Ben Wray argues the we are leaving an era of true US hegemony, and entering one where the empire rules by force more than sullen consent.
For many, analysis of US imperial power in the context of Russia’s disastrous war in Ukraine is the height of bad taste. But at the risk of ‘westsplaining’, it does remain of some significance that the US is the most powerful state in a world of competing states. Sober analysis of the evolving dimensions of US hegemony is necessary in every major international crisis, and the Ukraine war, which has shaken the geopolitical order in a way that no other event has this century, is such a crisis.
Why is this needed? Why should we not be content with condemnation of Russia’s atrocious war? Because the Ukraine war does not exist in a vacuum. Moscow’s aggression precipitates a reaction from Washington, and there are worrying signs that Biden is being pressured by Democrats and Republicans to take actions that threaten to widen and deepen the war. That requires critical thinking and critical action in relation to the US’ role in this conflict, and the wider world.
The US state is not satisfied with condemnation of Putin. Russia’s war is being used as an opportunity to advance US geopolitical interests on many fronts: to tie Europe to US foreign policy indefinitely, to build a broader coalition around its containment strategy towards China, to deflect class conflict within the US over the rising cost of living (hence Biden talking about “Putin’s price hike”), and to advance the economic interests of US capitalism, especially the fossil fuel industry, at the expense of Russia and, indeed, the planet as a whole. (On this final point, the US clearly has already been successful: Germany has bowed to years of American pressure to stop Nord Stream 2 and instead import US liquified natural gas (LNG). The White House spokesperson Jen Psaki has proudly announced that “U.S. production of natural gas and oil is rising and approaching record levels”.)
Given all this, it’s irresponsible in the extreme to give-up on critique of US imperial power at this moment and indulge in a western chauvinism which sees the main threats to peace and justice always in some far away place or in some fringe group of ‘extremists’ at home, but never in ‘our own’ states. One can spit and chew gum: we can condemn Putin’s war and be focused on the imperialist reaction to war from our own state, which is the one we have most chance of influencing and – in the case of the UK – just happens to be Washington’s most reliable ally.
Three arguments will follow:
- The sanctions have once again proven the enduring power of the dollar in the global system, and shown the extreme difficulties in defying the US for even a large state like Russia.
- The sanctions accelerate a longer term trend towards deglobalisation, which in the long run may well accelerate American decline, but is unlikely to displace the country as the world’s dominant power.
- While Europe has run into the arms of Uncle Sam in this crisis, it should not be assumed that all contradictions within the western alliance have disappeared permanently, as a strong Sino-European magnetic pull remains. Germany is key in this respect.
Initial reactions to Putin’s invasion emphasised a new multipolarity of global power. There was even talk that Putin could establish a Greater Russia in Ukraine and beyond along the lines of the old USSR. Far from proving the strength of ‘the Russian bear’, the war in Ukraine has already exposed the limits of Putin’s power, militarily and economically.
More than one month in to the invasion, Russia’s forces have managed to take full control of just one city, suffered major casualties and seem to suffer from chronic logistical failures. Russian forces have made a significant retreat away from Kyiv, and Putin claims his war aims have been redirected to eastern provinces. There are now signs that he is willing to seriously negotiate with Ukrainian President Volodymyr Zelenskiy; whatever Putin settles for, it will be a lot less than his initial aims for this war.
On the economic front, the speed and efficacy with which the US has been able to isolate Russia has been remarkable. Cutting off Russian access to its own foreign currency reserves has undermined years of Kremlin planning for war. Russian Finance Minister Anton Siluanov has said half of its $600 billion in foreign currency reserves and gold are frozen, and has threatened to service its foreign debts in roubles (it’s still paying debts in dollars, for the time being at least). The Russian stock market was closed for a record time, interest rates have doubled, the Rouble dropped to its lowest rate ever (before rebounding), there has been an exodus of western firms, job losses are rising sharply, there’s evidence of food shortages, and the Central Bank has launched a state lending program to prop up flagging firms. And that’s without the west using all the economic weapons at its disposal, such as cutting off Russian oil and gas exports to Europe and seriously going after the Russian oligarchs. Even the Kremlin’s attempt at a counter-attack, by trying to force Europe to pay for Russian oil & gas in Roubles, appears to have fallen flat.
It wasn’t at all clear before this crisis began that the US could hurt Russia so emphatically. We have seen how sanctions can devastate countries like Iraq (1990-2003), Iran (2006-2016 and 2018-present) and Venezuela (2018-present), but these are small players in the global economy. Russia is not a huge economy (it’s GDP is equivalent to Texas) but it is an important exporter and therefore is a significant trading partner for many countries, as well as being a major military power (and a world-leading nuclear power). The US has shown that what it can do to a small player like Iran it can also do to a medium-to-large player like Russia.
“Now everyone knows that financial reserves can be easily stolen,” Putin has lamented, and indeed other countries will be watching on with trepidation, and learning.
As economic historian Adam Tooze has written:
“To exert pressure on Russia, the Western coalition has deployed its most dramatic weapon – a targeted attack on Russia’s national currency reserves…Though the extent of the measures against Russia is certainly surprising, it has long been discussed that China will have difficulty escaping the grip of the dollar. Add the Europeans and you have a ‘Western bloc’ that monopolises 80 percent or more of reserve assets. A country like China that has used giant export surpluses to drive a lopsided pattern of growth will, in the end, find itself boxed in.”
While the western press and the US state has been talking up the Sino-Russian relationship since the war began, in reality China has been walking a tight rope. As one pro-American commentator has put it, “China is attempting to navigate a nonconfrontational response to the Russian invasion.” The Chinese dominated Asian Infrastructure and Investment Bank has even froze lending to Russia and Belarus. China may well be the emerging super-power, but it can’t afford to get cut off from the west yet.
If the Ukraine war is the first major geopolitical crisis of the 21st century, the first major economic crisis of this century was the 2008 financial crash, and it also provided (perhaps surprising) evidence of just how truly powerful the dollar is. As Tooze wrote in his history of the 2008 crisis, Crashed, the Federal Reserve bailout extended well beyond the US. Overnight, in what was “perhaps the decisive innovation of the crisis”, the Fed became “global lender of last resort”, with at least half of Fed liquidity support going to banks outside the US, mainly to Europe.
Twice this century the US has proved that the dollar, as global reserve currency, can both save and break significant countries in the global system.
Are sanctions a threat to US hegemony?
There is, of course, a crucial difference between the power to sanction globally and the power to bailout globally: whereas the latter integrates the economies of other states even more deeply into the US state-finance nexus, the former cuts them off from the dollar altogether. And once you are cut off, you have got no choice but to pursue alternative approaches outside of the dollar’s grip.
It’s for this reason that economist Michael Hudson argues that US sanctions are America “dismantling itself in not-so-slow motion”.
“I had expected that the end of the dollarised imperial economy would come about by other countries breaking away,” Hudson says. “But that is not what has happened. US diplomats have chosen to end international dollarisation themselves, while helping Russia build up its own means of self-reliant agricultural and industrial production.”
There is certainly something in this argument. The history of sanctions shows that they fail more than they succeed, and almost always have unintended consequences, which those imposing the sanctions had not calculated in advance. And indeed, there is evidence that Russia had already begun to implement import substitution policies to increase its economic sovereignty in response to pre-Ukraine war US sanctions, a direction of travel which will necessarily be intensified now.
On foreign currency reserves in particular, Michael Roberts finds that we are heading towards a “fragmentation” where, in the words of the IMF, “the greenback could be felled not by the dollar’s main rivals but by a broad group of alternative currencies”. The effective seizure of Russia’s foreign dollar reserves will have many other states looking to diversify away from the dollar, and the trend is towards accumulating reserves in a wide batch of small currencies, and even crypto. Roberts concludes that we may be heading to an “anarchic currency situation where the imperialist economies, particularly the US, could lose control over world currency markets”.
However, the pain of being extracted from the dollar system can be so intense that governments will make big sacrifices to get back in. Witness Nicolas Maduro’s evident happiness that the US appears to be willing to bring Venezuela in from the cold to reduce global reliance on Russian oil. The same may also be true of Iran. Indeed, the Ukraine war on top of the pandemic has put many countries in the global south in an utterly desperate situation, up to and including contemplating sovereign debt defaults. While Russia has more options than countries like Iran and Venezuela, its reliance on both exports and imports is not something that can be overcome quickly or easily.
What Russia will seek to do is compensate reduced trade with the west by intensifying its relationship with Asia, which is now the centre of global production, and especially with China. Total trade between the two countries grew 35.9 percent last year alone. China is now Russia’s biggest export destination, with the East Asian giant hungry for Russian oil, gas and coal in particular. China and Russia began to reduce bilateral trade in dollars for the first time in 2018 due to the US-China trade war, and in the first quarter of 2020 the share in Sino-Russian trade in dollars fell below 50 percent for the first time.
De-dollarisation would appear to justify ‘new cold war’ narratives, whereby the world economy moves towards two great trading blocs largely shut off from one another, one centred around Beijing and the other around Washington. While this may be where global capitalism ends up, it will be a long and painful road to get there. Unwinding decades of global integration is not easy, and both China and the US know they cannot detach themselves from one another quickly without triggering a massive economic meltdown. Deglobalisation will be a long and dangerous process.
Even if Hudson is right in the long run – that this is the beginning of the end for dollar hegemony – the United States could still remain the dominant global power. We should remind ourselves of the true extent of US military supremacy. The US spends more on defence than the next 10 largest defence spending countries combined. More than two thirds of Nato military spending is by the US. It has 750 military bases in 80 countries, in every corner of the world. The US ‘blue-water navy’ operates in every major sea route in the world, including close to the Chinese coast, and dominates both the Pacific and Atlantic oceans, where 70 percent of global trade moves. Suffice to say, no unfriendly navy gets anywhere near the American coast-line, and under the auspices of the ‘Monroe Doctrine’ no major power will ever be allowed to position military equipment or troops in countries neighbouring the US. Whereas China is surrounded by major regional powers (among them Japan to the east and India to the west), the biggest problem the US has to worry about in its immediate vicinity is how to manage the flow of refugees from Latin America and what to do about tiny Cuba.
It’s easy to forget now, but before the collapse of the Soviet Union, the US was the dominant power without significant trade with a Moscow-led union of states which made up one sixth of the world’s land surface. A US Empire reliant on its military strength would be a weaker form of empire than that of the 1990-2008 era, when there genuinely was a unipolar world, but that was an exceptional moment in history, a level of domination never before seen in the past and unlikely to be repeated anytime soon in the future. Compared to that yardstick, US power clearly is in decline, but decline shouldn’t be misread as displacement.
Coming back to the present conjuncture, what the US and its allies appear to be aiming for is a slow decoupling from China, where the west builds up its economic capacity in areas of critical importance to reduce Chinese leverage. One example of this is the efforts being put into building a semiconductor industry in the US and the EU, backed by significant state subsidy as well as restrictions on trade which previously would have been unthinkable. Here’s one example reported in Bloomberg:
“The White House has quietly moved to stop Dutch company ASML Holding NV from exporting its cutting-edge equipment to China. ASML has an effective monopoly on advanced extreme ultraviolet lithography…The Trump administration began pressuring the Dutch government as early as 2018 not to authorise the sale of ASML’s EUV machines to China, according to people familiar with the talks. That pressure has escalated under Biden, with officials considering pushing the Dutch government to put in writing the de-facto export ban, according to people familiar with the internal deliberations.”
Many figures in the corporate world believe this new protectionism – what Paulo Gerbaudo calls “neo-statism” – to be at best over-optimistic and at worst a fools errand that could badly backfire. Some of the raw materials which make-up semi conductors can only be sourced in Asia. Also, US and EU public investment in semiconductors gets nowhere near matching the level of China’s, a country which still has significantly cheaper labour costs to draw on as well as the fixed capital already in place. While the military establishment may be pushing the western self-sufficiency line, corporate elites are well aware that accelerated moves towards protectionism will mean higher labour costs which could make them uncompetitive against Chinese rival firms.
It’s worth remembering that, until relatively recently, the world economy becoming disaggregated between American and Chinese spheres of influence was exactly what European elites had sought to avoid. The largest trade partner of Germany – the EU’s hegemon – for the past six years has been China, with €245.4 billion in imports and exports in 2021, well outstripping German-US trade (€194 billion). This isn’t by chance – Germany and China are the world’s two most important exporters, and complex supply chains criss-cross between Berlin and Beijing. This economic relationship cannot easily be replaced because both countries play a specialist role in the global economy.
Thus, European international relations scholars talk about the future role of the ‘old world’ being to act as a balance between US and Chinese power. But is such a vision now up in smoke following the Ukraine war?
For Germany, a lot has changed very quickly. A 60-year ‘pacifist’ defence policy has been junked, with Social-Democratic Chancellor Olaf Scholz sending arms to Ukraine and announcing massive new military spending. The NordStream 2 pipeline between Russia and Germany appears to be shelved for good, while positive noises are being made about US liquefied natural gas traveling across the Atlantic to replace Russian gas. These are all big wins for Washington, and they have profound consequences. As Wolfgang Streeck has argued, “if you allow the US to protect you, geopolitics trumps all other politics, and that geopolitics is defined by Washington alone. This is how an empire works.” The new (fossil fuelled) energy suddenly pulsing through the veins of the transatlantic alliance is coloured red, white and blue.
But will this last? Not so long ago, French President Emmanuel Macron was calling Nato “brain dead” and having a diplomatic tantrum over the ‘Auckas’ nuclear submarine deal between the US, the UK and Australia, which was a direct and deliberate snub of the French. Macron was cheerleader-in-chief for a “true European army”, which has widely been interpreted as a way for the EU to become less militarily dependent on the US. Even Germany was talking seriously about an alternative to the ‘Swift’ dollarised international payment system as a means of keeping the Iran Deal alive after the US unilaterally pulled the plug on the international treaty in 2018.
That was in the days of President Trump, and the change from then to now is night and day, but it’s likely that in months to come a more nuanced picture will emerge. Undoubtedly, Russia’s war on Ukraine is a watershed moment, and we can expect the EU and its member states to be closer to the US over at least the medium term.
However, already tensions are re-emerging as states like Poland push for a full EU energy embargo on Russia, but Germany is resisting because it gets 55 percent of its gas from Russia, the highest of any EU state. Any immediate embargo would trigger a major crisis for German capitalism. Even the Greens, coalition partners in the German government, are resisting such calls.
Over the longer term, the key contradiction will not be energy policy towards Russia – Germany is now on an inexorable path away from Russian energy. It will be the tension between the push of America and the pull of China in the context of a deglobalising, crisis-ridden economy which will shape European geopolitics for years to come, in ways that are not entirely predictable.
Whether it be geopolitics or economics, 21st century crises have emphasised the enduring centrality of US power in the global system. US decline has repeatedly been exaggerated exactly because its overweening military supremacy allows it to make repeated mistakes and comfortably recover from them. Vietnam, Iraq and Afghanistan were all major defeats for the United States, and all three were widely interpreted as clear evidence that the end of US hegemony was in site, only for events to subsequently prove otherwise.
The resilience of the US empire should make those of us in the west even more alert about the machinations of the transatlantic alliance. The US is a country addicted to war (it has almost never not been at war throughout its history) and so we can expect many more imperial misadventures to come. That will especially be the case if the dollar does become relatively weaker in disciplining countries to America’s will, as the US will compensate for that weakness with military force.
Despite Russia’s brutal invasion, any serious analysis of the balance of forces and of recent history shows that US imperialism remains the biggest threat to peace and justice globally. Those of us with memories which stretch back beyond the Ukraine war should keep that mind in the perilous weeks and months to come.