In the 2004 film Downfall (Der Untergang), which portrays Hitler’s last days in a Berlin bunker, he says that if the German people are weak they deserve death. It is a view from philosopher Friedrich Nietzsche who argued that conflicts are won by those with the strongest will. The particular situation shows the flaw in the argument. Whatever the will, there is not always a way; there has to be the resources. The film has Hitler ordering his nonexistent armies to resist the allies, but they had already been overwhelmed by Russian boots and American weaponry.
I was reminded of Downfall by Fintan O’Toole’s description of Trump’s version of history that the default condition of American capitalism is global capitalism; if it has been lost, it can be restored by sheer political will. I do not equate Hitler and Trump – there are parallels and there are perpendiculars. I am drawing attention to the parallel of the importance each ascribes to political will and the danger of not having the resources to back it.
Therein sits the inherent failure of the Trump strategy to make America great again. He is correct that America is not as relatively powerful as it was once – say after the Second World War, when the US share of world GDP was 27 percent while next down were the Soviet Union and Britain at about 7 percent each, and only the US had nuclear weapons. Currently, China’s GDP is about 19 percent of the world total, with the US at 15 percent, fractionally ahead of the EU. Russia and Britain are in the 2-3 percent group with Indonesia, Brazil and Turkey, while India (8%) and Japan at (4%) sit above. (GDP is measured in common prices.)
This column is about economics but there is an endnote about military strength; in the long run it also depends upon the economic base. A second endnote reviews the international monetary world order; this column focuses on trade.
Economists have a reasonably coherent account to explain America’s falling share of world output. To simplify, it is hard to progress the technological frontier which drives economic growth at the top of the affluent economy hierarchy; it is easier to import existing technologies and apply them once local governance is favourable. (There are lots of complications and caveats, many of which I wrote about in Globalisation and the Wealth of Nations.) But basically, we should not be surprised that the US share has decreased as other economies have grown faster. It happened to Britain in an earlier era, as America and the European continent with their larger populations overtook it. I shall not be surprised if eventually the world returns to the pattern of 1750, when the relative size of economies roughly corresponded to the relative size of their populations; of course there are complications and caveats.
Trump and many Americans have an entirely different explanation for America’s relative decline. They think politicians (of both parties) and the Washington bureaucracy have not had the will to maintain the US hegemony, making concessions to other countries at the expense of America. A leader with strength of character and purpose will not just stay the decline but reverse it, making America great again.
An economist finds this a difficult proposition; here I focus on the policy responses. The logic of this success-by-strength approach is for the strong to operate bilaterally. In a bilateral negotiation the stronger party can win by bullying the weaker one. Trump repeatedly tries this approach, hence his abandoning the multilateral trading system. The US is usually stronger than the other party, but in the case of China the two contestants are more equal. (This is also true for the European Union but its clumsy political structure, which gives many of its countries a near veto, has led to Trumpian America interfering in domestic politics to create regimes more favourable to MAGA.)
Other economies are much smaller and offer the possibility of successfully divide and conquer. Thus far the strategy has hardly worked because the smaller have sat tight rather than settle. Some have concluded that by working together they can resist the bullying. ASEAN, a loose federation of 10 South East Asian economies which collectively make up about 6 percent of the world’s GDP, is aiming to increase cooperation – including that none will make concessions to the US which harm the other nine – and to diversify which means working more closely with China, the EU and Japan. China is particularly keen because it would welcome a greater leadership role in the international economy, although it faces a number of limitations. (Who wants to replace one bully with another?)
Regrettably, much of our public discussion on international relations ignores its economic dimension (it’s a bit like Hitler and his armies) Meanwhile, the government has long been pursuing international cooperation and diversification, which will be vital in these troubled times. But Australia aside, we have few natural allies and Australia at about 1 percent of world’s GDP is only a larger tiddler – we are a sixth of Australia. (Sure, we may have special responsibilities towards nations in the South Pacific but they have even less economic leverage.) Our preference is for a multilateral world order based on the rule of law. That is not Trump’s, nor have recent US presidents – and, especially, the US Senate – seen it as a priority.
That is the irony of MAGA. It will not reverse the long-term diversification of the world economy but it may speed it up. The US will increasingly need friends too, but ‘America First’ is alienating them. It is certainly not going to make the country great again. Trump’s policies are undermining the arts and literature, science and technology, universities and its moral leadership, which is what has really made America ‘great’. While he may be trying to make America dominant again, the logic of the world’s economic development is that the dominance objective will fail whatever the strength of will of its leadership.
Endnote on Military Spending. The military story is slightly different but as revealing. The US totals about 22 percent of the world's military spending at common prices, compared with 12 percent for China and 9 percent for Russia, together almost equalling the US total. But NATO, excluding the US, pitches in another16 percent. What is unusual about the US spend is that it is worldwide, whereas most other countries’ military are focused on their backyards. Ukraine uses just over 5 percent (including that supplied by NATO countries) so there are other factors which affect the effectiveness of the spend, but only by so much. That the US is insisting its NATO allies spend more suggests that it judges there are severe limitations to its ability to police the whole world.
Endnote on the International Monetary Order. The US dollar dominates the world monetary system more than the US dominates the world economy. The issue is not that the US dollar is internationally the common unit and means of exchange. Critical is its share in international currency reserves. That is steadily diminishing as central banks reserves increase the share of other currencies (especially the euro). Nothing Trump has done will reverse the trend. His ‘big beautiful’ budget measures may accelerate the decline since it not easy to see how a reserve currency can be backed by a government with trillions of dollars of debt. However, in the immediate future the world will still depend upon the US Fed (Federal Reserve) in an international financial crisis, as it did in the 2008 GFC. In turn, the Fed has to be backed by the US Government which may this time be less reliable, especially if a cabinet of billionaires is more concerned with its personal fortunes rather than the world’s. The central banks governing the euro, renminbi and yen have been strengthening their abilities to play a greater role than in 2008, but they are not there yet.