What happens when the United States is Number Two?

A Cosmopolitan Globalist Symposium

From Claire—I’ve recently been reading When China Rules the World: The End of the Western World and the Birth of a New Global Order, by the British journalist and academic Martin Jacques. I posted this video here the other day:

It’s easy, but too facile, to dismiss Jacques as a CCP apologist. He’s a Marxist, or he was a Marxist, but he makes a number of points that strike me as inarguably true about Western societies and the challenges they face. I was struck, in particular, by this series of Tweets:

What is the West’s response to China's remarkable handling of Covid-19? The answer is simple. Ignore it. In the beginning, the UK government included the Chinese figures at its media conferences. Then they disappeared. A bit later South Korea vanished, too. It was all too embarrassing.

The strategy is either to ignore China and pretend it doesn't exist (no figures, no news) or demonize it. As a result, it is now virtually impossible to read anything serious about China (or East Asia) in the Western media. There is the odd sensible piece, but only rarely.

This is very dangerous. Not for China. China can take care of itself, as its handling of the pandemic and its impressive economic growth demonstrate. It is dangerous for the West. China is rising. It is hugely competent. It can do things we can’t. We need to learn from it.

By pretending that China no longer exists—or is just too toxic —we are refusing to understand or learn from it. I have barely read an article in the UK media (The Lancet excepted) that has seriously sought to analyze why China has been so successful fighting the pandemic.

This wanton blindness makes me fear for the West. It seems to believe that by burying its head in the sand the problem will go away. This is the mentality of a once great civilization that has lost the will and desire to learn from elsewhere. This is accelerating its decline.

Rising countries have great curiosity and a huge desire to learn from other cultures. China is like that. The UK was in the 19th century. The US used to be. The West was cosmopolitan. Interested in the world. Now we are provincial, inward-looking, resentful. And in steep decline.

He is writing as a warning to the West, not as an advertisement for the CCP, although it isn’t clear the CCP understands this. (They are so enthusiastic about his work that they’ve given him a column in the Global Times.) His premise is that the West has erred, fundamentally, in assuming that China’s form of governance imposes a natural ceiling on its economic growth and expansion. To the contrary, he argues; China’s global dominance is inevitable, and China will not change. Its success will create an alternative model for economic development, which will mean the end of Western dominance in every sphere—economic, political, and cultural.

Jacques is making striking claims, to wit, that 1.4 billion people do not believe in the ideal of liberal democracy; they are more satisfied with rule by the CCP than Westerners are with their own governments; and they will be exceptionally successful in exporting their governance model. He is either right about this or wrong. If he’s right, this poses a very different challenge to Western liberal democrats than a world in which these 1.4 billion people are yearning to breathe free.

Particularly interesting are his arguments about the continuity between dynastic China and China after 1949. Western antipathy to communism, he argues, has blinded us to the continuity in China’s political traditions and the degree to which the CCP has perpetuated ancient Confucian ideals—of the state as the embodiment of society, as an extension of the family, of meritocracy—that afford it legitimacy in the eyes of its citizens.

He believes China’s form of government to be entirely sustainable, even though it has none of the features we would recognize as a liberal democracy. The widespread belief that China’s industrial revolution cannot mature unless it develops these features, he argues, is mistaken; he notes that they did not even mature in the West until its industrial transition was complete.

China’s rise is therefore inexorable, in his view, as is the relative decline of the West. We are now entering an era of contested modernity, one in which China’s economic success—and its imminent economic dominance—will give rise to a Western existential crisis. The pandemic, he now argues, has accelerated this process. The crisis is imminent.

Is he right?

Arguendo, let’s assume he is. Beijing will succeed in creating the new, Sino-centric world order of its dreams. What will this mean to ordinary men and women around the world? What will it mean to Americans? What would it mean to the average European if the American umbrella has holes in it? What would it mean to the Indo-Pacific if America’s fleet in the oceans has limited relevance? We have already argued that Asian economies now draw less from America than they do from China. This process is well underway.

Over the weekend, I put this question to the Cosmopolitan Globalists—and to our new, proprietary geopolitical forecasting algorithm.

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The algorithm—The discussion premise is worth exploring, because the stakes are so very high. They’re so high, in fact, that they compel a re-framing of the question: not what happens when America is Number Two, but what happens when America is no longer Number One. They aren’t quite the same, you see. When our own beloved United States of America, last best hope of man on earth, is not number one, then it is a very long way down for us—and for a great many peoples and places that depend upon us.

As the question asks specifically what will happen to Americans, I will not address here the latter group. Suffice it to say that places like Tallinn, Taipei, and Tel Aviv have an exceptionally high likelihood of existential straits in a world without American preeminence.

For Americans, loss of preeminence—being Number One—means above all else the probable loss of the dollar as the global reserve currency. Much of the specifics of this depend upon the circumstance. It could happen because we lose a major war. It could happen because we win a major war but, in the British fashion, mortgage our future in doing it. It could happen through plain systemic overstretch: who will say now that Redditors in 2028 don’t decide to mount a Soros-type raid on the dollar? 

There is significant evidence that the dollar’s position is under existential, if quiet, threat even as we have this conversation. No one really believes in the steady fiscal management of the United States government, at home or abroad, and no one really believes the Federal Reserve is a nonpolitical and sober steward of the currency. Those myths evaporated in late 2008, and we’ve been living on the borrowed time of a convenient narrative since. The saving grace for the dollar in the interim has been twofold: the total untrustworthiness of the Chinese, precluding the yuan from becoming a serious currency; and the inability of the Europeans to see their political project to logical fruition in a Hamiltonian integration of national finances, thereby elevating the Euro to heights of Gaullist ecstasy. Ruchir Sharma has argued that the rise of cryptocurrency can be interpreted as an implicit market search for a reserve-currency alternative to the dollar, and I think he is correct. The dollar is insufficient: the successor has yet to arise. 

But it will arise. 

When it does, and dollar holdings slip to just another piece in the portfolio puzzle, the outcome for the United States—and the average American—will be catastrophic. The United States government operates through stupefying levels of accumulating debt, piling upon itself year after year. In the last two major economic crises, the federal government chose to spike the annual deficits to truly dizzying heights: to about 10% of GDP in 2009, and to about 15 percent of GDP in 2020. Those were crisis years: even if the annual deficit hovers around 5 percent of GDP and all is calm for decades to come (which it won’t be), the interest alone will double or triple the size of the accumulated debt within a generation. 

Meanwhile the accumulated national debt of the United States is about 130% of GDP. 

Meanwhile the average U.S. state receives about one-third of its annual budget from the federal government. 

All this is possible only—only—because the entire rest of the planet has confidence in the United States. Humanity in aggregate holds on to the belief that we will remain Number One. So, to the original question, what happens when that belief is lost? Well, when the belief is lost, then the reality is lost.

Losing that reality means the United States effectively loses its line of credit. It then has two choices: it can go on a de facto cash basis, or it can continue to issue debt at terms increasingly ruinous to itself. It is an error to consider these mutually exclusive options, but we should consider each in turn. 

The cash-basis option, otherwise known as austerity, probably means the dismantling of both the federal and state social-welfare apparatuses. The political costs to this, in terms of office-holder jobs and civic stability alike, are tremendous, and no one will wish to bear them. (It probably also means the dramatic slashing of our stupendous military establishment, which will look drearily familiar to UK friends, but this has more external consequences than internal.) The federal cuts will affect, most visibly, three major items: the infrastructure of interstate travel, from highways to airports; Medicare; and Social Security. The follow-on cuts to state budgets, most forced to c.60 percent of current expenditures with the presumed loss of federal funds, will reach even deeper into individual Americans’ lives: county roads, local bridges, public schools, state colleges, hospitals, and more will enter into a state of material arrest at first, and then decay.

The debt-issuance option, as the terms of that debt become more unfavorable to the United States, eventually raise the specter of inflation, and given sufficient elite foolishness, hyperinflation. This needs no expansion or elaboration. 

One might at this point conceive a picture of a dethroned United States of America as something very much like 1970s Britain: down and out, in a state of visible decay, and exceptionally grim, but only awaiting the right leadership to see it to a revival. This is a mistake. The era when America could be perceived, mostly accurately, as essentially a European nation on a different continent—much as Canada, Australia, and New Zealand are—is long gone. The United States is better understood as a loosely bound mega-population, mega-territorial nation of multiple peoples without a sufficiently robust common narrative to fully override centripetal forces. The mental model for America on the downswing is not any European state: it is other nations like that. Instead of Britain, France, Canada, Germany, think of the actual peer nations here being Brazil, India, South Africa, Nigeria, Indonesia, Russia, Mexico. 

Life in a toppled America will look a lot like life in those places. Not uniformly of course. But close enough. Consider South Africa and Mexico. Both places are marked by extraordinary culture and wondrous diversity—and also shocking inequality, erratic infrastructure, concentrations of wealth with a broader mass of semi-impoverishment, and endemic violence at nearly every level. That last bit should raise flags: Americans are second to none in the promulgation of violence.

Oh, and lest it go unmentioned, in this scenario, America’s ace in the hole—the persistent desire of most of the world’s top talent to come here and join its fortunes to ours—wholly evaporates.

What would it mean for ordinary Americans if we become number two? Well, bad news: we’d be lucky to stay number two. We won’t. We are either Number One or, in our present circumstance—which is entirely our own fault—we descend down the ranks of nations for some time. The question for us now isn’t what we do when that time comes. The moment of the fall is too late. The question is what we do to stave it off.

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Vivek Y. Kelkar: Looking at it from a historian’s point of view, I wonder if Britain is any parallel. What did the loss of empire really mean for the average Briton, what did the loss of the number one position in global affairs mean for the average Brit?

It’s not an absolute parallel though. Britain lost a territorial empire, its economic leadership and influence. The US loses an empire of perception and influence. Whether the US economy loses its Number One status depends a great deal upon the policies of the next four years.

Does the ability to influence the institutions of the world, both institutional bodies and institutions in a political economy sense, change? And if so, does it change the way nation states act and interact with the US?

A key frame for the change is technology. Large eras in recent history have been dominated by technology leaders. Is China really gaining the edge in technology? Does that affect common-man economics? Common-man daily life? Do the now-clear shifts in technology lead to a different paradigm of economic and political order?

A key economic frame is the primacy of the dollar. Realistically, how far away is the loss of primacy? Is there a parallel with the loss of primacy of the pound sterling?

Does all this really affect the average individual? I come back to the question: Did the loss of empire really affect the life of the average Briton, except in economic terms?

How did the fall of the Soviet Union affect the average Russian man in the street? Did it, really?

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Owen Lewis—Looking at long-term trends might be helpful. While the average man may not notice much difference in his daily life as empires wax and wane, there should be clear statistical indicators. There will be economic implications, which will affect the average American, if the United States loses its top spot. How to untangle these from other trends, I’m not sure.

Pride, maybe? I don’t think that China is ahead of the U.S. technologically yet, but it's catching up fast. It may not be long until it’s Number Two and within striking distance of the Number One spot. If China landed a man on Mars before Elon Musk and SpaceX, that would be a huge blow to national pride. Perhaps that would affect average Americans and galvanize them to do something. I’m not sure what that “something” would be. I don't think China will beat SpaceX to Mars, but what if they crack general AI first? Or an economic fusion reactor? Energy, AI, space, biotechnology, and nanotech are the key areas to watch, maybe additive and autonomous manufacturing—3D printing—as well. America is ahead for now, but China could pull ahead in any or all of them.

If America does become Number Two in the world, the average American might either become more insular or start looking more seriously at the rest of the world. Not sure which—but the status quo would probably be disrupted. 

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Toomas Hendrik Ilves—I would look both to the UK and Russia. Over time the US would become surly, nasty, and nationalistic, if not jingoistic. The loss of primacy has been extensively exploited in the UK and Russia countries to create low-IQ discourse and nostalgia for a lost, sometimes imaginary greatness. The obsession with victory in WWII as the last good thing to happen—and something to which the rest of the world must bow down—is a pathology that will infect the US in one form or another. A foretaste is to be found in the last four years. MAGA would finally have meaning as a rallying cry.

Other countries, too, have fallen for this. Mussolini, certainly, with Rome. Meanwhile, Greece during the debt and bailout crisis gives us the best example: When confronted with its bad behavior, lying about its spending, the hoi poloi responded: “We already had democracy when you were living in trees.” This didn’t really do much for its debts.

It would also be interesting to look at how France has handled its fall from greatness. It acts as if it never happened. 

We little guys, meanwhile just watch from the sidelines.

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Shay Khatiri—The British-to-American transition is not a good comparison. (Read Kori Schake’s Safe Passage.) The first change is that if the US is no longer the world’s largest reserve currency, the government cannot borrow and print money at such a low interest and inflation rate. This means we will have high inflation and cuts in entitlements.

From the foreign policy point of view, the first change is rise of prices owing to China’s mercantilist trade practices. Then you have the Bob Kagan theory (read Backing Into World War III in Foreign Policy): expansionist, illiberal powers never stop asking for more if not contained. This means China will continue to expand territorially. At some point, China will annex an ally and we will have to enter a war (like World War II). If we don’t, China’s power will grow sufficient to at some point invade the United States.

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Claire—When exactly in this scenario does the US go so broke it can no longer maintain its nuclear deterrent? I think that would cause China to think twice and three times again about invading CONUS. Being invaded by China is low on my list of worries. Nuclear weapons, alas, work very well as a deterrent. I’m much more worried that this thought—“nuclear weapons work very well as a deterrent”—will occur to everyone. And in a world of wildly uncontrolled nuclear proliferation, sooner or later, the worst will happen.

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The algorithm: Probably never. The only nation in history to give up an active nuclear deterrent was the Afrikaners, and they probably regret it. Nations will scrape and scrimp for nuclear weapons. America will always be able to afford at least enough to render the northern hemisphere broadly uninhabitable. I believe the PRC is the only regime, ever and anywhere, to regard a full strategic nuclear exchange as 1) an acceptable escalation option, and 2) winnable, so it isn’t clear to me that the ordinary deterrent value of a nuclear force is really present versus them. 

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Vladislov Davidson—can we reprogram the algorithm? The Ukrainians gave up 3000 nuclear weapons to Moscow in 1994—Belarus and Kazakhstan did too, but they did not have the launch codes ….

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The algorithm: Quite so, I stand reprogrammed. And they also regret it! 

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Vladislov Davidson—We very much regret it!!!!

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Shay Khatiri—The history of nuclear weapons is too short to be definitive on the effectiveness of its deterrence, and the balance of nukes could easily tip in China’s favor in a world where we can’t prevent proliferation by China. (In fact, we’re already failing at it with both China and Russia.) They could develop large enough an arsenal that ours won’t work as a deterrent. (Some nuke theorists suggest that a 4:1 ratio is large enough to make the inferior forces obsolete.) You should not worry about a Chinese invasion in the near future, but in a longer future. This is in addition to the possibility of a new weapons technology that’s far more lethal than thermonuclear weapons. That will recreate a 1945-48 scenario, where the US had a nuclear monopoly.

Ukraine didn’t have the launch codes.

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Claire—I’m not worried about China invading the US, period. What would the objective be—to enslave us? No, to destroy us you’d have to nuke us. Or set us against each other. Or destroy our infrastructure through cyberattacks. Or wreck our morale with biological warfare. But it’s obvious the world around that all of the latter would be highly effective, low-cost, and devastating. We’re as vulnerable to unconventional warfare as we’re invulnerable to invasion. Now everyone knows this. 

Since we’re inconvenient to China and Russia and many smaller states that don’t want to be overrun by either of them, my guess would be that the future will be defined by remorseless information operations against our wildly gullible population with the goal of setting us upon each other to the point that we invade ourselves. Perhaps, after we’ve reduced ourselves to something that looks like postwar Europe, China will clear the land for agriculture (it is very fertile, after all) by releasing SARS-CoV6 or some other germ to finish the job. That’s a tried-and-true method for colonizing the Americas, after all. But frankly, I don’t know why they’d bother with invasion. I don’t see that they’d really need the farmland.

The real cause for concern—we’re all converging on this—is the prospect of the loss of the dollar as the world’s reserve currency. If the world realizes there’s nothing but a man with a smoke machine behind the curtain, we’re in trouble. Much more trouble than the UK under comparable circumstances, because the UK effectively folded itself under our security umbrella, and we were willing, fairly seamlessly, to take over the role of benign global naval hegemon.

American social stability remains contingent on a widespread, realistic expectation of upward mobility. As soon as this disappears, we go berserk. Look how berserk we’ve already gone. Now imagine we’re twice as as poor. Or thrice.

What could be worse than nuclear weapons?

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The algorithm: There’s this.

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Claire: Can we tweak the code to make it just a little less gloomy?

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Jon Nighswander—People might find Adam Tooze‘s recent piece interesting. His conclusion is that the dollar is likely to remain preeminent for several decades because there are still no good alternatives. In every major crisis, people still run to dollars. 

Maybe Covid19 will change that, but I’m starting to think the US, or the Anglosphere in general, may actually come out of this stronger in the short term—certainly better than the EU. It’s interesting how many dominant global brands are a) American (Amazon, Netflix, Facebook, Tesla); b) less than 30 years old; and c) benefiting financially from the pandemic. Don’t forget Moderna. In terms of innovation and soft power. the US still doesn’t look like a country in decline—very much the opposite. Meanwhile, China is publicly humiliating Jack Ma.

Maybe the US is more like the late Roman Republic. It also survived interminable civil wars, but ended up even more dominant. Like the Romans, Americans are competitive, vicious and unforgiving of weakness.  

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While we keep working on the bot, we’re curious to know what our readers think: What do you imagine the world will look like when the United States is Number Two?