Global risk of U.S. impotence at heart of WikiLeak
The biggest secret to be revealed by WikiLeaks should have been the easiest to spot without the website’s classified document dump: American hegemony is on the wane. That underscores a heightened risk for global investors that without U.S. leadership, regional rivalries may turn nasty, trade barriers rise and fiscal policies destroy wealth.
It’s hard to avoid the overall impression from the disclosure of 250,000 secret State Department cables that the 1990s vision of U.S. supremacy and peaceful globalization is irrevocably ending. There are a number of risk-reducing advantages to the world in having a clearly defined hegemon, provided its intentions are reasonably benevolent.
In the early and middle 19th century, for example, British hegemony pushed the global economy towards free trade and defused regional rivalries and armaments wars. Then after 1873 the decline of Britain’s relative economic strength and the later build-up of the German Navy reduced Britain’s power and led to increased protectionism, armaments wars and eventually decades of global conflict and violence.
The WikiLeaks documents show the United States attempting to assemble regional alliances to address problems like North Korea’s continued isolation from the global community, and Iranian nuclear ambitions. Yet its efforts in these areas have been ineffectual as the nation’s power to coerce and cajole has been reduced by its relative economic and military decline.
The outcome is that Iran’s attempts to establish a nuclear capability and North Korea’s aggression against its southern neighbor have been met with no effective response, increasing risk premiums in their respective regions and across the globe.
In previous decades, the United States led the way towards global trade expansion, as did Britain in the 19th century. Today there appears no longer to be a Congressional consensus to ratify even the limited Colombia, South Korea and Panama free trade deals, while the Doha global free trade talks are stone dead. The United States can no longer afford to act as an unquestionably benign trade hegemon; hence its petty retaliation against certain Chinese exports and its monetary policies perceived as mercantilist that encourage other countries to erect barriers to free movement of goods and capital.
During the 1990s, under the “Washington Consensus,” U.S. advisers pushed emerging market governments to cut deficits and run sound monetary policies. Today those developing economies plead with U.S. policymakers to follow their own sound advice.
Without a hegemonic sovereign force, as philosopher Thomas Hobbes predicted, the world has fewer barriers against life becoming “nasty, brutish and short”. With the United States incrementally shrinking in that role, investors must steel themselves for risk premiums to rise.