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Is the United States in Decline?

No state stays on top of the great power pyramid forever.
Uncle Sam

In mid-May, leaders of 29 nations, and representatives from some 80 others, descended on Beijing to discuss China’s ambitious “One Belt One Road” (OBOR) development initiative—also known to some as the “New Silk Road.” This plan is the follow-on to China’s creation several years ago of the Asia Infrastructure Development Bank (AIIB), a major new international financial institution to foster economic development in “emerging market” nations.

OBOR, a signature policy of Chinese president Xi Jinping, calls for investing massive amounts of money ($1 trillion, according to some reports) to promote trade and economic development by constructing transportation links that will tie together East Asian manufacturing hubs with Southeast Asia, Central Asia, Africa, and Southwest Asia. These new transportation routes also will connect China with the participating nations and Europe. China’s aim is twofold: to create new markets for the goods and services it produces, and to extend its geopolitical influence. Some analysts see OBOR as a Chinese version of the Marshall Plan, the important post-World War II American initiative that helped rebuild Western Europe and laid the foundation for European economic unity that ultimately culminated in the European Union.

TAC cover July 2017

With OBOR, China is following the example of Great Britain and the United States (as well as pre-World War I European great powers such as Germany).  In the 19th century, the expansion of the British empire, including what scholars Ronald Robinson and John Gallagher describe as its “informal empire,” was driven by the perceived need to find outlets for the United Kingdom’s “surplus” goods and capital—that is, goods and capital that could not be profitably absorbed by the domestic economy. When the United States burst onto the world stage as a great power in the late 19th century, acquiring Puerto Rico, Hawaii, Guam, and the Philippines, it imitated Britain’s pursuit of both informal and formal empire for the same reason: the belief that America’s continuing economic growth depended on exporting American capital and goods.  China today faces the problem of insufficient demand for its products and limited prospects for profitable domestic investment. Beijing is responding to these problems pretty much as Britain and the United States did in the latter part of the 19th century: by seeking new markets and attractive investment opportunities abroad.

As both Britain and the United States demonstrated, economic expansion begets geopolitical expansion. Economic clout can buy a lot of political influence. But the lines of communication linking the home country to its overseas markets must be protected. And political stability must be maintained where the home country is investing. For Britain and the United States, economic expansion resulted in the inexorable expansion of their military power and diplomatic sway. We can expect OBOR to have a similar effect on China. It is a powerful incentive for China to expand its military projection capabilities. Beijing will be compelled to assume an increasingly active role in managing regional security in places affected by OBOR—especially in Central Asia and Pakistan, which are plagued by political instability and terrorism.

OBOR is a milestone on China’s path to great power status and is one of several indicators of receding American power—not just geopolitically, but also in matters involving the international economy and international institutions. When discussing the Sino-American rivalry, attention is focused on the military balance between the United States and China and to flashpoints between the two countries that could spark a conflict—the South China Sea, the East China Sea, Taiwan, the Korean Peninsula.  But these more intangible economic and diplomatic developments will be no less important in shaping relations between Washington and Beijing as in determining the fate of the world order built by the United States following World War II—that is, Pax Americana, or what is sometimes referred to as “the liberal rules-based international order.”

Since the early 2000s there has been an ongoing conversation among scholars, policymakers, and members of the broader American foreign policy establishment about whether U.S. power is in decline. The question actually extends back to the 1980s, with the publication of Yale historian Paul Kennedy’s The Rise and Fall of the Great Powers and other important books on the subject by scholars David Calleo and Robert Gilpin. The controversy surrounding decline dissipated, however, when the Soviet Union imploded and Japan’s economic bubble burst. In one fell swoop, America’s primary military and economic competitors fell off the geopolitical chessboard.

The decline issue remained dormant through the “the unipolar moment” of the 1990s but was rekindled with China’s rapid great-power emergence in the early 2000s. China’s rise is the flip side of American decline. The central geopolitical question of the early 21st century is whether Pax Americana can survive China’s rise and the resulting shift of world geopolitical and economic power from west to east. The U.S. foreign policy establishment is allergic to the word “decline.”  After all, as Jon Huntsman declared during his brief presidential run in 2012: “Decline is un-American.”  Perhaps so, but that doesn’t mean that it’s not happening.

Though Huntsman has plenty of company on this issue in the foreign policy establishment, we would do better to heed the advice of the great Hall of Fame pitcher Satchel Paige.  “Don’t look back,” he said, “because something may be gaining on you.” A glance at the rear-view mirror shows China rapidly closing the gaps with the United States in all the dimensions of power upon which the Pax Americana was built: military, economic, and institutional.

In the last decade, China has displaced the United States as the world’s leading manufacturing power. In 2014, according to the World Bank, China passed America as the world’s largest economy (measured by purchasing power parity). In 1980, the United States accounted for about 25 percent of gross world product. Today it accounts for around 18 percent. Some analysts have come up with clever arguments to discount the importance of these economic trends. They are unconvincing. But the reality of U.S. decline is more than just a matter of numbers; it is also evident in Washington’s diminishing ability to manage the international economy and in the growing challenges to many legacy institutions of Pax Americana.

A strain of thinking called hegemonic stability theory holds that a liberal, open international economy requires an overarching power to manage and stabilize the system by creating a political and security order that permits economic openness. The  United States filled this role for half a century, from 1945 until the Great Recession. The world’s economic hegemon must provide public goods that benefit the international system as a whole, including:  making the rules for the international economic order; opening its domestic market to other states’ exports; supplying liquidity to the global economy; and providing a reserve currency. Having declined to grasp the mantle of leadership during the 1930s, Washington seized it decisively after World War II. Johns Hopkins professor Michael Mandelbaum has argued that, following the Cold War, the United States essentially acted as a de facto government for the international system by providing security and managing the global economy.

The Great Recession impaired the United States’ ability to provide leadership for the international economy. After all, an economic hegemon is supposed to solve global economic crises, not cause them. But America plunged the world into economic crisis when its financial system seized up with the sub-prime mortgage crisis. A hegemon is supposed to be the lender of last resort in the international economy, but the United States became the borrower of first resort—the world’s largest debtor. When the global economy falters, the economic hegemon must assume responsibility for kick-starting recovery by purchasing other nations’ goods. From 1945 to the Great  Recession, America’s willingness to consume foreign goods constituted the primary firewall against global economic downturns. During the Great Recession, however, the U.S. economy proved too infirm to lead the global economy back to health.

At the April 2009 G20 meeting in London, President Barack Obama conceded that, in key respects, the United States’ days as economic hegemon were numbered because America is too deeply in debt to continue as the world’s consumer of last resort. Instead, he said, the world would have to look to China (and other emerging market states plus Germany) to be the motors of global recovery.

Another example of how the U.S. has lost its grip on global economic leadership is its failure to prevail over the Europeans (read: Germany) in the transatlantic “austerity versus stimulus” debate that commenced in late 2009. Reflecting their different historical experiences, the United States and Europe (more specifically, Germany and the European Central Bank, or ECB) adopted divergent fiscal policies during the Great Recession. Obama administration economic policymakers were guided by the Keynesian lessons learned from the 1930s Great Depression: to dig out of a deep economic slump, the federal government should boost demand by pump-priming the economy through deficit spending, and the Federal Reserve should add further stimulus through low interest rates and easy money. Obama administration policymakers and leading American economists were haunted by the “1937 analogy”—FDR’s “recession within the Depression’’—demonstrating that if stimulus is withdrawn prematurely, a nascent recovery may be aborted.

On the other hand, Germany—the EU’s economic engine—has long been haunted by the “1923 analogy”: the fear that inflation can become uncontrollable, with disastrous economic, social, and political consequences. From the founding of post-World War II West Germany until the advent of the European Monetary Union and eventually the Euro, Germany’s central Bundesbank maintained a primary mission of combatting inflation and preserving the Deutschmark’s value. For the German government, assurance that the new ECB would follow the Bundesbank’s sound money policy was a sine qua non for Berlin’s decision to give up the Deutschmark in favor of the Euro.

This U.S.-European divide on austerity versus stimulus was apparent as early as the April 2009 London G20 summit, where the United States wanted to rebalance the international economy by inducing the Europeans (most particularly, Germany, which, with China, was one of the two large surplus economies) to lift the Continent out of the Great Recession by emulating Washington’s use of deficit spending to galvanize economic revival. Washington wanted Germany to export less and import more. Berlin flatly refused. German Chancellor Angela Merkel argued that for states—especially ones already deeply in debt—to accumulate more debt in an effort to spend themselves out of the Great Recession would only set the stage for an even greater crisis down the road.

Washington’s inability to prevail over Berlin in the stimulus vs. austerity debate highlighted waning U.S. power in the international economy. Jack Lew, then Treasury secretary, implicitly said as much at the October 2015 IMF-World Bank annual meeting when he stated  that the United States could not be the “sole engine” of global growth.

But America’s inability to get Germany to give up austerity was not the only indicator of America’s decreasing ability to shape the international economic agenda. During the Obama administration’s first term, the United States was unable to persuade China to allow the renminbi to appreciate to Washington’s preferred level (which the United States hoped would reduce China’s export surplus to the United States while simultaneously boosting American exports to China).

U.S. economic and fiscal troubles have contributed significantly to the fraying of Pax Americana’s institutional global framework. The Great Recession spurred calls for a major overhaul of the international institutional order as evidenced by the emergence of the G20, demands for IMF and World Bank reform, and a push for expanded membership of the UN Security Council. The past decade or so also has seen the creation of new international organizations and groupings such as the Shanghai Cooperation Organization, the Collective Security Treaty Organization, and BRICS (Brazil, Russia, India, China, and South Africa). As American power wanes, a parallel or “shadow” international order is being constructed as an alternative to Pax Americana. Perhaps the most dramatic example of his is Beijing’s Asian Infrastructure Investment Bank.

As Beijing rolled out its AIIB plans, the Obama administration kicked into high gear diplomatically in an attempt to squelch it. As the New York Times reported, Washington “lobbied against the [AIIB] with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project.” Washington’s attempt to dissuade its allies from joining the AIIB failed. The dam burst when, in an Ides of March 2015 decision, Britain announced it was going to become a member of the AIIB (“Et Tu Britain?”). London’s decision to join the AIIB set off a stampede as other states on the fence rushed to sign up for membership.  Those joining included U.S. allies such as France, Germany, Italy, Australia, South Korea, even Israel and Taiwan. Beijing’s diplomatic coup in attracting widespread support for its AIIB initiative from long-standing U.S. allies was viewed as a direct challenge to America’s global geopolitical and economic leadership. Writing in the Financial Times, former Treasury Secretary Lawrence Summers said that London’s AIIB decision and its aftermath “may be remembered as the moment the United States lost its role as the underwriter of the global economic system.”

 Summers was both right and wrong. The U.S. role as the hegemonic power in international politics and economics indeed is being challenged. But this did not start when Britain and the others decided to sign-up with the AIIB. America has been slowly, almost imperceptibly, losing its grip on global leadership for some time, and the Great Recession merely accelerated that process. China’s successful launch of the AIIB and its OBOR offspring merely accentuates that process.

Not surprisingly, U.S. policymakers and the wider foreign policy establishment brush off any possibility of diminishing U.S. power. Recent books by leading foreign policy analysts (including Josef Joffe, Robert Lieber, and Joseph S. Nye Jr.) assert that U.S. power is robust, and that the 21st  century, like the 20th,  will be an “American century.” Meanwhile, during the Obama administration U.S. foreign policy officials never missed a chance to assert America’s continuing role as a global hegemon (though President Obama’s own views on U.S. primacy seemed more nuanced).  For example, the Obama administration’s 2015  National Security Strategy, a twenty-nine page document, invoked the term “American leadership” more than 100 times.

While President Trump lacks any serious, coherent worldview, there are more than enough Republican members of the foreign policy establishment to ensure that he doesn’t break with America’s post-1945, bipartisan policy of primacy. And Trump’s slogan “Make America Great Again’’ certainly puts him in the camp of U.S. global dominance.

But Paul Kennedy was correct when he noted in The Rise and Fall of the Great Powers that in the history of the modern international system (since around 1500) no state has managed to remain permanently atop the great power pyramid. “American exceptionalism” notwithstanding, the United States will not be an exception. Pax Americana was the product of a unique post-World War II constellation of power. As scholars such as Kennedy and Gilpin have pointed out, when World War II ended the United States accounted for half of the world’s manufacturing output and controlled some two-thirds of the world’s gold and foreign exchange. Only America could project air and naval power globally. And, of course, the United States alone had atomic weapons. America used its commanding economic, military, and political supremacy to lay the foundations of the post-World War II international order, reflected in such institutions as the United Nations, NATO, the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (which has morphed into the World Trade Organization). Additionally, the United States kept the Soviet Union at bay until that artificial regime collapsed of its own weight.

All this represented a remarkable achievement, ensuring relative peace and prosperity for more than half a century. But today China’s AIIB presents a double-barreled challenge to U.S. leadership of the global economy as well as to Pax Americana’s institutional (and ideational) foundations. The AIIB aims at enhancing China’s role both in managing the international economy and in international development. With AIIB China means to demonstrate its seriousness in demanding a share of decision-making power in the Bretton Woods legacy institutions, the IMF and World Bank, reflecting its current economic and financial clout. The AIIB’s impact, however, transcends international economic affairs and reflects the shifting Sino-American balance of power.

Washington said it opposed AIIB because of doubts that it would adhere to the same environmental, governance, lending, transparency, labor, and human rights standards practiced by the IMF, World Bank, and Asian Development Bank. But Treasury’s Lew was more candid when he said that, because of the AIIB, America’s “international credibility and influence are being threatened.” For their part, the Chinese regarded the U.S. stance as an attempt to counter China’s rise and its ambition to become the dominant power in East Asia. As China’s former Vice Minister of Finance, Wei Jianguo, put it, “You could think of this as a basketball game in which the U.S. wants to set the duration of the game, size of the court, the height of the basket and everything else to suit itself.  In fact, the U.S. just wants to exclude China from the game.”

The Obama administration’s ballyhooed Asian pivot was based on the assumption that, although the ASEAN nations of Asia, along with Australia and South Korea, are being pulled into China’s economic orbit, they will turn to the United States as a geopolitical counterweight.  However, Beijing’s ability to get ASEAN, South Korea, and other neighboring states to jump on the AIIB bandwagon suggests this assumption may be erroneous. The pull of Beijing’s economic power may override security concerns and draw these states into China’s geopolitical orbit. The trajectory of ASEAN’s trade flows is revealing. In 1993, the United States accounted for 18 percent of ASEAN’s total trade (imports and exports combined), and China for only 2 percent.  By 2013 the United States’ share of ASEAN’s total trade had shrunk to 8.2  percent while China’s had jumped to 14 percent. The trend lines indicate that in coming years China’s share of regional trade will continue to rise while that of the U.S. will decline.

Thus while OBOR and the AIIB don’t get the same attention from U.S. grand strategists as does China’s military buildup, they are equally important in signaling the ongoing power transition between the United States and China in East Asia. Among American security studies scholars, even those who once firmly believed that unipolarity would last far into the future now grudgingly concede that the era of American hegemony may be drawing to a close. They console themselves, however, with the thought that the United States can cushion itself against future power declines and the loss of hegemony by taking advantage of what they see as a still-open window to “lock in” Pax Americana’s essential features—its institutions, rules, and norms—so that they outlive unipolarity. As Princeton’s G. John Ikenberry puts it, the United States should act today to put in place an institutional framework “that will safeguard our interests in future decades when we will not be a unipolar power.”

Ikenberry argues that China, having risen within the post-1945 international system, has no incentive to overturn it. His argument is superficially attractive because it posits that, even if the material foundations of U.S. dominance wither, its institutional and ideational essence will live on. This almost certainly is incorrect. China’s rise within the post-1945 international order doesn’t mean it has any interest in preserving Pax Americana’s core. On the contrary, the evidence suggests China wants to reshape the international order to reflect its own interests, norms, and values. As Martin Jacques puts it:

The main plan of American soft power is democracy within nation-states; China by way of contrast emphasizes democracy between nation-states—most notably in respect for sovereignty—and democracy in the world system. China’s criticism of the Western-dominated international system and its governing institutions strikes a strong chord with the developing world at a time when these institutions are widely recognized to be unrepresentative and seriously flawed.

Thus the “lock-in” concept isn’t likely to work because China, along with much of the developing world, does not accept the foundations upon which the post-World War II liberal international order rests.

For many American scholars and policy makers the notion of a “liberal, rules-based, international order” has a talismanic quality. They believe that rules and institutions are politically neutral and thus ipso facto beneficial for all. Many proponents of “lock-in” have constructed a geopolitically antiseptic world, one uncontaminated by clashing national interests.  In this world, great power competition and conflict are transcended by rules, norms, and international institutions. The problem is that this misconstrues how the world works. Great power politics is about power. Rules and institutions do not exist in a vacuum. Rather, they reflect the distribution of power in the international system.  In global politics, the rules are made by those who rule.  

As E. H. Carr, the renowned English historian of international politics, once observed, a rules-based international order “cannot be understood independently of the political foundation on which it rests and the political interests which it serves.” The post-World War II international order is an American order that, while preserving world stability for a long time, primarily privileged U.S. and Western interests. Proponents of “lock-in” are saying that China will—indeed, must—agree to be a “responsible stakeholder” (with Washington defining the meaning of “responsibility”) in an international order that it did not construct and that exists primarily to advance the interests of the United States. In plain English, what those who believe in “lock-in” expect is that an increasingly powerful China will continue to accept playing second fiddle to the United States. But Beijing, by all the evidence, does not see it that way. And OBOR and the AIIB prove the point. Instead of living within the geopolitical, economic, and institutional confines imposed by Pax Americana, an increasingly powerful China will seek to revise the international order so that it reflects its own political and economic interests. Thus are  OBOR and the AIIB straws in the wind. And, as the great Bob Dylan said, you don’t need to be a weatherman to know which way the wind is blowing.

Christopher Layne is University Distinguished Professor of International Affairs, and Robert M. Gates Chair in National Security, at Texas A&M University.




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