OPINION:
With President Biden’s retirement, the curtain falls on the post-Cold War era.
When the Berlin Wall fell in 1989, political scientist Francis Fukuyama proclaimed the “end of history.” American capitalism had triumphed over communism, and Western powers opened the World Trade Organization and other forums to China and Russia, believing their participation would promote democratic reforms.
That failed. Russia and China became export powerhouses in oil and other resources as well as manufacturing. They used the resulting wealth to modernize their militaries and form an axis with Iran and North Korea that threatens global peace and security.
With our federal deficit at 7% of gross domestic product, the new administration can’t raise defense spending from 3% to 5%, as is needed to adequately protect our allies in Europe, the Middle East and the Pacific, without similarly raising taxes.
Europe’s GDP and population are large enough to counter Russian aggression, as the United States must focus more on Asia. If Europe doesn’t, it faces a dark future as Russia will keep looking for weakness and imposing costs as it does in Ukraine.
America maintains preeminence in important advanced technologies — artificial intelligence and chip design — but has fallen behind China in electric vehicles, batteries, green supply chains and Taiwan in the fabrication of the most advanced chips.
The new administration should consider reinforcing or replacing Mr. Biden’s industrial policies to strengthen those U.S. industries.
Multinationals rightly worry that China is too politically unreliable to be an investment focus for export platforms, and India and Southeastern Asian nations are becoming increasingly important drivers of global growth.
To fully participate, the United States must secure market access.
The Trans-Pacific Partnership could provide a window into Southeast Asia, but India likes to play the West against Russia. It will open up only as much as will serve its narrow interests.
Mr. Biden’s Indo-Pacific Economic Framework for Prosperity seeks benefits for U.S. exports and investments that could be accomplished through the TPP — for example, regulatory harmonization in areas such as technology — without offering in return to lower U.S. tariffs and has accomplished little.
In the presidential campaign, neither candidate showed much sensitivity to the need to better cultivate the opportunities posed by accelerated Indian and Southeast Asian growth or compete more effectively with China for markets and influence.
Similarly, suppose the United States fails to adequately invest in naval and other military resources in the Pacific and continues its weakness to Iranian-sponsored Middle East piracy. In that case, Southeast Asian nations can be expected to cut deals with China as best they can for reasons of survival.
Again, neither Kamala Harris nor Donald Trump appeared sensitive to that imperative during the campaign.
In all this, the U.S. economy is becoming too inward-looking.
Protectionism, popular with both political parties, will impel more of what we consume to be made here — not just the strategic stuff in high-tech and medicine but also everyday items.
This will make what we buy more expensive and lower our standard living.
The mechanisms will be subtle. Higher prices for domestic goods will add to inflation, but lower productivity will yield less in the way of wage gains to compensate. All will be subsumed into other dynamics of change that are difficult to sort.
Similarly, Americans have become smug that the yuan or any other major currency cannot easily replace the dollar’s preeminence. Still, its reserve currency status is much anchored in both the role of money as a store of value and the position of the United States as a global superpower.
Making promises on the campaign trail, neither Ms. Harris nor Mr. Trump seemed much concerned that inflation posed by even larger deficits could erode foreign confidence in the dollar as a store of value and panic bondholders, and a militarily weaker America would hardly inspire foreign central banks to stay with the dollar.
The kicker is that the next reserve currency does not have to be a national currency.
Meta’s Diem (formerly known as Libra) — a digital currency based on the dollar, euro and pound — was abandoned due to U.S. government concerns about money laundering. As with the SWIFT system, these reservations could be overcome if a trusted nation such as Switzerland created a digital currency convertible to a weighted average of the euro, dollar, pound, yen and yuan and enabled a similarly denominated bond market.
Loss of the dollar’s status could reduce American living standards by 3% of GDP. That’s roughly equal to the efficiency benefits we get from trade — about 1% of GDP — plus the estimated cost for adequately funding our military — as noted, about 2% of GDP.
It’s the old story — pay me now or pay me later. Adjust to competition from India and Southeast Asia through freer trade and pay the taxes to invest in defense or suffer the consequences through a poorer American economy.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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