To ‘double down’ is to recommit to an existing strategy or series of strategies even as doing so increases risks of strategic failure. The risks are known, so ignorance is no excuse. Doubling down is often pursued in the hopes of recovering what has already been lost. That’s precisely what American foreign and international economic policy are resembling, despite the failures of the strategies pursued to date. Autoimmunity effects are corrosive, progressively eating away at the systems in whose name the immunity responses have been invoked.
On face value, doubling down appears irrational. The probability of exacerbated failure is substantially greater than the chances of success. Yet, it is imperative that policy makers around the globe seek to understand this apparent irrationality, and understand the specific rationalities at play, the material conditions globally and in the United States that are shaping the pressure points, and ultimately, what is at stake.
American belligerence belies a growing desperation. The shortage of sincerity is a symptom of desperation, in the face of material challenges to the US-defined ‘order of things’. I suggest that three forces are colliding, creating a very volatile moment, in which an enraged and discombobulated American Hegemon clutches at the remnants of its Empire. These are:
The global economic system continues to decentre and the foundations of American financialisation and rent-based social settlement are crumbling. The sugar rush of American unipolarity in the three decades after the dissolution of the Soviet Union is a memory. The American political economy is ill-equipped to navigate this emergent world.
This is colliding with an American missionary zeal anchored by a millenarian eschatology. The spiritual war is coming to its ‘end of days’ moment, and the fervour that comes from this political ‘exceptionalist’ theology energises the political elite.
The projected exceptionalism is a domestic mythology that is at odds with its material political economy. The promise of the ‘light on the hill’ isn’t working anymore. The domestic economic imbalances are reverberating at home as the social settlement frays, and the pressures are being projected globally as the elite seek to deflect and hold onto what they have.
The unfolding military debacle on the steppes of Ukraine and impending defeat, coupled with serious doubts as to American military preponderance across the globe generally, have simply removed the protective veneer of American hegemony. A near-ubiquitous military presence globally is not tantamount to omnicompetence.
What’s at stake is not only American military preponderance, or the abstract notion of American Hegemony and all that it claims to stand for. Materially, the American political and economic elite are seeking to forestall or even turnaround global dynamics that will more than likely see a dramatic diminution of American wealth, and with that power. This has distributional dimensions, because the impairment to wealth will disproportionately impact the highest income earners; the rentiers and the aristocracy of finance capital itself.
Escalations not going to plan
American foreign policy - including both its military posture and its array of economic measures - has become increasingly escalatory and belligerent. In recent visits to China from both the Treasury Secretary Yellen and Secretary of State Blinken, representatives of the US Government have intensified their accusations at China across multiple fronts. Back home, the rhetorical temperature amongst Congressional elites and the think-tank ecosystem has increased sharply. China is ‘public enemy number one’.
The trade war that began in 2018 under Trump has intensified since. President Biden was adamant that China would not become the world’s wealthiest nation ‘on his watch’ and his administration has moved to turn the anti-China temperature up. It has blacklisted more Chinese enterprises than any previous administration. It has introduced and ratcheted up export prohibitions in various high technology areas, with the aim of prohibiting Chinese firms from accessing world-leading microprocessors and the means to manufacture them. It has sought to enlist other countries to back the US up on its technology bans against China. It has threatened further action, with ‘nothing off the table’, accusing China of having ‘over capacity’ and ‘dumping’ cheap manufactured goods onto the global market. And it has legislated to effectively ban TikTok. Most recently, Secretary of State Antony Blinken has accused China of aiding the Russian war effort in Ukraine, threatening punitive measures reportedly to include sanctioning Chinese banks from the SWIFT financial payments messaging system.
These measures speak of a polity that seeks to weaponise economic policy in pursuit of its various aims. A ‘full court press’ approach on economic prohibitions is matched only by a ‘kinetic first’ approach to the application of military pressure in the case of foreign policy. This predilection for militarised responses is part and parcel of the American political DNA, so much so that Duffy Toft and Kushi have described the US as a nation that is “addicted to military interventions”. Just as the US threatens China with further weaponised economic measures, the Biden administration has intensified its militarisation of the South China Sea, with initiatives such as AUKUS and the USA-Japan-Philippines minilateral. It has signed off on a US$95 billion series of military aid packages for Ukraine, Israel and Taiwan.
The pursuit of sanctions, the weaponisation of the global financial system and the ongoing supply of weapons across the world are part of the ‘American policy norm’, even if they have not delivered on their hoped-for objectives.
Economic sanctions have been a favoured American policy measure, but are increasingly backfiring, as Agathe Demarais has documented in her recent book. Expansive sanctions aimed at bringing the Russian economy to its knees have simply failed. Biden declared that the ‘ruble would be turned to rubble’, and the EU Commission President Ursula von der Leyen boasted that the Russian economy would be turned to ‘tatters’. Neither are true. The Russian economy has actually become one of the stronger growth economies globally since sanctions were imposed. The Trump tariffs on Chinese goods have failed economically, even if they did deliver a political dividend for Trump, according to recent research from David Autor and his co-authors. The ‘chips war’ may have, at best, slowed down Chinese microprocessor access and use of the ‘latest and greatest’; but in other ways, it has actually spurred on the development of Chinese domestic capabilities. The downside for incumbent western microprocessor firms is a progressive loss of the China market and its associated revenues, and growing Chinese competition in so-called legacy chips in global markets.
Weaponisation of the global monetary system has increased risks and undermined confidence in the system’s integrity. Sanctions against Russian access to SWIFT have seen the almost total dedollarisation of the Russian economy in the space of two years. Today, about 95% of Russian trade is denominated in anything but the USD. Similarly, the use of RMB to settle Chinese trade has grown to over 52% of all of China’s transactions. Central banks globally have hastened the reduction in the proportion of their reserves held in USD.
At the same time, previous major buyers of US Treasuries - in particular China - have been selling out of UST’s preferring gold instead. Reuters reported in January 2024 that China owns less than 3% of all outstanding Treasuries, the smallest share in 22 years, and again substantially down from the record 14% in 2011. The balance of U.S. Treasuries held by China totalled $797 billion in January 2024, down more than 40% from a decade earlier, according to data from the US Treasury Department. This has all taken place against rising US 10 year Treasury bond yield of over 4.7% (at the time of writing - 26 April 2024), with expectations that the 5% level will be breached before the end of the year.
Global Decentring
Economic and military dimensions of US foreign policy have not worked anywhere near as well as hoped for by the Americans. These various unsuccessful interventions have, in part, created boomerang results, while in other aspects, accelerated ongoing system change.
The global economic system is continually in flux. Over the past decade or so, since the 2008 transatlantic financial crisis, the pace and extent of reconfiguration has accelerated. The overarching pattern is one of decentering, as new networks of global value flow emerge, consolidate and expand through new patterns of trade and investment flows. The US economy is no longer the sole pivot of the global system.
Trade Flows
The most obvious dimensions to this lie in the changing patterns of global trade in goods and services. Before 2000, the U.S. was the world’s leading trading partner. At the time, over 80% of countries traded with the U.S. more than they did with China. By 2018, however, that number had fallen sharply to 30%, as China assumed top position in 128 of 190 countries. China’s trade relations have increasingly oriented towards the countries of the so-called ‘global south’. By 2020, ASEAN overtook the EU as China’s largest trading partner. The implementation of the Regional Comprehensive Economic Partnership - the world’s largest free trade agreement, involving ASEAN’s 10 member states, China, Japan, Republic of Korea, Australia and New Zealand - has only boosted trade amongst these Asian partners. China now exports more to the global south economies, including those of BRICS, than it does to the EU, USA and Japan combined. The expansion of the BRICS group to 11 nations adds further impetus to the changing contours of global trade.
Manufacturing capacity
The second major feature is the emergence of China as the world’s only genuine manufacturing superpower. China isn’t just the ‘world’s factory’, manufacturing cheap goods for the western mass market; it has become a leader in high value adding through intensive applied research and development in information technology and applied sciences. China now contributes 29% to total global value added in manufacturing, almost 3 times the next country - the US, at 12%. The growth of China’s manufacturing capabilities has matched the growth of its domestic market. In 1995, China exported 11% of its manufactured output; by 2004 this had increased to 18% but has since fallen to 13%.
Currency multipolarity
The third feature has been the progressive emergence of currency multipolarity. This has seen not only a reduction in the proportion of USD in central bank reserves, but also the growing use of national currencies to settle cross-border trade. Currency swap arrangements, alternative payments platforms to SWIFT, and the development of digital currencies and cross-border payment technologies are all contributing to the new architecture of global currency multipolarity. Capital market reforms are also creating new cross-border connections, which open channels for capital flows beyond the markets of the financial centres of Europe and the US, as discussed by Petry (2021).
Institutional and financial products reforms are part of this process. The Shanghai Stock Exchange and the Saudi Tadawul Group (STG) announced a cooperation MOU on 3 September 2023, to explore “opportunities in cross-listing, Fintech, ESG, data exchange, and research, as well as promote diversity and inclusion in both markets. The partnership will also facilitate knowledge sharing in listing businesses, dual-listings of ETFs, and Investor Relations initiatives, while developing the infrastructure of both capital markets.” The Shenzhen Stock Exchange has also entered into a similar collaboration agreement with the STG. This is not the only such agreement to enable cross jurisdiction capital market alignments, which would support a policy-driven flow of finance across borders as one of the balancing mechanisms for trade surpluses. The Hong Kong Stock Exchange is also collaborating with a number of exchanges in West Asia.
The growth of the Chinese government bonds market is another piece of the puzzle, with the bonds specifically earmarked for funds to be used in specific real economy activities. Lastly, ongoing reforms in China’s pensions and financial services and wealth management sectors are likely to contribute to the creation of instruments that are aligned to the circulation needs of national currencies (especially the RMB) as a means of payment in international trade.
Geopolitical multipolarity
Economic changes have been reflected in more explicit geopolitical dimensions too. According to American international relations scholar John Mearsheimer, American unipolarity came to an end around 2018 when the global political landscape became tri-polar: USA, China and Russia.
American military preponderance is also in serious doubt, as I have discussed in previous essays. Despite being the leader in military spending over many decades, it is clear that the US does not prevail in military terms across the globe. It is stretched beyond its historic and current capacity even as it claims to be the most powerful in the world.
American Exceptionalism
Sanctions backfiring; military inadequacies; and systemic economic decentring are running up against the prevailing ethos of American Exceptionalism. The American political elite continue to see itself as being the bearer of a God-given civilising mission. In a primetime TV address delivered 20 October 2023, Biden still believes that, “American leadership is what holds the world together.” He asserts that “American alliances are what keep us, America, safe. American values are what make us a partner that other nations want to work with.”
He has framed the challenge faced by America as needing to show that “democracy can still do big things”, elevating the democracy-authoritarian frame as the defining challenge of the 21st century. Within this Manichean dualism, Russia and now China fulfil the role of the ‘evil’ Other. Some, such as former Trump advisor Matt Pottinger and Congressman Mike Gallagher, have taken Biden’s invocation to the logical extreme conclusion: that America’s relation to and with China isn’t about managed competition, but is a do-or-die battle that must be won.
In this context, which draws from the centuries’ old American eschatological wellspring, the conduct of foreign policy isn’t so much about statecraft focused on managing the relations between states so as to achieve and sustain security. Rather, it is a battle for dominance. As the dynamics of the global stage slip further from the grasp of American millenarian aspirations, the reaction is intensified hostility. There is not only a fear of China, but a hatred of China. Russia is despised too, especially when embodied by its President Vladimir Putin. It is little wonder that, buttressed by the self-belief in American Exceptionalism, in the face of a world that refuses to conform with American aspirations and diktats, the political elite's response is to double down.
Domestic Imbalances
The dissonance between aspiration and reality evident on the global stage also agitates and ferments domestic discontents. American Exceptionalism globally is meant to be reflected in a land of freedom and opportunity domestically. Yet, there are plenty of indicators to suggest that the promise is more a myth than reality; and that the American Dream is more a Nightmare for many.
Notional GDP growth over the past few years has not resolved the problems of American household financial distress and American living standards. Consider these indicators:
60% of American households report that they are living paycheck to paycheck. Household savings rates have plummeted to less than half the long run average, of 3.6% in February 2024 compared to 8.48% average for the period 1959-2024. Household savings spiked to over 30% during the COVID pandemic, but has been eaten up by inflation since.
Inflation is more like 18% if it is accounted for using the government’s previous methods, according to former Treasury Secretary Lawrence Summers. A key factor behind this is rising costs of debt financing. In other words, increased interest rates are adding to inflation not bringing it under control.
Over 20% of households skip meals to pay rent or household debt repayments. And 12.8% are experiencing food insecurity, according to data from the Department of Agriculture.
On key measures of health, the data is disconcerting too. American life expectancy has dropped while infant mortality rates have increased in recent years. This is despite around 18% of GDP being accounted for by health care expenditure. A recent US Senate report (February 2024) exposed the profiteering of American big Pharma at the expense of ordinary citizens. A financialised health system, premised on IP-based rent-seeking, is detached from foundational health outcomes.
Mass shootings continue to plague American society. There is a growing mental health crisis in America, and increased therapy doesn’t seem to be solving it. Over 650,000 Americans experienced homelessness in 2023, a record number.
Income inequality has been getting worse with the top 10% of households holding 66% of household wealth. The highest-earning 1% of Americans saw their share of the country's wealth grow to 26% by 2022 from 17% in 1990.
These conditions are destabilising the body politic. Efforts to placate the working poor over the years have kept a lid on simmering tensions, though as we have seen, political violence has become a feature - not an exception - of the American political landscape. Recent attitude surveys show that Americans are generally pessimistic about their economic futures. The extent of domestic divisions, hostilities and social fragmentation has given rise to serious concerns about the risks of a civil war.
What’s at stake?
American wealth has been increasingly concentrated. Much of this wealth has come from growth in asset values, facilitated by US dollar recycling over the past 30+ years as the US treasury ran expanding deficits, and more recently by quantitative easing which saw hot money chase equities and real estate. Asset price inflation has far exceeded income growth over the past 30 years. The top 10% of Americans hold 93% of all stocks in 2023, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all stocks.
Asset price inflation is the critical link between domestic imbalances and patterns of global value flow. As the US ran expanding trade deficits, it funded those through the issuance of increasing volumes of US Treasury bonds. Global creditor nations could thereby recycle their surplus US dollar holdings into US Treasury bonds, US stocks and to a much lesser extent US property and businesses. Bonds and stocks were preferred due to their liquidity. Aside from financialised asset value inflation, financialisation of services has also seen wealth creation come at the expense of services. The case of health care, noted above, is an example. Lastly, technology rights-based rents have underpinned the last major branch of capital that has benefited disproportionately over the past three decades in particular. IP-rights based rents have underpinned super-profits amongst American bigtech. The threat to this form of ‘techno-feudalism’ posed by the rise of Chinese technology platforms and models is something I have explored in more detail elsewhere.
American deindustrialization over the past four decades was the corollary of rising trade deficits and, due to the US dollar’s status as global reserve, growing volumes of US dollar liquidity that had to be recycled through the US bonds and equities markets. The privileges of US dollar centricity also enabled first world nations to garner wealth at the expense of developing nations, as recently demonstrated by Gaston Nievas and Alice Sodano in their working paper ‘Has the US Exorbitant Privilege Become a Rich World Privilege?’ (2024). They show that the world’s wealthiest countries (the G7) have become the world’s bankers, enabling them to attract the savings of others by providing low-yield relatively safe assets and investing these inflows into more profitable ventures. With this mechanism, they estimate that the ‘rich world privilege’ delivers net income transfers from the poorest to the richest equivalent to 1% of the GDP of top 20% countries (and 2% of GDP for top 10% countries). This then alleviates the current account balance of the latter “while deteriorating that of the bottom 80% by about 2-3% of their GDP.”
Dedollarisation threatens this privileged position for American political and economic elite. The weaponisation of the dollar system is an autoimmune response as it increases the speed of currency diversification. Yet, America’s wealth model is premised on the continued preeminence of the US dollar. It’s little wonder that threats to third party countries related to dedollarisation are getting more shrill.
Deindustrialisation was a function of the dominance of finance capital over industrial capital, as fictitious capital became the favoured product for wealth creation. Through the mechanisms of fictitious capital, in which rights to future income were created and traded, finance capital was able to grow its share of monetised wealth as equity markets climbed. The markets of fictitious capital were also critical to the growth of tech platforms as IP-rights based rent accumulators. Meanwhile, industrialisation and gross fixed capital formation in developing countries grew. As the decades went by, the manufacturing capacity of the ‘global south’ - and particularly, but not only China - expanded. This capacity continues to grow.
What’s at stake is the very structure of the international political economy and America’s domestic national model through which wealth accumulation and concentration takes place. The historic model, dominant for the past 40 years, has seen financialisation in the US drive wealth accumulation into the hands of a smaller and smaller group. Such wealth is principally by way of asset value inflation, notably in real estate and equities. This dynamic is underpinned by the trade deficit in which surplus nations have recycled US dollars into liquid fictitious capital markets.
The social settlement imbalances in the US are now conflicting with the wealth distributional effects of financialisation. These imbalances are exposing a reality that is a long way away from the promises of the American Dream. Wall Street has benefited from Main Street, leaving millions of American households living on Struggle Street. The domestic mythologies are magnified globally as unipolarity gave way to an emergent multipolarity. Ideologically, this is a bitter pill to swallow for an American political culture long fed on the hubris of American Exceptionalism and Manifest Destiny. At a material level, the shifting structure of the global economic system is both reinforcing multipolarity and threatening the financialised mechanisms that have undergirded American elite wealth accumulation and concentration for decades.
So long as the hubris of millenarian zealotry prevails, the American elite response to these dynamics is more likely than not to further double down.