In the lead essay of the most recent Foreign Affairs, Fareed Zakaria wrote about America’s newfound unwillingness to promote international cooperation. Zakaria’s essay titled, The Self-Doubting Superpower, America Shouldn’t Give Up on the World It Made enumerates all the benefits the US has received from playing the role as the hegemonic global power pushing the world toward international cooperation. The US has better demographics than much of the developed world largely due to being a magnet to immigrants. We have achieved technological preeminence and the resulting economic dominance with nine of the ten largest companies by market capitalization in the world. Our per capita income has grown far faster in recent decades than the average of the OECD. Our military power and reach remain unmatched. We have even achieved, with previously unthinkable innovation, energy independence.

Despite those achievements, both of our major political factions want to move away from the diplomatic and economic order that facilitated these various examples of our “exceptionalism”. As the chart below illustrates, the old order of the past seven decades is rapidly giving way to protectionism and isolationism.

Zakaria writes, “The most worrying challenge to the rules-based international order does not come from China, Russia, or Iran. It comes from the United States. If America, consumed by exaggerated fears of its own decline, retreats from its leading role in world affairs, it will open up power vacuums across the globe and encourage a variety of powers and players to try to step into the disarray…Washington can still set the agenda, build alliances, help solve global problems, and deter aggression while using limited resources—well below the levels that it spent during the Cold War. It would have to pay a far higher price if order collapsed, rogue powers rose, and the open world economy fractured or closed.”

Every day, we see examples of what Zakaria is referring. Containerships and tankers are being attacked in the Red Sea. Venezuela is threatening military action against its oil rich neighbor Guyana. While the Ukraine remains under siege, Congress has lost interest in further supporting their defense and sovereignty. The former President and the Republican Party’s presumptive nominee continues to say that he would pull out of NATO and raise tariffs on products not just from our global antagonists but from all our international trading partners.

Zakaria concludes his essay optimistically writing, “The United States has been central to establishing a new kind of international relations since 1945, one that has grown in strength and depth over the decades. That system serves the interests of most countries in the world, as well as those of the United States. It faces new stresses and challenges, but many powerful countries also benefit from peace, prosperity, and a world of rules and norms. Those challenging the current system have no alternative vision that would rally the world; they merely seek a narrow advantage for themselves. And for all its internal difficulties, the United States above all others remains uniquely capable and positioned to play the central role in sustaining this international system. As long as America does not lose faith in its own project, the current international order can thrive for decades to come.”

While I am hopeful that his optimism is well placed, I am beyond doubtful. America has clearly already “lost faith in its own project” and America is no longer “uniquely capable”. For the same reasons that Moody’s and Fitch expressed varying concerns about the effect our governmental incompetence will have on our ability to manage our debt burden, I am similarly concerned that we no longer have the political climate or political leadership to embrace an international order that requires, at times, sacrifice and discipline.

When the Berlin Wall fell, George Bush and his powerful Secretary of State James Baker sat in the oval office taking questions from reporters. They sat arms crossed looking more concerned than victorious. These days in November of 1989 marked the end of The Cold War with the Soviet Union. We had won and yet these men looked dour and pensive. Why? Because both men knew that Gorbachev’s political hold on Russia was tenuous and that a celebration in the White House would badly damage the Russian leader’s political standing at home. Gorbachev would later say, “I think it is important that the United States of America at that time pursued this particular course of understanding and interaction.” Consider for a moment the modern political environment and whether you think an American administration would sacrifice such a massive political victory in favor of such a pragmatic calculation.

Robert Kagan wrote a book in 2018 titled, “The Jungle Grows Back”. The point of the book and its title is that the long period of “Pax Americana” was achieved not via happenstance but by decades of vigilance and intelligent policy. Consistent policy that realized that simplistic populist rhetoric like “America First” is anathema to maintaining global cooperation. Unfortunately, the populist appeal of “America First” has become somewhat bipartisan.

As always, this brings me back to the question of secular inflation. Who ultimately pays the tariffs? Who ultimately pays for the cost of ships traveling thousands of miles to avoid Houthi drones? Who ultimately pays for electronics manufactured domestically when those same electronics have historically been made far more cheaply in other parts of the world? Cyclically inflation is falling rapidly, and the markets are celebrating that fact. The reality however is that the return of secular inflation, after decades of peaceful dormancy, has only just begun.

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