Last week I mentioned two books by Peter Zeihan, The Accidental Superpower (2014) and The Absent Superpower (2016). The second of those two books
The first of those trends began with the fall of the Soviet Union (1992) and the collapse of the Iron Curtain. During the 1990’s that led to relatively less American spending on military defense systems to protect Europe from the existential threat posed by the Soviet military; emphasis intended. Since the end of WWII in 1945, Europe and much of eastern Asia, along with the Middle East oil empires they depend upon, had been secured by American willingness to send missiles and manpower to their defense. With the fall of the Berlin Wall on November 9, 1989, and the subsequent collapse of the Soviet Union; that American willingness began to dissipate.
Secondly, at the end of WWII, the U.S. began a new policy of globalized free trade. According to Peter Zeihan, this was America’s way of bribing the world to take our side throughout the Cold War period. That period ended in 1992. That trade policy gave a lopsided advantage to our trading partners, and some – notably Japan in the 1980’s – took full advantage of it. More recently, others – notably China – have not only taken advantage of our free trade policy, and good for them that they did – but, they have also engaged in the theft of intellectual properties. Not so good; creative and industrious Americans resent that.
Finally, there is oil. The Bretton-Woods agreements of 1944 (and the reality of America’s global economic dominance) established the U.S. dollar as the world’s reserve currency. That meant that virtually all international trade was settled in dollars. In 1971 Richard Nixon famously removed the dollar’s gold backing, which officially acknowledged dollar weakness brought on by excessive spending. Unofficially, Secretary of State Kissinger simultaneously went to Saudi Arabia to affirm America’s defense of Saudi oil fields in exchange for a Saudi guarantee that oil sales would continue to be denominated in U.S. dollars. That trip may not have been necessary, especially given the Saudis’ alternatives, but it worked. Now, thanks to
The American people are fed up with Saudi and Iranian duplicity regarding Islamic terrorism, and they are loud and clear in their opposition to spilling any more American blood in the sands of the Middle East or the mountains of Afghanistan. Voters’ perception of globalized free trade is that hurts American workers, especially in manufacturing. And, Russia is still a nuclear power, but it is increasingly toothless, economically. With these three trends fully visible, and with the election of Donald Trump, Americans are saying to most of the Middle East, Europe, Japan, and China, “It’s time to put on your big-boy pants, and look out for yourselves.”
In Part 3 we’ll look at some possible consequences, as well as some mitigating factors.
The opinions voiced in this material are for general information only, are not intended to provide specific advice or recommendations for any individual and do not necessarily reflect the views of LPL Financial.