Thus, the European Union is already in the process of creating the institutions for its bloc to be effective in this world economy: a European Parliament, a European Central Bank, a European Cartel Office and so on. Even the French, reluctantly, are integrating their economy and their industries--and even their agriculture--into the economy, the industries and the agriculture of the EU (provided that the Germans foot the bill). The United States, of course, has been a genuine bloc and a nation-state all along. Its economic institutions have been federal, at least since the creation of the Interstate Commerce Commission and the Federal Reserve Banking System. U.S. institutions like the Federal Reserve Bank of New York also act, in emergencies (such as the recent collapse of the Mexican peso) as the agent of NAFTA.

What, then, is likely to be the future relationship between these two blocs? The United States has openly announced its policy of extending NAFTA to all of Latin America. And while NAFTA means free trade within the bloc, it also means high protection externally, and especially high protection against Europe. Officially, the United States is still committed to worldwide free trade. But the actual result of its policies is that a zone of preferential trade agreements is gradually emerging around the United States--not unlike the bloc that is the EU. The world economy is thus fast coming to look far more like the mercantilism of Alexander Hamilton than like Adam Smith's free trade. It is fast becoming an "interzonal" rather than an "international" world economy.

But a new kind of mercantilist rivalry is emerging in this new economy--one in which the United States suffers from little-noticed disadvantages. For instance, the EU is seeking to export its regulations (and to impose its high regulatory costs on the United States) through international agreements, the reinterpretation of WTO rules, and the growing acceptance of EU standards in third markets. It is also promoting its new currency, the euro, as a rival and alternative to the dollar as the world's reserve currency--a step that, if it succeeded, would greatly reduce the U.S. government's ability to attract foreign funds to finance its deficit and thus maintain the Bush Doctrine. Nor can the United States be certain of maintaining the solidarity of its own bloc in competition with the EU. Several Latin American states are going slow on the negotiations to extend NAFTA for political reasons. The EU is itself seeking closer trade and economic relationships with Latin America through partnership talks with MERCOSUR. And the recent trend of Latin American politics has been to drift away from "neo-liberalism" and towards a Left perennially tempted by anti-yanquí protectionism. What is different today is that the EU offers these political forces the ability to choose free trade while simultaneously resisting U.S. "hegemony." The United States could therefore find itself with a smaller "home market" than rival blocs, but with the same high-cost regulations, in a world of intense mercantilist competition.

For thirty years after World War II, the U.S. economy dominated practically without serious competition. For another twenty years it was clearly the world's foremost economy and especially the undisputed leader in technology and innovation. Though the United States today still dominates the world economy of information, it is only one major player in the three other world economies of money, multinationals and trade. And it is facing rivals that, either singly or in combination, could conceivably make America Number Two.

Essay Types: Essay