Coronavirus and the threat to US supremacy
Two questions serve as a reality check on excessive American declinism
At the height of the cold war, Ronald Reagan argued that rivalries between nations would vanish if the world was invaded by aliens. The former US president was too optimistic. Today, the US and China are facing a common threat in the form of coronavirus. Far from uniting these two rivals, the pandemic seems to be intensifying their competition. You can see why China might sniff an opportunity in this crisis. Coronavirus has targeted America’s weaknesses, while making many of its strengths temporarily irrelevant. The world’s most powerful military machine is not much use against a virus. But a lack of universal healthcare coverage is suddenly a threat not just to the poor but to the whole of US society. The American economic and political systems are both reeling. One in 10 US workers has lost their job inside three weeks. Both Republicans and Democrats suspect the other side will use the pandemic to try and rig the upcoming presidential election. Paul Krugman, the economist and columnist, argued recently that American democracy itself is in danger. Meanwhile, the Chinese government claims it has almost completely suppressed domestic transmission of the virus. Combine the relative stabilisation of China, with the threat of a new Great Depression and a deep political crisis in America, and it is clearly possible that Covid-19 will trigger a big shift in power from the US to China. It could even mark the end of American primacy. This debate about US decline has, of course, been going on for decades. Broadly speaking, I have been in the “declinist” camp — arguing that the erosion of American hegemony is both real and inevitable. But at the same time, I’ve tried to remember two important questions that serve as a reality check on excessive declinism. Question one is: what currency in the world do you most trust? Question two: where, outside your home country, would you most like your children to go to university or to work? For a majority of the global middle-class, the answers to those questions have been, respectively, the dollar and the US. If that continues to be the case after the pandemic, then American primacy will have survived Covid-19. Those two measures of US power might seem idiosyncratic. But they have a broader significance. The attractions of America’s universities and companies are a measure of the country’s ability to draw in talent from all over the world, while spreading American ideas and practices.
It also represents a vote-of-confidence in US stability and openness. The political views that people espouse are sometimes less significant than how they vote with their feet. One thing that Xi Jinping and Barack Obama have in common is that the two presidents both have daughters who studied at Harvard. By contrast, Beijing still struggles to attract even the best Chinese scholars to work in China. The country’s “Thousand Talents” programme has sought to attract leading academics by providing excellent salaries and research facilities. But some academics, who returned to China from the US, have been dismayed by the political atmosphere at home. It is far more intrusive and threatening than anything they encountered in Donald Trump’s America. Of course, it is possible that the US becomes a less attractive place to foreigners after the pandemic. A rise in xenophobia, a deep and lasting recession, a genuine threat to political freedoms — all, or any, of these would harm America’s soft power. That would leave the mighty dollar. While US military dominance is increasingly contested, the dollar’s global role as a safe haven and the leading currency for trade is unchallenged. This translates into huge political power. The US can use sanctions to shut a country or a company out of the dollar system. And, because it is the global currency, the sanctions reach around the world. Just ask Iran or the Russian oligarchs targeted by America. While many foreign powers resent the dollar’s power, no other country has a currency that commands the same respect.
But the US response to coronavirus may test the world’s faith in the dollar. The $2tn dollar stimulus package just passed means that US national debt, which has already risen sharply in the Trump years, will surge still further. Meanwhile, the Federal Reserve’s balance sheet is also expanding hugely as it buys up not just Treasury bonds but also corporate debt. If a “Third World” country was behaving like this, wise heads in Washington would be warning that a crisis lay just around the corner. There must be a risk that even the US currency will eventually lose the world’s confidence. Wild talk from prominent US politicians that America should default on US debt owned by China, as punishment for Covid-19, certainly does not help. But the US is aided by the fact that all the alternatives to the dollar still look worse. The pandemic has raised fears of a new euro crisis. And China still uses currency controls, fearing the pent-up demand from Chinese savers to get money out of the country. Other touted alternatives to the dollar — gold, bitcoin — have major drawbacks. The slogan on the greenback is “In God we Trust.” The world’s appetite for dollars sends back the implicit message — “In America we Trust.” If that trust survives coronavirus, so will American primacy.