In the short to medium term, rising US indebtedness will continue to have little overt impact on American power for two reasons. First, despite rhetoric about the need to curb US defence spending, the cuts pushed by outgoing US Secretary of Defence Robert Gates have been minute, and have done little to impose discipline on a bloated defence structure. Second, with the global economy still in flux, US Treasury bonds retain the aura of a safe haven investment, allowing Washington to fund its expenditures at low rates. This allows them to gloss over the hard question of balancing off between entitlements, military expenditure and taxation levels.
The long-term implications of US debt are cause for greater concern though. At some point, circumstances will shift. As the US economy picks up steam, the Eurozone stabilises, and growth in the developing world continues to surge ahead, excess global liquidity will drain away, encouraging investors to turn their attention to the long-term question of the ability of US politicians to match means to ends. When this happens, Washington will be forced to take a hard look at both its national priorities and international commitments. The stark fiscal challenges facing America can only be resolved by closing the US$1 trillion gap between revenue and expenditure. The specific manner in which this is done is likely to have long-term ramifications for US power. Dealing with it requires a hard pragmatism conspicuously absent from Washington’s debate over its future global role.
There is a risk that military spending will become a target of opportunity when hard cuts become inevitable. This could have sudden and severe implications for global strategic balances, potentially sparking a scramble amongst rising powers like China and India to fill power vacuums in certain regions, analogous to the rapid shifts in alignment that occurred following Britain’s abrupt withdrawal from its imperial commitments. On the other hand, defending military expenditure at current levels has its own costs. As Paul Kennedy noted 20 years ago, all states face a three-way trade-off between contemporary military expenditure, consumption, and investment in productive capacity that will drive the expansion of the economy, and consequently the capacity to generate future military power. Any approach that mortgages long-term power for short-term influence merely accelerates a state’s relative decline.
A shift in the global strategic and economic order is inevitable given the scale and speed of Asian growth. But while the rough outlines of structural power shifts are nearly impossible to resist, the exact position of a state within these trajectories can vary massively depending on how it approaches them. The UK example is enlightening. A willingness to more proactively cede its global commitments after World War II could, ironically, have boosted the foundations of long-term British power. London’s role as part of the ‘Big Three’ of global powers was always going to fade next to the sheer scale of American and Soviet productive potential. But instead of sacrificing its international competitiveness to hold on to a tenuous role ‘East of Suez’, London could have taken the opportunity to pursue a German or Japanese strategy, focusing primarily on the economic foundations that rapidly restored those two powers to the top of the global order.
Likewise, a willingness to rein in the scale of its commitments, both global and domestic, could lift the underlying long-run growth of the American economy relative to its power competitors. This would come at the cost of strategic instability and its short to medium term superiority in strategic influence. At the same time, it recognises the inevitability of the underlying economic and strategic dynamics propelling the emergence of a truly multi-polar international system through the mid-21st century. Other countries are engaging in such retrenchment in order to rectify their public finances. Today, the UK is at the forefront of this trend. A similar focus could position Washington best to deal with the inevitable metrics of long-term influence within such a system defined by globalisation: economic competitiveness and dynamism.
This is not to suggest a retreat into isolationism. Washington will retain a vital global role, particularly in the Atlantic and Pacific, where its geostrategic position and comparative advantage in maritime capabilities will provide it with decisive advantages. It will, however, require Washington to retreat from the active expeditionary mindset that continues to see substantial US ground forces deployed from the Rhine to Okinawa. While this will spark strategic turmoil and a re-orientation of alignments, there is no reason to believe that such an outcome will necessarily prove deleterious to long run international strategic balances. A substantially reduced US presence in East Asia would empower China in the short term, but would naturally provoke counter responses from those players that are directly threatened by its regional hegemony: Japan, India, and Russia.
US engagement will consequently align more clearly with the concept of the offshore balancer: a player whose periodic interventions into regional power balances are limited to those cases where one actor risks overturning them. Washington will have surrendered its claim to hegemony; indeed, it may not even be capable of being first among equals within the new global order. However, as a pivotal global ‘swing’ power, the US could still realistically aspire to remain the ‘indispensible power’ in an age of resurgent strategic and economic dynamism.
A version of the article previously appeared on Pnyx Blog.
Matt Hill is a visiting Fellow at the Strategic and Defence Studies Centre, Australian National University, and a deputy editor of Pnyx Blog.