Birthing Pains for a Multipolar World
Adam Sharp

After World War 2, the U.S. emerged as the only major power with its industrial base intact.

Europe, the USSR, and Japan were all devastated.

The Soviet Union alone had 26 million deaths due to the war. The rest of Europe had approximately another 20 million. Japan lost around 3 million.

All the major powers’ infrastructure had been annihilated. Except for America.

Even before the war, the U.S. was the eminent economic power of the world. But this advantage increased significantly following WW2. After all, it was American ships, tanks, guns, and bombs that turned the tide.

B-24 bomber production line at Ford’s Willow Run plant

In 1945, America produced 50% of global industrial output. With just 6% of world population.

By 1947 the bulk of military production lines had switched to civilian goods. Lines that were producing tanks switched to cars and appliances. Factories that were churning out bombers switched to commercial airliners.

And in 1944, the Bretton Woods agreement set Uncle Sam up as a monetary superpower as well. The U.S. became the world’s largest lender, which gave it a stake in much of the world’s re-building.

The result at home was a sustained economic (and baby) boom.

America quickly dominated both the industrial and financial world, setting the stage for 65 years of U.S. exceptionalism.

A New Challenger

The USSR was devastated after WW2, but it also gained a substantial chunk of new territory (either formally or as satellite/vassal states). East Germany, Eastern Poland, much of the Baltics, and some of Japan’s former territory.

For a long time, the Soviet Union was America’s only real competition. But the U.S. won the cold war decisively, mostly due to a superior economic model.

America’s reign as sole superpower lasted from the 1940s until recently.

Today, China is emerging as a new superpower. And in some ways, the country is already more powerful than the USSR ever was. On the economic front, it’s certainly true. China today produces roughly 1/3rd of the world’s manufacturing output. It’s not quite as dominant as America was following WW2, but that was a unique situation as much of the major powers’ infrastructure had been destroyed.

The USSR never came close to that level of industrial strength.

And I would argue that China is also becoming a military superpower. We covered this in depth in Containing China is Becoming Untenable.

Russia is also re-emerging as a major power. I wouldn’t necessarily qualify them as a superpower, not economically anyway. But when it comes to military might, they punch above their weight.

The rise of China, and to a lesser extent Russia, has ended America’s title as sole superpower.

A Shift to the Americas, and a Multipolar World

“We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.” - Karl Rove, 2004

For much of the past 50 years, America has exerted its will on the world. Between our economic and financial might, almost anything was possible. The threat of invasion, nation-building, and sanctions brought nations to their knees.

That era is drawing to a close. And President Trump’s recently released National Security Strategy reinforces this sea change. According to the guiding document:

“After the end of the Cold War, American foreign policy elites convinced themselves that permanent American domination of the entire world was in the best interests of our country. Yet the affairs of other countries are our concern only if their activities directly threaten our interests.

Our elites badly miscalculated America’s willingness to shoulder forever global burdens to which the American people saw no connection to the national interest. They overestimated America’s ability to fund, simultaneously, a massive welfare regulatory-administrative state alongside a massive military, diplomatic, intelligence, and foreign aid complex. They placed hugely misguided and destructive bets on globalism and so-called “free trade” that hollowed out the very middle class and industrial base on which American economic and military preeminence depend.”

This is shocking to see in a key American policy document. Our country no longer aims to dominate the entire world. Which is good, because it’s no longer possible or beneficial.

America’s foreign policy focus will shift to the Western hemisphere (the Americas). This is also outlined in the new strategy document:

“We want to ensure that the Western Hemisphere remains reasonably stable and well-governed enough to prevent and discourage mass migration to the United States; we want a Hemisphere whose governments cooperate with us against narco-terrorists, cartels, and other transnational criminal organizations; we want a Hemisphere that remains free of hostile foreign incursion or ownership of key assets, and that supports critical supply chains; and we want to ensure our continued access to key strategic locations. In other words, we will assert and enforce a “Trump Corollary” to the Monroe Doctrine.”

The Monroe Doctrine was a U.S. foreign policy principle announced in 1824 by President James Monroe. In essence it told European powers to stay out of the Americas, and in return America wouldn’t meddle in European wars and politics.

President Trump is essentially shifting our foreign policy focus to the Americas (hence the recent actions vs Venezuela).

The new national strategy document also states that the U.S. will, “seek good relations and peaceful commercial relations with the nations of the world without imposing on them democratic or other social change that differs widely from their traditions and histories“.

Another notable shift. The world is changing. The era of America as the world’s sole superpower is over. And that’s not a bad thing. Like nearly every empire of the past, we overextended, overspent, and made plenty of other mistakes along the way.

If the last 25 years prove anything, it’s that being the world’s policeman is overrated.

America now has a chance to rebuild its once dominant industrial infrastructure and focus on its citizens’ wellbeing. And that’d be a refreshing change.

 

Adam Sharp has been a financial writer and Fed watcher since 2008. He is a contrarian who specializes in non-traditional assets. Adam founded and sold Early Investing, a newsletter about alternative investments. Sharp lives in Maryland with his wife, two children, and two dogs.

 

 

 

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