, it feels good to run the world.
In theory, this problem might still be corrected, but only in theory, because it is impossible to imagine such a dramatic policy reversal from Washington without some great crisis to provoke it. American leadership has instead become increasingly delusional--I mean that literally--and blind to the adverse balance of power accumulating against it. Presidents from both parties (Clinton no less than Bush) have embraced the notion that additional trade agreements will eventually solve the US problem by eliminating tariffs and other trade barriers. We have thirty years of evidence to prove the contrary. The gap between imports and exports keeps growing larger right along with each new agreement.
Elite opinion, after years of offering various faulty explanations for the persistent trade deficits, has now decided they do not matter. The new conventional wisdom describes the national economy's indebtedness as unimportant bookkeeping because the exchange actually benefits all--foreign capital invests more in the United States, and we return the favor by buying more of their stuff (and they lend us the money to do so). In fact, the long-running "trade wars," in which Washington demanded that Japan, Korea and others open their markets to American goods, are over--principally because major US multinationals are no longer interested in pursuing them. In every sector (save steel and textiles), the American companies have made peace with their foreign rivals, joining them through mergers and alliances or moving production into the foreign markets and withdrawing from competition. If you are an American multinational with feet planted in many countries, it may be true that US indebtedness will have no consequences. But for homebound citizens, whose fate depends solely on America's balance sheet, the debt obligations are real.