""The likely emergence of China and India as new major global players--similar to the rise of Germany in the 19th century and the United States in the early 20th century--will transform the geopolitical landscape, with impacts potentially as dramatic as those of the previous two centuries. In the same way that commentators refer to the 1900s as the American Century, the early 21st century may be seen as the time when some in the developing world led by China and India came into their own.3""

In a similar vein, a recent study by the CIA's Strategic Assessment Group projects that by 2020 both China (which Mapping the Global Future pegs as, "by any measure a first-rate military power" around 2020), and the European Union will come close to matching the United States in terms of their respective shares of world power.4 For sure, there are always potential pitfalls in projecting current trends several decades into the future (not least that it is not easy to convert economic power into effective military power). But if the ongoing shift in the distribution of relative power continues, new poles of power in the international system are likely to emerge during the next decade or two. The real issue is not if American primacy will end, but how soon it will end.

In answering this question the key factor may well be whether the United States can afford economically to maintain the overwhelming military superiority necessary to dissuade other states from emerging as peer competitors.

Paul Kennedy's 1987 book, The Rise and Fall of the Great Powers, ignited an important debate about the sustainability of American primacy. In a nutshell, Kennedy argued that the United States was doomed to repeat a familiar pattern of imperial decline, because the excessive costs of military commitments abroad were eroding the economic foundations of American power. An important backdrop to Kennedy's book was the so-called "twin deficits": endless federal-budget deficits and a persistent balance-of-trade deficit.

The late 1980s debate about possible American decline was terminated abruptly, however: first, by the Soviet Union's collapse, and then by U.S. economic revival during the Clinton Administration, which also saw the yearly federal budget deficits give way to annual budget surpluses. This had led many of the proponents of American hegemony to assert that the American economy is fairly robust and that, as a result, the United States can afford this grand strategy.

 These claims might come as news to most Americans, however. When a company like General Motors--historically one of the flagship corporations of the U.S. economy--teeters on the edge of bankruptcy and sheds some 126,000 jobs, rosy descriptions about the strength of the U.S. economy ring hollow. Similarly, the notion that the U.S. economy is healthy certainly would not be shared by the hundreds of thousands of U.S. workers who have lost their jobs in America's ever-contracting manufacturing sector--often because their jobs have been outsourced to China or India. Even more worrisome, future outsourcing of
American jobs is not likely to be confined just to blue collar workers. Rather, an increasing number of high skill and high education jobs will flow from the United States to other countries. Another warning sign that all is not well with the U.S. economy is the "middle class squeeze"--the fact that middle class incomes in the United States have been stagnant since the early 1970s. The hollowing out of America's manufacturing industrial base, the outsourcing of American jobs, and stagnant middle class incomes are flashing red lights, warning that all is far from well with the U.S. economy.

Indeed, the economic vulnerabilities that Kennedy pinpointed in the late 1980s may have receded into the background during the 1990s, but they did not disappear. Once again, the United States is running endless federal budget deficits, and the trade deficit has grown worse and worse. The United States still depends on capital inflows from abroad--with China fast replacing Japan as America's most important creditor--to: finance its deficit spending; finance private consumption; and maintain the dollar's position as the international economic system's reserve currency. Because of the twin deficits, the underlying fundamentals of the U.S. economy are out of alignment. The United States cannot continue to live beyond its means indefinitely. Sooner or later, the bill will come due in the form of sharply higher taxes and interest rates--and, consequently, economic slowdown. And, as the United States borrows more and more to finance its budget and trade deficits, private investment is likely to be "crowded-out" of the marketplace, with predictable effects on the economy's long-term health. In a word (or two), the United States is suffering from "fiscal overstretch."5

During the Cold War, Japan (and, during the 1970s, West Germany) subsidized U.S. budget and trade deficits as a quid pro quo for American security guarantees. It will be interesting to see if an emerging geopolitical rival like China--or, for that matter, the European Union--will be as willing to underwrite American primacy in coming decades. Second, there have been big changes on the economic side of the ledger that cast a long shadow over America's long-term economic prospects. For one thing, the willingness of other states to cover America's debts no longer can be taken for granted. Already, key central banks are signaling their lack of confidence in the dollar by diversifying their currency holdings. There are rumblings, too, that OPEC may start pricing oil in euros, and that the dollar could be supplanted by the euro as the international economy's reserve currency. Should this happen, the United States no longer could afford to maintain its primacy.

The domestic economic picture is not so promising, either. The annual federal budget deficits are just the tip of the iceberg. The real problems are the federal government's huge unfunded liabilities for entitlement programs that will begin to come due about a decade hence. Moreover, defense spending and entitlement expenditures are squeezing out discretionary spending on domestic programs. Just down the road, the United States is facing stark "warfare" or "welfare" choices between, on the one hand, maintaining the overwhelming military capabilities upon which its primacy rests, or, on the other hand, discretionary spending on domestic needs, and funding Medicare, Medicaid and Social Security. Here, the proponents of U.S. hegemony overlook a huge change in the U.S. fiscal picture. They assert that the United States can afford to maintain its hegemony because defense spending now accounts only for about 4 percent of U.S. GDP. This is true, but very misleading.

Why? Because under the Bush II Administration, the norm in the allocation of federal discretionary spending that prevailed throughout most of the Clinton Administration has been reversed: the Pentagon's share of discretionary spending in the federal budget once again exceeds domestic spending. What really matters is not the percentage of GNP absorbed by defense spending, but the Defense Department's share of discretionary federal spending. Coupled with mandatory spending on entitlements (and debt service), defense spending is squeezing discretionary federal spending on domestic programs. Given the long-term unsustainability of federal budget deficits, coming years will see strong pressures to reduce federal spending. However, because defense, entitlements and debt service together account for 80 percent of federal spending, it is obvious that--as long as U.S. defense spending continues at the high levels mandated by the need to preserve U.S. hegemony--the burden of federal deficit reduction will fall primarily on the remaining 20 percent of the budget--that is, on discretionary domestic spending. In plain English, that means that the United States will be spending more on guns and less and less on butter--"butter" in this case meaning, among other things, federal government investments in education, infrastructure and research, which all are crucial to keeping the United States competitive in the international economy. Sooner rather than later, Americans will be compelled to ask whether spending to maintain the United State's hegemonic role in international politics is more important than spending on domestic needs here at home.

In fact, if anything, the costs of the American hegemony are likely to increase in coming years. There are two reasons for this. First, there is the spiraling cost of the Iraq quagmire. Some estimate that the direct and indirect costs of the war to the U.S. economy will end up between $1,026 billion and $1,854 billion.6

The second reason that defense spending is likely to increase is that simple fact that the U.S. military is not large enough to meet all of America's commitments. Since the Cold War's end, the United States has shown every sign of succumbing to the "hegemon's temptation"--the temptation to use its military power promiscuously--and Iraq, along with the simultaneous crises with Iran and North Korea, have highlighted the mismatch between America's hegemonic ambitions and the military resources available to support them. To maintain its dominance, the American military will have to be expanded in size, because it is too small to meet present--and likely future--commitments. No one can say for certain how long significant U.S. forces will need to remain in Iraq (and Afghanistan), but its safe to say that substantial numbers of troops will be there for a long time. At the same time, in addition to the ongoing War on Terror (and the concomitant requirements of homeland defense), the United States faces possible future conflicts with North Korea, Iran and China.

Essay Types: Essay