American global economic dominance has been clear for at least the last 110 years of its 250-year history, and it was widely foretold for half a century before that. It was never just about scale, even if sometimes it seemed that way. Nor was it ever truly about laissez-faire free markets or equal opportunity, even though the US has alternated between loudly advocating and clearly failing to meet those ideals, throughout the same history.
What made the American economy an ongoing success at home and abroad has always been its dynamism. The 1776 revolution’s spirit of ‘no kings’ took economic form in a disdain for commercial incumbents and in the idealization of any new business built on innovation. This included large doses of belief in technological optimism, in facts and competence triumphing in the end in any contest, and in limits to government having discretionary power over individual fates (as opposed to rule of law).
The common thread of these beliefs is an opposition to the persistence of arbitrary privilege. Politically, this leads to an excessive belief that economic outcomes for individuals, investments, and companies ex post are based on merit ex ante. In reality, these convictions always co-existed with huge inequalities in opportunities and rights along racial, gender and class lines, as well as a long period of colonial actions towards non-European peoples. The hypocritical inconsistency with which opportunity was granted, though, should not blind us to the economic benefits of the substantial turnover in commercial leadership that consistently did take place.
In fact, the combination of restraint on arbitrary power and of the pressure that the better built mousetrap should and will win did lead to ongoing economic change for the better. Whether economic researchers look at the speed of structural change in response to new technologies, the churn of which companies are the highest valued or have the greatest market shares, the rate of new businesses created by immigrants or others without inherited position, or the shifts in the fortunes of different regions up and down, the American economy grew through its sustained excellence in promoting change. Again, the size of the US economy helped provide inputs to and markets for the changes, but it never was sufficient to drive the ongoing dynamism.
For its role in the global economy, America’s relative advantage in this regard was clear and consistent. In essence, this has meant from the end of the 1800s onwards that the US has been at the technological frontier in most sectors, whether agricultural, manufacturing, or services. It also meant that that the US has been on average the most attractive place for immigrant talent and globally smart risk capital to go. And it has meant that the US has usually been the force for liberalization abroad, rather than for outright extraction or extortion.
Given these relative advantages, it has been in the US self-interest to act as the mostly fair chairman of the club of integrating market economies at least since 1945. As I described it in 2018, “The best way to think about the [US-led] order is as a club that promotes a common set of beliefs to which its members adhere: the ability to export to, import from, and invest in markets around the world should not be determined by military power or alliance structures; other countries’ economic growth should be welcomed, not treated as a threat; property rights should be secure from invasion, expropriation, or theft; and technical knowledge should flow freely, subject to the enforcement of patents and trademarks.”
This enlightened economic self-interest conflicted at times with recurring bouts of nativism or of fear on the part of the US, but confidence repeatedly returned, and with it some degree of leadership for openness. With the rise of China and the re-election of Trump, though, the confidence necessary for acting towards the rest of the world in that enlightened self-interest is now gone. This has less to do with any marked decline in US economic dynamism having actually taken place, though our current reactionary nationalist politics are perversely causing such a decline going forward. It has more to do with the spread of nostalgia as a political ideology.
Whatever the cause, the entire world is now doing business, investing, and trying to make a living in the post-American world economy. This is a less secure world, for economic reasons, not just or even primarily for geopolitical ones. This is a new economic geography in which the US has ceased to provide various forms of insurance to global economic actors in the form of liquid deep capital markets, safe global shipping, rules-based trade and commercial dispute settlement, protection of property rights from expropriation, and critically, punishment of government corruption in economic decisions.
As for the United States itself, if it does not change course, no matter how many bilateral trade deals it brokers, no matter how many economies appear—at first—to align with Washington at a high cost, the country will find itself increasingly bypassed in commerce and technology. The US supply chains that the Trump administration claims to want to secure will become less reliable—inherently costlier, less diversified in their sourcing, and subject to more risk from US-specific shocks. The Trump administration’s moves to drive away immigrants and foreign technology will erode US living standards and the US military’s capacity. Global standards for products such as automobiles and information technologies will increasingly diverge from US norms. Many of these phenomena will reinforce reactionary tendencies, making them difficult to reverse even after Trump leaves the White House.
For Germany and Europe, it would be unwise to gamble on a return of the US to its former role, even if the Trump regime loses control of Congress this November, or of the White House, should close-to-fair elections take place in 2028. Despite constitutional checks and balances, the judicial and congressional branches have accepted overtly corrupt self-dealing and threatening extortion as the Trump administration’s practice at home and abroad. As a result, to an extent rarely seen during most of US economic history, the current incumbents in commerce and politics are becoming intertwined and entrenched. Innovation is less and less welcomed, and is less and less a determinant of economic outcomes.
What could reassure the world would be either a true realignment election in the US – meaning the electoral wipe-out and replacement of the current MAGA-Trump version of the Republican Party by one committed to rule-of-law rather than nationalist nostalgia. This is because the convictions that underlay American economic dynamism are being directly eroded by the expansion of the president’s executive powers with increasingly arbitrary application. That would ideally be accompanied by constitutional changes, since our Federal Courts and our Senate have failed to provide the guardrails, let alone the counterweight to extremism, that they were designed to deliver.
It is ironic that the first major constitutional revision in over 100 years is needed as we celebrate the 250th anniversary of our independence, but that is the reality of America today. Absent that, the free world will need to self-insure against the prospect of the American and Chinese governments running a protection racket on the rest of the world, as the Trump administration now pursues. Yet, such a positive political reversal remains possible. While ostensibly provoked by taxation, the American Revolution originated in political ideology against arbitrary extractive rulers. That ideology came to influence due to popular demand arising through public debate. And now as then, such a political revolution would be the fuel for ongoing American economic dynamism.
Source: Original Article
