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  1. The Weekend Essay
16 September 2023

The last days of Pax Americana

The Second Cold War is underway – can the US prevail?

By Michael Lind

Globalisation is over. In the aftermath of the Russian invasion of Ukraine, the US and its closest allies collaborated to sever economic ties with Russia. Meanwhile, Joe Biden’s administration has retained many of Donald Trump’s tariffs on China and presided over huge subsidies for American-made semiconductor chips and green-energy technologies. During the Covid pandemic, the US and other nations were shocked to discover the extent of their dependence on a few countries including China for essential drugs and medical supplies. And in every Western democracy, a popular backlash against mass immigration – another aspect of globalisation – is realigning electoral politics.

Only a decade or two ago, the reversal of globalisation was treated as unthinkable by elites on both sides of the Atlantic. In 2000, President Bill Clinton declared that “globalisation is not something we can hold off or turn off. It is the economic equivalent of a force of nature – like wind or water”. In 2019, the former British prime minister and willing helpmeet of American power, Tony Blair, agreed that “globalisation is a force of nature, not a policy: it is a fact”.

But globalisation has always been a policy, not a force of nature. While the movements of wind and water do not need to be authorised by law and diplomacy, liberalising international trade and investment and harmonising national regulations requires the ratification of treaties numbering hundreds or thousands of pages. Acknowledging that globalisation is artificial, some defenders of the crumbling post-Cold War order have defined it as “the rule-based international order”, which is dated to the attempt to transcend war and protectionism by the victors of the Second World War after 1945. But this, too, is mystification. In essence, the thwarted project of globalisation was an attempt to expand America’s bloc of first-world nations in the Cold War to incorporate the formerly communist second-world and the postcolonial third world.

The US labelled its alliance system between the 1940s and the 1980s “the Free World”, a misleading name, because most of its allies outside of western Europe in East Asia, Latin America and the Middle East were anti-communist authoritarian regimes. Pax Americana is a more neutral term that captures the quasi-imperial aspects of the system, which was looser than a traditional empire but much more integrated and managed than a simple alliance or free-trade area.

The Pax Americana during the Cold War was a hierarchy, whose members specialised in different functions. As the bloc’s hegemonic power, the US unilaterally provided military protection and economic services to its allies and client-states with little or no expectation of reciprocity on their part. Extended deterrence meant that the US would treat an attack on the territory of its protectorates as an attack on itself. At the same time, the US military would protect the interests of its allies in open sea lanes and access to resources – for example, Middle Eastern oil, most of which went to American allies in East Asia and Europe, not the American homeland.

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In the economic realm, the US provided its trading partners with the dollar as the global reserve currency. The dollar was initially linked to gold, but the dollar remained the de facto global currency even after President Richard Nixon ended the convertibility of dollars into gold in 1971. 

The US also provided unreciprocated access to its consumer market, the largest in the world. This was especially important for the second- and third-largest capitalist countries, Japan and the Federal Republic of Germany. Japan had lost the China market when Mao’s Soviet-backed communists took power in 1949, and the Iron Curtain similarly deprived West Germany of traditional German export markets. American producers complained about Japanese and German import competition, particularly after those countries had fully recovered by the 1970s and 1980s. But presidential administrations from Eisenhower onward sided with the defence department and the State Department in tolerating the blatant domestic protectionism and export-boosting mercantilism of Japan and the industrial policy of West Germany, in the interest of Cold War alliance unity. In doing so they sacrificed American industrial firms to gain or maintain foreign military bases and allied support for American foreign policy. In the postwar division of labour within the Pax Americana, the US made wars and Japan and Germany made cars.

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Before 1945, the US had been one of the most protectionist countries on Earth, following an import-substitution policy of inviting foreign capital investment but keeping out foreign products. American protectionism was first justified by the need to catch up with industrial Britain and later by the need to protect American workers from low-wage foreign competition. In the 1840s, Britain had abandoned its own successful import-substitution protectionism once its global lead in manufacturing had made access to foreign markets more important than protection of its domestic industries. In the 1940s, with the US temporarily dominant in global manufacturing because of the wartime devastation of its industrial rivals, it similarly abandoned protectionism for free trade with the zeal of a repentant sinner.

[See also: Believing in scarcity leaves us poorer]

In practice, however, the US economy remained largely autarkic, from the 1940s to the 1970s. The offshoring of industry by corporations was not possible in a world in which communist regimes ruled a third of humanity. Many countries in Latin America and other developing nations also pursued protectionist import-substitution strategies of their own. Immigration was also low for a generation after 1945 in the US and western Europe. These conditions permitted organised labour, backed by governments interested in labour peace, to extort high wages and benefits from national industrial corporations, particularly in the automobile and steel sectors that were central to Western economies at the time. The result, flawed by racism and misogyny, was a “Fordist” system in which well-paid male industrial workers and their families were able to join the first mass middle classes in history.

With the end of the Cold War came a great debate about the future of American strategy. In the National Interest magazine in 1990, President Reagan’s former ambassador to the United Nations Jeane Kirkpatrick wrote an essay entitled “A Normal Country in a Normal Time”, calling on the US “to give up the dubious benefits of superpower status and become again an unusually successful, open American republic”. Others called for an American industrial policy, in response to import competition from Japan, South Korea and newly unified Germany.

Instead of dissolving the Cold War Pax Americana, the bipartisan establishment under Bill Clinton and George W Bush sought to expand the bloc from its heartlands to the rest of the world. The attempt to globalise the Pax Americana was motivated as much by fear in Washington of the re-emergence of Japan and united Germany as independent great powers. For its part, Japan was content to remain an American ally specialising in manufacturing for exports. In addition to forestalling Russian revanchism, the expansion of Nato into eastern Europe and the Balkans was justified in some quarters as preventing Germany from creating a new Mitteleuropa sphere of influence including the former Warsaw Pact nations. In hindsight this was a turnip ghost, but Germany’s allies were alarmed when Berlin unilaterally recognised the independence of Croatia in 1991. Around the time of the Nato intervention in the War of the Yugoslav Succession, a former head of the National Security Agency told me, “We need a hundred thousand troops in the Balkans to keep an eye on the Germans.” Meanwhile, the French government sought to increase the subordination of a united Germany to the European Union by pushing Eurofederalism and the adoption of the euro. Under Chancellor Helmut Kohl and his successors, Germany accepted being bound by Nato and the EU so there would be “a European Germany, not a German Europe”.

In the 1990s, Russia was viewed as too weak to resist the expansion of Nato, while most American officials and business elites saw China not as a potential military threat, but as a giant market and, even more important, as a source of low-wage, non-union, unfree labour for Western-based multinationals and their suppliers. In 1934, the American progressive historian Charles A Beard had warned: “Under world free trade there would be a movement of manufacturing industries from the regions in which wages are high, social legislation is strict and trade unions are powerful, to the backward regions where wages are low, social legislation is negligible if not absent, and labour unorganised.” His prophecy was fulfilled, as communist countries and former protectionist developing nations sought foreign investment in return for access to their cheap labour.

In 2007 in a speech to the US Chamber of Commerce, the Peruvian president Alan García declared: “Come and open your factories in my country so we can sell your own products back to the US.” That and similar offers were taken up by firms in America, Europe and advanced East Asia. Offshoring allowed Western business to escape the constraints of postwar “new deals” with organised labour in their home countries. As the Citicorp CEO Walter Wriston explained in 1992, “When steel mills can move to more hospitable climates, they no longer present a stationary target for government or union control.”

[See also: The lessons of Chile’s struggle against Big Tech]

Instead of moving jobs to low-wage workers abroad, low-wage workers could be imported to do jobs at home. In both the US and Europe after the Cold War, similar coalitions of employers, urban administrations and humanitarian non-profits lobbied governments to constantly expand immigration of all kinds – legal immigrants under various categories, refugees, guest workers, tolerated illegal immigrants, while neoliberal economists and libertarian ideologues claimed implausibly that neither offshoring-induced deindustrialisation nor importing a new menial service proletariat had any significant effects on wages and living standards.

Champions of globalisation after the Cold War had promised former unionised factory workers and their children new and better jobs in the “knowledge economy”, once they “learned to code”. But on both sides of the Atlantic far more jobs were created in low-wage, often non-unionised service sectors. Instead of technology-driven productivity growth, the elites of the post-Cold War West relied on strategies for economic growth that did not improve long-run productivity: asset inflation and immigration-driven population growth. With wealthy taxpayers and bond-holders vetoing the use of fiscal policy most of the time, central banks resorted to low interest rates in the hope of creating more trickle-down spending by the rich (the “wealth effect”). The toxic upshot of this was the enrichment of stockholders and property owners and speculators, and property bubbles that priced young people out of home ownership through much of the West.

Immigration provided more employers for some firms, more customers for others, more renters for landlords, more taxpayers for national and local governments, and more clients for social-service non-profits. Economic elites welcomed high levels of immigration for keeping inflation low (by the unstated mechanism of suppressing wage growth in many occupations). But offshoring factories and importing poor workers did nothing for long-term productivity growth. Indeed, the growth of low-wage workforces as a result of low-end service sector expansion, declining union coverage and unskilled immigration in the West reduced incentives to substitute technology for labour – for example, in New York and London, where it was sometimes cheaper to hire workers to wash cars by hand than to invest in automated car washes. 

Inevitably the abandonment of the post-1945 compromise between business and the working class in Western democracies that exchanged high wages for high consumption of goods from domestic factories created populist backlashes on the right and left. Right-wing populists such as Donald Trump and Nigel Farage focused on immigration; those on the left like Jeremy Corbyn and Bernie Sanders were more likely to denounce trade liberalisation. And in the aftermath of the Covid lockdowns, the US has experienced the greatest wave of grassroots labour militancy in decades.

But the odds are stacked against the possibility that populist movements of the right or left will capture national governments, or, if they do, will be capable of governing. Since the end of the Cold War, transatlantic elites have transferred much decision-making authority from elected legislatures accountable to voters to technocratic bodies insulated from majority values and interests – international treaties, international organisations such as the World Trade Organisation and the European Court of Human Rights, the more centralised EU. And in a particularly ominous development, private banks and corporations have adopted the mission of punishing populist critics of the globalist neoliberal establishment. Twitter banned President Trump, and the British populist firebrand Nigel Farage claimed that multiple banks have turned him down, in addition to NatWest, which appeared to shut down his account because of his political views. As Sohrab Ahmari, among others, warns in his new book Tyranny, Inc, the creation of a technocratic firewall against populist influence on public policy, including private banks, corporations and media, could create a privatised version of China’s oppressive social credit system in which dissidents are locked out of participation in the market economy.

Great-power rivalry rather than domestic populism has forced the retrenchment of the post-Cold War American bloc. At the global level, the attempt to universalise the Pax Americana failed by 2008, when it became clear that both Russia and an increasingly developed and powerful China rejected America’s offer to specialise in commerce, as Japan and Germany did, while leaving the policing of the world and their regions to Washington. 

The result of today’s Cold War II is something like the three-bloc world of the Cold War, consisting of the American-led bloc in North America, Europe and East Asia, a loose revisionist bloc of China and Russia, and countries outside of the North Atlantic such as India and Brazil which see Sino-American rivalries as a way to gain leverage by playing both sides against each other. The strategies of Barack Obama, Trump and Biden have sought to strengthen, not dismantle, the Pax Americana system. By means of two failed trade treaties, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (Ttip), the Obama administration endeavoured to create a free-trade zone that more closely integrated the US and its East Asian and European allies while at least temporarily excluding China. Trump did not seek to dissolve the Pax Americana, but to decouple it from China while pressing for more burden-sharing with free-riding allies. He also rejected the traditional use of American industries as bargaining chips to be sacrificed to win the assent of US allies and client-states.  Biden’s approach combines Obama’s solicitude towards US allies with a large dollop of Trumpian protectionism and industrial policy.

Cold War II will not be a rerun of the first Cold War. China alone has far more industrial power and latent military strength than the USSR possessed at its height. And as the French economist Jacques Sapir has argued, measures of GDP that count stock-market and real-estate bubble wealth and unproductive transactions underestimate the strength of China and Russia in the manufacturing and resource industries that are the basis for military power.

At the same time, the US-led alliance system has benefited from the strategic blunders of its opponents. Russia’s brutal assault on Ukraine has frightened Sweden and Finland into Nato and united European capitals and Washington. The clumsy territorial grabs along its borders by China under Xi Jinping and China’s arrogant “wolf warrior” diplomacy have driven Japan and India into a closer security relationship with the US.

In the first Cold War, Moscow and Beijing competed to lead the global secular religion of Marxism-Leninism, which had followers in the West and throughout the world. Today’s rump Russia and post-Maoist China are conventional authoritarian dictatorships, representing no model that can be exported and no secular faith, even if other countries view them as markets or sources of investment or counterbalances to overweening Western power.

The hierarchical American bloc that was improvised by the US and its allies after the Second World War has proved remarkably resilient, defying repeated predictions that it would collapse from bankruptcy or overextension. The Pax Americana survived the Cold War and the post-Cold War era and – at least for now – today’s Second Cold War has strengthened rather than weakened America’s informal empire. Globalisation has outlived its usefulness as an instrument of American hegemony, leaving long-term problems of deindustrialisation and inequality in its wake, but in Europe and littoral East Asia, if not in the world, the Pax Americana in its eighth decade is alive, if not exactly well.

[See also: The end of globalisation]

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