America and the WorId:
The End of Easy Dominance

by Sherle R. Schwenniger

The Nation magazine, November 20, 2000

Nearly a decade after the collapse of the Soviet Union, foreign policy pundits are still struggling to give a name to the post-cold war world. That they have so far failed is just as well. For the problems and challenges the next administration faces may be as different from the last decade's as the post-cold war world was from the cold war era. That's bad news for policymakers in Washington, many of whom have grown accustomed to the easy dominance the United States has enjoyed over the past decade.

Despite a bumbling start, the Clinton Administration has made hegemony look easy. It is remarkable how little the United States has had to sacrifice to support its dominant position in the world. Over the past decade, US foreign assistance, for instance, has fallen to a pitiful 0.1 percent of GDP, the lowest of any country in the Organization for Economic Cooperation and Development. Even its military spending has declined to a modest 3 percent of GDP, the lowest level in fifty years. Of course, the United States still maintains a vast military capability, but it is increasingly unwilling to risk American lives in its use, as its conduct in the Balkans amply illustrated.

In addition to bearing burdens for world security, dominant great powers generally export capital to the world, investing in the infrastructure and industries of less developed countries. At the height of its power, in 1913, Britain exported capital on a scale equal to 9 percent of its GDP per annum, financing much of the infrastructure of the United States, Canada, Australia and

Argentina. By contrast, the United States sucks in capital not just from Europe and Japan but also from capital-poor emerging economies, to the tune of 4 percent of US GDP.

In the 1980s scholars like Yale University historian Paul Kennedy warned of American overstretch-the tendency of US commitments to outstrip the domestic economic base. Today, there is hardly any stretch at all. Indeed, the problem is understretch. Washington has continued to proclaim ambitious world order goals but has rarely offered any resources or effort in support of those goals. Even the Administration's more important international initiatives-NATO enlargement, NAFTA and world financial liberalization-have been done on the cheap.

In its rhetoric Washington has indeed sounded like a crusading hyperpower, about which the French have warned. In reality it has more often acted like a comfortable status quo power, and it has been out of step with other democracies on most progressive causes, unwilling to sign the treaties to ban landmines and to establish the International Criminal Court, and unable to ratify the Comprehensive Test Ban Treaty and the Kyoto Protocol on global climate change.

What Washington has lacked in commitment and leadership, however, it has often made up for in public relations and spin. Clinton & Co. have proved particularly adept at claiming credit for international developments for which they have had only marginal responsibility and at assigning blame to others when things have gone wrong.

So effective has Washington's spin been that who would now doubt it was the Clinton team that brokered the Oslo accords between Israel and the PLO? (Actually, it was an obscure Norwegian foreign minister.) Or that it was the United States that has borne the greatest burden of financial crisis management and international peacekeeping? (In fact, Japan put up most of the money- some $80 billion-for bailing out the Asian economies during the 1997-98 crisis. And European troops have shouldered the greatest burden on the ground in Bosnia and Kosovo, contributing more than 80 percent of the NATO troops there, while Australia led the UN mission in East Timor.) On the other hand, who would doubt-until President Clinton fessed up-that it was the UN, not Washington, that was principally responsible for the debacles in Somalia and Rwanda?

In short, the perception of US power and influence has in many cases exceeded its reality. The one clear exception has been in the area of international finance, where the dollar and, along with it, the Federal Reserve and the Treasury Department have reigned supreme. Not only has Washington had its way in the IMF, pushing financial liberalization (without adequate safeguards) on such unprepared countries as South Korea, Thailand and Russia, it has also come to dominate world monetary policy in a way not seen since the 1950s.

That this dominance has come so easily is less the result of thoughtful American policy than the unusual circumstances of the post cold war period-Europe's preoccupation with the European monetary union, Japanese deflation, Russian weakness, low oil prices, geopolitical inertia in East Asia, to name a few. But as recent events have illustrated, these circumstances have begun to change, some in a fundamental way. As a result, the next administration will face more difficult policy choices, and many of these choices will entail either a greater commitment of effort and resources on the part of the United States or more willingness to share power with others, or in some cases both.

In the Middle East, Washington will find it more difficult to pose both as Israel's ally and as an honest broker of peace, while maintaining leverage over the oil-producing Arab states in the Persian Gulf. Bringing the UN and the European Union into the peace process, as the Clinton Administration did at the recent summit, may help to ease these contradictions, but it will also diminish Washington's sense of dominance in the region.

In the Balkans the next administration will have to choose between honoring the concessions Washington made to Belgrade at the end of the war, acknowledging Yugoslav sovereignty over Kosovo, and the promises it made to the KLA at the Rambouillet conference concerning Kosovo's independence. In either case, US troops may come to be seen as an occupying force and as a target of both the Serbs and Kosovars. The administration will also have to decide whether in the face of these new risks it will continue to commit troops in the former Yugoslavia in order to maintain US leadership in NATO or finally give its full support to European plans for an autonomous military capability and let the Europeans grapple with these difficult problems.

These foreign-policy landmines have the merit of being relatively well marked and thus navigable with some foresight. The others surveyed below may not be so evident or so easily sidestepped.

A More Demanding Neighborhood

One of the foundations of easy dominance has been a quiescent hemisphere, one that has required little in the way of development assistance or even crisis management other than coping with the occasional refugee flow from Cuba and Haiti and the periodic Mexican financial crisis. At the same time, Washington has been able to put most of the burden for stopping the drug trade on Colombia and its immediate neighbors, blaming Colombian drug lords and a complicit government for the cancerous effects of America's drug habit.

America's neighborhood is not likely to be so obligingly quiet in the four years ahead. Both Mexico and Colombia will require much greater attention, and every year brings a possibly costly and disruptive transition in Cuba closer. The election of Vicente Fox, which ended more than seventy years of one-party rule in Mexico, has raised legitimate Mexican demands for a new kind of regional partnership. The former governing party, the PRI, had in recent years become the perfect partner for an America committed to easy dominance. The PRI was willing to open up Mexico to US trade and investment, yet it was so authoritarian and corrupt that Washington felt little moral obligation to go beyond a simple free trade agreement to assist with Mexico's larger development needs.

Fox's election changed that comfortable calculus. He immediately announced a bold vision for broadening NAFTA, suggesting an increase in US immigration quotas, a new multilateral approach to stopping the drug trade and the creation of a regional development fund similar to the various funds that the European Union offers its less developed members. Fox's call for US and Canadian financial assistance for building Mexican infrastructure and for closing the development gap flies in the face of Washington's approach of trade, not aid. Yet to deny Fox entirely would strike a blow to the US goal of consolidating Mexican democracy and slowing Mexican immigration. At a minimum, mollifying Mexico's new democratic president will require increasing the capitalization of the largely moribund North American Development Bank and extending its investment mandate beyond environmental projects along the border.

The next administration will not be able to ignore so easily the substantial commitment of resources entailed in the path the Clinton Administration and Congress have embarked on with respect to the "war on drugs" in Colombia. Washington's longstanding game of blaming the supplier for the drug trade has contributed to the disintegration of the Colombian state and the development of paramilitary forces that compete with various guerrilla groups for control of the country's lucrative drug economy. The Administration's initial plan, calling for $1.3 billion to help the government fight drug traffickers, with the bulk of the money earmarked to train and equip army and police forces, will make Colombia the third-largest recipient of US foreign aid.

No one seriously expects this initial assistance to stanch the drug flow, given the entrenched nature of the drug economy in Colombia and the risk of the fighting spreading to neighboring countries. The ultimate bill is likely to be many times higher. Eventually, the next administration will confront the choice of whether to pour more money and American resources, including US military personnel, into a losing policy or to change its approach to the drug problem.

A Less Stable East Asia

If easy dominance has assumed a quiescent neighborhood, it also has depended upon a predictable status quo in East Asia. While the end of the cold war transformed the geopolitical and economic landscape of Eurasia, the geopolitics of East Asia has remained pretty much frozen. For more than two decades, it has been characterized by a cold peace on a divided Korean peninsula, a one-China fiction that has prevented conflict between China and Taiwan, and a network of bilateral US security relationships with Japan, South Korea and (informally) Taiwan.

Washington has long resisted any change in the status quo, out of fear of calling into question its privileged position in the region or upsetting regional stability. But the area has developed its own dynamic, and the local powers have become far less cautious in the waning years of the Clinton Administration. Despite initial US misgivings, South Korean President Kim Dae Jung has persevered with his "sunshine" policy toward the North, seeking the stage for the détente that now seems to be developing its own momentum. The Taiwanese people have for the first time elected a president who is openly committed to an independent Taiwan, and although he has prudently backtracked from his earlier positions, his people's determination to rebuff Chinese pressures for unification continues to grow. Meanwhile, China has entered a painful period of economic restructuring, and the nation's economic difficulties may drive Beijing to seek to end the status quo across the strait and press its territorial claims in the South China Sea.

The situation in the region is further complicated by the fall of Suharto in Indonesia, which has increased fears of that country violently breaking apart; the Indian and Pakistani nuclear tests and US plans for a national missile defense, which have reinforced Beijing's determination to accelerate its nuclear modernization; and the growing resentment of America's international economic policy and military presence, which in South Korea may only increase as détente with the North takes hold.

In the face of these new realities, it will be difficult for Washington to maintain its traditional bilateral agenda in East Asia, by which it has been able to balance relationships separately with China and Taiwan, China and Japan, and Japan and Korea. The belated end of the cold war in East Asia may force the United States to make some painful choices it has long been able to avoid-for example, whether to abandon Taiwan or to confront China, and whether to have a China-first or a Japan-first strategy. The only alternative is for the next administration to jettison bilateralism in favor of developing a multilateral forum in which some of the current contradictions in US policy can more easily be worked out. But that means sharing power in a more open way than Washington has thus far been willing to do.

A More Assertive Russia

Another factor making easy dominance possible has been Washington's one-sided relationship with a weak Russia. This relationship has rested on the assumption that Moscow was so enfeebled (or Yeltsin so inept and his associates so corrupt) that the United States could enlarge NATO, dictate economic policy, bomb its former allies, unilaterally change or abrogate the ABM Treaty and seek to wrestle the oil-producing Caspian Sea areas out of its control, all without a murmur of dissent, let alone a serious adverse reaction from Moscow. Even today, that perception persists, fed by the latest indicators of Russian decline: the mysterious sinking of the Russian nuclear submarine Kursk and the fire at the nation's tallest television tower in Moscow.

Russia may be weak as a result of years of disinvestment, but Moscow will never again be as compliant as was Yeltsin's Russia this past decade. Washington's push for a national missile defense has given Russian President Vladimir Putin a platform for improving ties with America's European allies, China and South Korea, and for complicating US diplomacy that Moscow has largely lacked in the post-cold war world. More important, the next administration will be faced with the reality that the United States needs Russia as much as Russia needs the West. It needs a reasonably strong Russia not just to maintain the safety of its nuclear weapons but also to counterbalance a potentially more assertive China, to check Taliban-like extremists and terrorists in Central Asia and the Caspian Sea, to help stop nuclear proliferation in Iran and Iraq, and to develop peacefully the oil resources of the Caspian Sea basin.

The next administration will need to decide whether to make good on President Clinton's promise to take the Baltic states into NATO, thus risking Russian antagonism and countermeasures (a cutoff of oil). It will also need to decide whether to continue the bid to supplant Russia in the Caspian Sea region and to extend US control of the world oil market, or to recognize that US efforts are near failure. Washington's two-pronged strategy entailed establishing military relationships with fragile authoritarian governments in the Caucasus and Central Asia to give them more independence from Russia, and a pipeline policy that sought to redirect the transport of oil and gas away from Russia and Iran. Both aspects of Washington's strategy are now in disarray. The countries in the region, including Azerbaijan and Georgia, both of which once lobbied for NATO membership, now realize that the United States lacks both the will and resources to meet their security needs, and US as well as European oil companies have balked at putting up money for Washington's preferred pipeline route through Turkey, which they believe makes no economic sense.

Washington may not like it, but it will eventually have to accept that only Russia is capable of maintaining enough order to develop the region's oil resources peacefully. Only Russia can help solve the Abkhazia separatist problem in northwestern Georgia; similarly, only Russia can help bring about an Armenia/Azerbaijan settlement in the disputed Nagorno-Karabakh territory. And only Russia can serve as a buffer between the Caspian Sea countries and the spread of Islamic extremism in Afghanistan and Pakistan. Ironically, twenty years after Washington armed the mujahedeen to drive the Soviet Union out of Afghanistan, Russia must now protect the West from the blowback of that policy.

The No-Longer-Dominant Dollar

In the post-cold war world, a country's power and influence turn less on its military capabilities than on its financial power-on the position of its currency in the world's financial system and its ability to influence the flow of capital in the world economy. In this regard, the United States has enjoyed supreme power over the past decade, particularly the last half of the decade. It has been able to control world interest rates while ignoring European and Japanese calls for greater management of exchange rates. In addition, a strong dollar has allowed it to run ever larger current account deficits even as the US savings rate plummeted into negative territory.

Conditions in the post-cold war world have been especially propitious for the dollar. The uncertainty over European monetary union, Japan's zero-interest policy and the fact that much of the debt overhang of the 1 980s was denominated in dollars have all contributed to the dollar's strength. So have the decade's emerging markets financial crises, which sent floods of capital into the dollar looking for a safe haven. And, of course, so has the "new economy" miracle and all the hype in international investor circles that it has enjoyed.

But a number of powerful forces could erode the dollar over the next decade. A country's currency can ignore fundamentals only for so long, and some US fundamentals are not good. The US current-account deficit has increased from $110 billion in 1995 to a projected $400 billion in 2000-4 percent of GDP. At the same time, the savings rate has fallen from 6 percent to a negative 0 4 percent in August 2000. As a result of these ever larger deficits, the United States will soon have an international debt equal to 20 percent of GDP, a level more consistent with a developing country than an advanced industrialized economy.

At some point, investors will be reluctant to hold more debt denominated in dollars, and European and Japanese investors and companies will lose their appetite for US assets. Then the dollar will fall from grace, and the era of easy dominance will end. Until now, the dollar has benefited from the fact that there was no alternative for investors to turn to in times of crisis. But with the maturing of the euro, there eventually will be. One should not be misled by the euro's current woes or by the fact that its value has fallen more than 25 percent since its advent. These are the natural growing pains of a new currency whose economies are exporting large sums of capital. Indeed, on the indicators that matter most to a currency's future, the euro has done extremely well. Since its creation, as much international debt has been issued or denominated in euros as in dollars, indicating an underlying confidence of the world's largest financial institutions in the currency.

At the same time, the dollar's future may also be affected by the efforts of other regions, either to imitate the euro's success or to develop greater independence from the US Treasury and Federal Reserve. Japan, China, South Korea and the ten members of the Association of South East Asian Nations (ASEAN + 3) have announced a regionwide system of currency swaps and a liquidity fund to help them deal with future Asian crises and to avoid the dictates of the IMF and US Treasury. Indeed, these various efforts herald a new monetary regionalism, whereby we may eventually see three major competing regional currency zones: the dollar, the euro and possibly the yen. In this competition, the euro-zone, with its larger economy, its balance between savers and consumers, its more consensual, democratic culture and its ability to induce sound policies and reforms in candidate countries, may have clear advantages over an emerging dollar zone of debtors and unreformed economies.

The emergence of a euro zone, and possibly a yen zone, as rivals to the dollar would be a huge blow to America's international position. Washington's main hope for stemming this quiet revolt against its financial hegemony is to seek greater cooperation with Europe and the Asian economies in the management of world monetary policy. But that goes against the prevailing wisdom in Washington.

The end of easy dominance will require that America's foreign policy leaders be more honest with the US public: Dominance can by maintained only with much greater sacrifice, and thus only if it has the full support of the American people. Public opinion surveys suggest that the American people are less interested in dominance than their elites and less willing to maintain far-flung military commitments, but more willing to support the UN and more open to sharing power with other countries than is normally assumed. In short, there is no obvious public constituency for dominance with sacrifice, but there is support for a modest and constructive internationalism. The sooner the next administration comes to grips with this reality, the more likely it is to forge a foreign policy that will be able to both advance US interests and promote a progressive world order.

Sherle R. Schwenninger is a senior fellow at the World Policy Institute at the New School University and a program adviser to the New America Foundation. Research support provided by the Elections 2000 Fund of the Nation Institute.

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