US Attempt at Domination Hobbled by Contradiction

Critics point to the war in Iraq and President Bush's subsequent denial of reconstruction contracts to dissenting nations as proof of Washington's hegemonic tendencies. However, argues security expert Michael Kraig, the Iraq War is just the latest manifestation of a US foreign policy that has been deeply contradictory since the fall of the Berlin Wall. During the Cold War, a mercantilist security strategy prevailed, in which the US and the Soviet bloc were both political and economic enemies. Now, under the principle of ‘comparative advantage', nations import whatever goods they are not able to produce efficiently. The global economy is so integrated today that countries only prosper when their trading partners do as well. Yet despite the dissolution of the Soviet bloc, Kraig says, nations are still divided on ideological and cultural grounds. The US thus finds itself economically dependent on political opponents like China and, more recently, the EU. To maintain its economic power and allow for the growth of global free trade, Kraig concludes, the US cannot continue to pursue an aggressively unilateral and mercantilist political strategy while embracing a laissez-faire economic system. - YaleGlobal

US Attempt at Domination Hobbled by Contradiction

Washington cannot mix mercantilist security strategy with global laissez-faire economy
Michael Kraig
Monday, April 19, 2004
Churchill, Roosevelt, and Stalin at Yalta in 1945: During the Cold War that followed, the US could employ old mercantilist techniques against the Soviet bloc - but now times have changed.

MUSCATINE, IOWA: Critics have panned the Bush administration's decision to exclude key countries from Iraqi reconstruction projects as yet another example of Washington's unilateral, hegemonic policies. Although critics focus on US policy in Iraq, this example is only a symptom of deeper contradictions underlying American foreign policy in the post-Cold War era. The US seeks to fashion a hegemony modeled on 19th century "realpolitik" power, yet much of its influence is the result of a globalized world of growing interdependence. Simply put: there is a growing contradiction between what the US does in the security sphere and what it does in the economic sphere - between a mercantilist security strategy and a laissez-faire economic strategy.

During the glory days of "realpolitik" in Europe (roughly the period 1648-1914), mercantilist political advisors believed that gold and arms went hand in hand. If another ruler or nation was your military enemy, they were also your economic enemy. The key was to amass superior power through alliances, colonies, and domestic production. Oftentimes even alliances were temporary and fleeting. The only constant was the will of every state to increase its power at the expense of others.

Today's global trading and financial system has been built on ideas utterly antithetical to mercantilist strains of realpolitik. These new ideas were first given life by philosophers dating back to the 1700s, but they were not realized as policy until the US assumed global leadership after WW II. The basis of the current global economic system is "comparative advantage": each nation produces what it can make most efficiently, and then it trades with others to secure goods it is less well-equipped to produce on it own. For instance, Japan might trade its superior electronics for Germany's efficiently produced luxury sedans.

In a world based on economic integration and comparative advantage, each nation becomes utterly dependent on other nations for those things which are best produced elsewhere. Therefore, the welfare (and security) of any one state depends on the welfare of its largest financial and trading partners.

These two versions of global relations have been sparring for quite some time, and although the advocates of laissez-faire comparative advantage have made great gains, the contest is far from over. Differences in culture, nationalism, ethnicity, and ideology make it difficult to cement cooperative, win-win relationships between nations. These frictions are the reasons why mercantilist thinking and practice is still evident in security (and also economic) relations. China, for example, has expressed a willingness to launch a war and potentially destroy many of its valuable global economic ties in the event that Tawain unilaterally declares independence from the Mainland.

During the Cold War, both philosophies could sit easily side-by-side. Stalin's decision to create an isolated system outside of traditional political economy meant that the United States and its allies could apply old mercantilist techniques against the Soviet bloc while still adhering to comparative advantage with all non-Soviet countries. US trade restrictions ensured that no advanced technologies flowed either way, except through spies. Little money, goods, or services exchanged hands. Economic power amassed by the US and its allies was completely distinct from and opposed to economic power amassed by the Soviet bloc. The same rule applied to military power, as each side competed to build up distinct defense capabilities. The economic and security strategies of US policy went hand in hand, as in centuries past. Meanwhile, the rest of the world moved forward on the laissez-faire agenda of free trade and economic (and hence political) interdependence.

But the Berlin Wall no longer stands. In its absence, the disparities between these contending policy practices have become magnified, with harmful effects to both global and US interests. During the Clinton Administration, many American experts and politicians painted China, Iran, and Cuba as enemies in a traditional mercantilist sense, even while all three countries were being integrated into a global laissez-faire economy, without respect for ideologies or nationality. The results of these arguments were failed policies such as the Helms-Burton Act, which attempted to penalize other nations for daring to treat US-defined "rogues" as part of the integrated economic order.

Today, Bush is viscerally uncomfortable with the word "globalization," given the interdependence it implies. This discomfort can be seen in the contradictory policies pursued by his administration. China owns an increasing share of US debt in the form of treasury bonds and pure dollars in reserve, and yet the United States is building missile defense systems (and potentially even space weapons) to protect against China's rising power. Europe owns an even larger share of US debt (and together with China and Japan holds up the value of the dollar artificially), and the EU is America's largest trading partner. Yet in keeping with the old mercantilist strategy, the United States has attempted to cut Europe off from mutually-beneficial economic activity in Iraq.

The growing international opposition to the US should serve as a wakeup call that the country has a hard choice to make. It cannot expect the global free trade system to move forward and expand if it continues to follow a mercantilist political philosophy. While these two philosophies could comfortably co-exist during the Cold War, it is now impossible to pursue both strategies and still have a coherent US foreign and national security policy. Powerful countries can no longer exploit colonies to expand their markets. . And the values of national currencies - on which national power increasingly depends - are now decided by free trade in currencies and bonds by individuals as well as national governments. Thus US economic power depends very much on Japan, China, and Europe deciding that the American dollar is actually worth what the United States says it is. That means that US power is increased when other countries agree with America politically, and it will inevitably be decreased when US actions rub partners the wrong way. When this occurs, partner countries are likely to call in their economic chits as a way of voicing their political disagreement - just as the United States is now doing against them.

Michael Kraig is a program officer at the Stanley Foundation, based in Muscatine, Iowa. He is currently managing several Foundation initiatives dealing with Persian Gulf regional security problems, US-Iran relations, weapons of mass destruction proliferation, and US national security strategy.

© 2004 Yale Center for the Study of Globalization