Terra Firma

For the first time in my career as a political scientist, the United States has become the world’s primary source of political risk. The unpopular war in Iraq, Washington’s inability to denuclearise Iran and North Korea, and a rising tide of anti-Americanism around the world generate anxiety within the US electorate that Washington cannot sustain the rising material and political costs of its global leadership role. China’s rise, the global retreat from the dollar, the emergence of sovereign wealth funds as supports for wobbly US financial (and other) institutions, and the outsourcing of manufacturing jobs stoke fears among US voters that globalisation is driving American prosperity out to sea.

These worries create a significant election-year risk in 2008 that America will scale back its engagement with the world; construct new barriers to trade, immigration and foreign investment; and renounce its leadership on a range of international issues from trade liberalisation to international security.

In short, US foreign and trade policies may be about to turn inward. Washington may soon lack the political will and capital to continue to provide the public goods that form the foundation of long-term global economic growth. This potential shift is of profound importance.

It may be election year rhetoric but...

Some of the protectionist and isolationist political rhetoric we’ve heard across the country is without doubt an election-year phenomenon. Democratic candidates now woo voters with promises that free trade will be replaced with “fair trade” or “smart trade,” signalling their intent to insert provisions into trade deals that force foreign governments to guarantee adherence to international labour and environmental standards in the name of social and economic justice. Even New York Senator Hillary Clinton has backed off full support for the North American Free Trade Agreement (NAFTA), an agreement her husband shepherded through Congress more than a decade ago.

The Democratic presidential candidates are also competing to persuade voters that they can bring US troops home from Iraq more quickly and safely than their rivals. Assurances that America remains the world’s indispensable nation now routinely come with warnings that it cannot be the world’s policeman.

On the Republican side, free trade advocates like Arizona Senator John McCain and former New York City Mayor Rudolph Giuliani have dampened down their enthusiasm to survive in the current political environment. Many of the Republican candidates vie to persuade voters that they are more determined than their rivals to simply round up and deport 12 million undocumented immigrants. Former Massachusetts Governor Mitt Romney appears to have promised voters in Michigan a Washington financed bailout of the US auto industry.

But recent studies suggest these politicians are merely preaching to the converted, competing to supply the protectionist policies that much of the American public now demands. A Pew Research Center poll conducted in the spring of 2007 found that just 59 per cent of Americans surveyed said they consider international trade “very good” or “somewhat good” for the US, down a startling 19 percentage points from the spring of 2002. For contrast, 82 per cent of Russians and 91 per cent of Chinese hold the same views. Yes, 91 per cent of those surveyed in “Communist China” have a favourable view of international trade – against 59 per cent in capitalist America. Fewer than half of Americans expressed a positive view of “large companies from other countries” compared with 64 per cent of Chinese.

Sino-US relations are especially vulnerable

Globalisation’s merit is not the only issue on which Americans and Chinese don’t see eye to eye. In fact, US-Chinese relations will likely prove especially vulnerable to this surge of protectionist sentiment within the United States. Plenty of lawmakers in both parties support some form of punitive legislation against China in response to the swelling bilateral trade deficit. Public anger over the food and product safety scandals involving Chinese exports to the United States badly damaged China’s reputation with US consumers last year. Add charges from US lawmakers that China continues to manipulate the value of its currency for commercial advantage and refuses to protect US intellectual property rights and momentum for punitive legislation aimed at China is likely to build.

The Bush administration will surely use what’s left of its domestic influence to push Congress for constructive compromise on the most contentious trade issues. It can probably sustain a veto of anything truly draconian. But Congress has clearly taken the lead on trade relations in general and commercial relations with China in particular. Treasury Secretary Henry Paulson, who has urged a more moderate line with China, may well find himself sidelined as Congress usurps some of his leadership in the Bush administration’s “strategic economic dialogue” with Beijing.

CFIUS reform may alter the US investment environment

The broader protectionist trend may further fuel demand for expansion of the mandate of the Committee on Foreign Investment in the United States (CFIUS), the multi-agency executive branch body charged with ensuring that proposed foreign investments in US assets do not compromise America’s national security. If Congress politicises the CFIUS review process by granting itself new oversight powers and substantially broadening the definition of national security, it will discourage would-be foreign investors from even trying to access US markets. It might also provoke a backlash among US trade partners that could undermine US firms operating overseas. CFIUS reform might also generate legislative momentum toward increased congressional scrutiny (and perhaps tight regulation) of sovereign wealth funds operating in US markets. Any of these steps would produce ripple effects through the global marketplace as the US investment environment produces a new class of political risk.

A tipping point...?

Will 2008 prove a tipping point for a fundamental shift in how Americans define their relationship with the rest of the world? Or is this a temporary moment of high anxiety generated by an economic slowdown, an increasingly unpopular war and a lame-duck presidency? Will growing domestic suspicion of globalisation and a new reluctance to provide global public goods lay a foundation for fundamental change in US foreign and economic policymaking? Or will the next president and Congress simply step back from the activist Bush foreign policy, resume support for multilateral efforts at trade liberalisation, coordinate international efforts to establish new and more credible non-proliferation regimes, and provide leadership on a broad range of security issues?

...the outcome will be dictated by the national mood rather than the election result

The answer depends more on the national mood than on who wins the November elections. If the US economy can shrug off credit worries and avoid recession, if American consumers begin to feel more secure about their futures, if there’s no flare-up in Iraq, war with Iran or terrorist attack at home, the fresh start provided by a new president will likely restore much of America’s traditional self-confidence.

But if a liquidity crisis badly damages the real economy, if there’s a recession for that (or any other) reason, if a terrorist attack on the country on even a relatively modest scale diverts the focus of the elections to homeland security or if a catastrophic event in Baghdad creates irresistible domestic pressure for the immediate withdrawal of US troops – the current trend toward protectionism and isolationism might extend well beyond the next calendar year – no matter who moves into the White House next January.

How long ca n the US continue to power global economic growth and geopolitical stability?

America’s internationalism is a powerful force and there are plenty of reasons for optimism that the United States is simply mired in a temporary political and economic malaise. But I’m less optimistic on this score than I was six months ago and Washington must learn to live with inevitable longer-term challenges to America’s global pre-eminence. As shifts in the international balance of political and economic power transition us from a unipolar to a multipolar world order – a process already well underway – the European Union, China, Russia, India, Brazil, and other emerging states more overtly hostile to America’s global influence will demand a greater say on a broad range of international questions and in a variety of international institutions. How Americans – both voters and their elected leaders – respond to this challenge will determine how long the United States can continue to power global economic growth and geopolitical stability.


Ian Bremmer, President, Eurasia Group

Ian Bremmer is president of Eurasia Group, the world’s largest political risk consultancy. He is also a columnist for Slate, a contributing editor at The National Interest, and a political commentator on CNN, Fox News and CNBC