america creates a new world order at bretton woods -- 5/26/17

Today's selection -- from The Accidental Super Power by Peter Zeihan. In the aftermath of World War II, the U.S. was so globally dominant that it could create a new economic order announced at Bretton Woods that relieved both allies and former enemies of much need for military defense and entitled them to free trade access to the rest of the world. It led to decades of global peace and the economic defeat of the Soviet Union. However, Zeihan argues that the cost of this arrangement to the U.S. has been high:

"[With the looming post-war threat of the Soviet Union,] what the Americans needed were not just allies to help carry the defense burden, but allies who were so eager that they would be willing to stand up against the awesome force of the Red Army, a Red Army that was still roused by the fact that it had single-handedly decimated the Nazi Wehr­macht at Stalingrad. That requires a special kind of motivation.

"Specifically, it requires a hell of a bribe. And what the Americans came up with was one of the great strategic gambits in history. They assembled a plan, and then assembled their wartime allies on July 1, 1944, for a confer­ence in New Hampshire to lay out their vision for the new world ... [at] Bretton Woods.

U.S. Trade Balance (1895_2015)

"The three-point American plan was nothing short of revolutionary. They called it 'free trade':

  • Access to the American market. Access to the home market was the holy grail of the global system to that point. If you found yourself forced to give up the ability to control imports, it typically meant that you had been defeated in a major war (as the French had been in 1871) or your entire regime was on the verge of collapse (as the Turks were in the early twentieth century). A key responsibility of diplomats and admirals alike was to secure market access for their country's businesses. The American market was the only consumer market of size that had even a ghost of a chance of surviving the war, making it the only market worth seeking.

  • Protection for all shipping. Previously, control of trade lanes was critical. A not insubstantial proportion of a government's military forces had to be dedicated to protecting its merchants and their cargoes, particularly on the high seas, because you could count on your rivals to use their militaries to raid your commerce. As the British Empire expanded around the globe in the eighteenth and nineteenth centuries, they found them­selves having constantly to reinvent their naval strategies in order to fend off the fleets of commerce raiders that the Dutch, French, Turks, and others kept putting into play. The Ameri­cans provided their navy -- the only one with global reach­ -- to protect all maritime shipping. No one needed a navy any longer.

  • A strategic umbrella. As a final sweetener, the Americans promised to protect all members of the network from the Sovi­ets. This included everything right up to the nuclear umbrella. The only catch was that participants had to allow the Ameri­cans to fight the Cold War the way they wanted to.

"Accepting the deal was a no-brainer. None of the Allies had any hope of economic recovery or maintaining their independence from the Soviets with­out massive American assistance. There really was no choice: Partner with the only possible consumer market, the only possible capital source, and the only possible guarantor of security -- or disappear behind the Iron Curtain.

"As the strategic competition of the Cold War took firmer shape, the Americans were able to identify critical locations in the geopolitical con­test and invite key countries to join their trading system. Among the first postwar expansions, the Americans approached none other than the defeated Axis powers.

Lord Keynes addressing the Conference meeting, July 1944.

"If America's Western allies thought the deal was a boon, the Germans and Japanese perceived it as too good to be true. The primary reason Germany and Japan had launched World War II in the first place was to gain greater access to resources and markets. Germany wanted the agri­cultural output of Poland, the capital of the Low Countries, the coal of Central Europe, and the markets of France. Japan coveted the manpower and markets of China and the resources of Southeast Asia. Now that they had been thoroughly defeated, the Americans were offering them eco­nomic access far beyond their wildest prewar longings: risk-free access to ample resources and bottomless markets a half a world away. And 'all' it would cost them was accepting a security guarantee that was better than anything they could ever have achieved by themselves. Bretton Woods expanded swiftly. ...

"[However,] the most problematic complication ... [of this arrangement was that] many players -- Germany, Korea, the two Chinas, Ireland, and Singapore, to name a few -- did more than use Bretton Woods to simply export their way to stability. They redesigned their eco­nomic systems to take full advantage of a world of risk-free international shipping and easy American market access. These places, and many more, are now dependent upon the continuation of the current system for their economic wherewithal. And even those that expanded their international footprint more modestly lack the military capacity to protect their own coastlines, if even that."

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