Will the U.S. dominate the world economy for the foreseeable future?
NEAR THE END of the Second World War, the U.S. called together 44 of its allies for a historic conference at Bretton Woods in New Hampshire. There, it proposed a new post-war international security agreement backed by its pre-eminent military and economic power.
With that conference, the U.S. changed patterns of international behaviour that had existed for millennia.
During those long centuries, if a country wanted to prosper and build foreign trade, the only way to protect its interests was to develop enough military power to provide security for its trade lines and resources. That led to an ever-smaller group of large nation states maintaining ever-larger military infrastructures that could be used for conquest as well as security.
This system culminated in the Second World War—the most-costly conflict in history.
The U.S. proposed that a new plan was needed to encourage peace by allowing countries to prosper without a huge military. In exchange for support for this vision (and opposition to Soviet expansionism), the U.S. offered to be the military guarantor of all international trade routes. In 1944, American military power far eclipsed that of any other nation and it effectively had no long-term rivals for international political influence, so other nations agreed, and a new world order appeared.
Fast forward 75 years, and the U.S. still dominates world trade lanes through its vast and virtually unchallenged blue-water fleet and its unrivalled air forces, and international trade continues to increase without the need for trade-expanding wars.
If there is a more fascinating and plausible take on the economic future of America (and Canada, too), I am unaware of it
But according to geopolitical strategist and energy consultant, Peter Zeihan, while America has certainly benefitted from world peace, it has, strangely, not led to American economic dominance over the rest of the world.
According to statistics he cites repeatedly, the U.S. is emphatically not a trading nation. Less than seven per cent of its GDP is based on international trade, and if Mexico and Canada are removed from the mix, the number drops to around three per cent. That means the U.S. can, in effect, do almost entirely without offshore trade because the great bulk of what it grows and manufactures is consumed by its own citizens and immediate neighbours. In this, it is almost alone in the world.
And its demographic makeup is such that, with only moderate immigration, it can maintain the taxpayer base required to fund the retirement of the outsized boomer generation and still grow its economy for succeeding generations.
There is only a tiny handful of countries in the same situation, and Canada is emphatically not one of them (even less so if Wexit becomes a reality).
And therein lies the fly in the international ointment. With the U.S. recently—and almost without warning—becoming energy independent for centuries to come (thanks to the success of shale oil fracking and alternative energy technologies), and with a huge domestic consumption base, its requirement to remain the world’s largely unpaid policeman has all but vanished.
In the light of this unexpected new reality, what happens now? Zeihan notes that America would be able to divert the trillions of dollars it currently spends to maintain open sea lanes to meet its own domestic needs. Mountains of previously unavailable dollars put into financing business expansion, infrastructure replacement, environmental protection and a myriad of other socially beneficial projects could transform an already-successful country into an economic colossus supporting the most prosperous population in the history of the world.
If there is a more fascinating and plausible take on the economic future of America (and Canada, too), I am unaware of it.
Peter Zeihan has his critics, but I am not among them. I think he is a true visionary, and whether America embraces his vision or not could be among the most important political decisions in history. Jim Chapman