The Global Power Shift from West to East

The Global Power Shift from West to East

Mini Teaser: Pax Americana and the age of Western dominance are fading. Washington can manage this decline, but first it must acknowledge its reality. History moves forward with a crushing force and does not wait for the unprepared.

by Author(s): Christopher Layne

Whatever questions could have been raised about the wisdom of America’s Cold War policies faded rapidly after the Soviet Union’s collapse, which triggered a wave of euphoric triumphalism in the United States. Analysts celebrated America’s “unipolar moment” and perceived an “end of history” characterized by a decisive triumph of Western-style democracy as an end point in human civic development. Almost by definition, such thinking ruled out the prospect that this triumph could prove fleeting.

But even during the Cold War’s last two decades, the seeds of American decline had already been sown. In a prescient—but premature—analysis, President Richard Nixon and Secretary of State Henry Kissinger believed that the bipolar Cold War system would give way to a pentagonal multipolar system composed of the United States, Soviet Union, Europe, China and Japan. Nixon also confronted America’s declining international financial power in 1971 when he took the dollar off the Bretton Woods gold standard in response to currency pressures. Later, in 1987, Yale’s Paul Kennedy published his brilliant Rise and Fall of the Great Powers, which raised questions about the structural, fiscal and economic weaknesses in America that, over time, could nibble away at the foundations of U.S. power. With America’s subsequent Cold War triumph—and the bursting of Japan’s economic bubble—Kennedy’s thesis was widely dismissed.

Now, in the wake of the 2008 financial meltdown and ensuing recession, it is clear that Kennedy and other “declinists” were right all along. The same causes of decline they pointed to are at the center of today’s debate about America’s economic prospects: too much consumption and not enough savings; persistent trade and current-account deficits; deindustrialization; sluggish economic growth; and chronic federal-budget deficits fueling an ominously rising national debt.

Indeed, looking forward a decade, the two biggest domestic threats to U.S. power are the country’s bleak fiscal outlook and deepening doubts about the dollar’s future role as the international economy’s reserve currency. Economists regard a 100 percent debt-to-GDP ratio as a flashing warning light that a country is at risk of defaulting on its financial obligations. The nonpartisan Congressional Budget Office (CBO) has warned that the U.S. debt-to-GDP ratio could exceed that level by 2020—and swell to 190 percent by 2035. Worse, the CBO recently warned of the possibility of a “sudden credit event” triggered by foreign investors’ loss of confidence in U.S. fiscal probity. In such an event, foreign investors could reduce their purchases of Treasury bonds, which would force the United States to borrow at higher interest rates. This, in turn, would drive up the national debt even more. America’s geopolitical preeminence hinges on the dollar’s role as reserve currency. If the dollar loses that status, U.S. primacy would be literally unaffordable. There are reasons to be concerned about the dollar’s fate over the next two decades. U.S. political gridlock casts doubt on the nation’s ability to address its fiscal woes; China is beginning to internationalize the renminbi, thus laying the foundation for it to challenge the dollar in the future; and history suggests that the dominant international currency is that of the nation with the largest economy. (In his piece on the global financial structure in this issue, Christopher Whalen offers a contending perspective, acknowledging the dangers posed to the dollar as reserve currency but suggesting such a change in the dollar’s status is remote in the current global environment.)

Leaving aside the fate of the dollar, however, it is clear the United States must address its financial challenge and restore the nation’s fiscal health in order to reassure foreign lenders that their investments remain sound. This will require some combination of budget cuts, entitlement reductions, tax increases and interest-rate hikes. That, in turn, will surely curtail the amount of spending available for defense and national security—further eroding America’s ability to play its traditional, post–World War II global role.

Beyond the U.S. financial challenge, the world is percolating with emerging nations bent on exploiting the power shift away from the West and toward states that long have been confined to subordinate status in the global power game. (Parag Khanna explores this phenomenon at length further in this issue.) By far the biggest test for the United States will be its relationship with China, which views itself as effecting a restoration of its former glory, before the First Opium War of 1839–1842 and its subsequent “century of humiliation.” After all, China and India were the world’s two largest economies in 1700, and as late as 1820 China’s economy was larger than the combined economies of all of Europe. The question of why the West emerged as the world’s most powerful civilization beginning in the sixteenth century, and thus was able to impose its will on China and India, has been widely debated. Essentially, the answer is firepower. As the late Samuel P. Huntington put it, “The West won the world not by the superiority of its ideas or values or religion . . . but rather by its superiority in applying organized violence. Westerners often forget this fact; non-Westerners never do.”

Certainly, the Chinese have not forgotten. Now Beijing aims to dominate its own East and Southeast Asian backyard, just as a rising America sought to dominate the Western Hemisphere a century and a half ago. The United States and China now are competing for supremacy in East and Southeast Asia. Washington has been the incumbent hegemon there since World War II, and many in the American foreign-policy establishment view China’s quest for regional hegemony as a threat that must be resisted. This contest for regional dominance is fueling escalating tensions and possibly could lead to war. In geopolitics, two great powers cannot simultaneously be hegemonic in the same region. Unless one of them abandons its aspirations, there is a high probability of hostilities. Flashpoints that could spark a Sino-American conflict include the unstable Korean Peninsula; the disputed status of Taiwan; competition for control of oil and other natural resources; and the burgeoning naval rivalry between the two powers.

These rising tensions were underscored by a recent Brookings study by Peking University’s Wang Jisi and Kenneth Lieberthal, national-security director for Asia during the Clinton administration, based on their conversations with high-level officials in the American and Chinese governments. Wang found that underneath the visage of “mutual cooperation” that both countries project, the Chinese believe they are likely to replace the United States as the world’s leading power but Washington is working to prevent such a rise. Similarly, Lieberthal related that many American officials believe their Chinese counterparts see the U.S.-Chinese relationship in terms of a zero-sum game in the struggle for global hegemony.

An instructive historical antecedent is the Anglo-German rivalry of the early twentieth century. The key lesson of that rivalry is that such great-power competition can end in one of three ways: accommodation of the rising challenger by the dominant power; retreat of the challenger; or war. The famous 1907 memo exchange between two key British Foreign Office officials—Sir Eyre Crowe and Lord Thomas Sanderson—outlined these stark choices. Crowe argued that London must uphold the Pax Britannica status quo at all costs. Either Germany would accept its place in a British-dominated world order, he averred, or Britain would have to contain Germany’s rising power, even at the risk of war. Sanderson replied that London’s refusal to accommodate the reality of Germany’s rising power was both unwise and dangerous. He suggested Germany’s leaders must view Britain “in the light of some huge giant sprawling over the globe, with gouty fingers and toes stretching in every direction, which cannot be approached without eliciting a scream.” In Beijing’s eyes today, the United States must appear as the unapproachable, globally sprawling giant.

IN MODERN history, there have been two liberal international orders: Pax Britannica and Pax Americana. In building their respective international structures, Britain and the United States wielded their power to advance their own economic and geopolitical interests. But they also bestowed important benefits—public goods—on the international system as a whole. Militarily, the hegemon took responsibility for stabilizing key regions and safeguarding the lines of communication and trade routes upon which an open international economy depend. Economically, the public goods included rules for the international economic order, a welcome domestic market for other states’ exports, liquidity for the global economy and a reserve currency.

As U.S. power wanes over the next decade or so, the United States will find itself increasingly challenged in discharging these hegemonic tasks. This could have profound implications for international politics. The erosion of Pax Britannica in the late nineteenth and early twentieth centuries was an important cause of World War I. During the interwar years, no great power exercised geopolitical or economic leadership, and this proved to be a major cause of the Great Depression and its consequences, including the fragmentation of the international economy into regional trade blocs and the beggar-thy-neighbor economic nationalism that spilled over into the geopolitical rivalries of the 1930s. This, in turn, contributed greatly to World War II. The unwinding of Pax Americana could have similar consequences. Since no great power, including China, is likely to supplant the United States as a true global hegemon, the world could see a serious fragmentation of power. This could spawn pockets of instability around the world and even general global instability.

Image: Pullquote: Periods of global transition can be chaotic, unpredictable, long and bloody. Whether the current transitional phase will unfold with greater smoothness and calm is an open question.Essay Types: Essay