Whither Pax Americana?

[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]I[/fusion_dropcap]n 1999, on the fiftieth anniversary of the communist takeover of China, President Richard Nixon’s uber-realist Beijing point-man Henry Kissinger downplayed the Middle Kingdom’s poor adherence to the rule of law and the threat posed by the PLA, which he noted was not fit for purpose against the US or even Taiwan. And, concerned about delays to China’s WTO entry he wrote “For us to imagine that we can prevent China's natural growth and emergence as a major power is to commit us to an unprecedentedly domineering role”.A quarter-century on, there are stoushes in Washington and in other Western capitals over how best to meet the economic and security challenges China’s rise presents.

But, by and large, there is broad agreement that there is nothing “natural” about China’s economic growth since its admission in 2001 to the now-broken WTO; and that Beijing’s predatory trade practices threaten the global economy and its military power poses a clear and present danger to global security.In addition to flooding markets with overcapacity, engaging in currency manipulation and political coercion (famously against Australia), using third-country cut-outs to rort trade agreements, as well as blocking domestic markets through a variety of tariff and non-tariff measures, China’s state-led ‘Three Rs’ trade and investment strategy is to “rob, replicate and replace”— rob foreign businesses of their IP, replicate it, and then replace them in the market.As the Biden administration’s damming 2022 report to Congress concluded:The industrial policies that flow from China’s nonmarket economic system have systematically distorted critical sectors of the global economy.



.. devastating markets in the United States and other countries.

Heavy industries such as metals processing and fabrication, shipbuilding, electric machinery, electronic component manufacture and so forth, vital to the West’s defence industries and their capacity to ramp up, have declined relative to manufacturing as a whole—in some sectors by orders of magnitude. Beijing now has its sights set on dominating AI, advanced semiconductors, quantum computing, aerospace, robotics and biotechnology.[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]C[/fusion_dropcap]ovid highlighted supply chain vulnerabilities with China in almost every sector of the economy, from medicines to electronic components to rare earths processing—controlled 90% by China.

And Russia’s invasion of Ukraine has made evident the impact of this industrial capacity weakness in the US and amongst its allies as they scramble to retool and upscale their defence industries.The PLA’s growing blue-water navy threatens freedom of navigation and the territorial integrity of its neighbours, and it is forecast in a decade to achieve strategic nuclear arms parity with the US. Some military analysts question whether the US and its allies can deter or defeat an attempt by Beijing to take Taiwan by force.

China is already engaged in a hybrid war against Australia, Europe and the US; aides Russia in its war of aggression against Ukraine; provides Iran with propellant for its missiles; and, targeting data to the Houthis to attack shipping in the Red Sea.As I wrote in 2020, free trade is well and good but never free from danger with countries that are not free. The US and its allies are not merely in a trade war; it is a geopolitical contest, with profound economic and security implications.

It is a contest we must win.Something had to give America emerged from the Second World War an economic and military colossus. Two thirds of the world’s steel was milled in cities like Cleveland, Pittsburgh and Youngstown; 80% of global car production was centred in Detroit; 75% of ship tonnage was launched from yards up and down America’s coasts from New York to San Francisco, likewise aircraft from manufacturers like Boeing, Douglas and North American.

Half of the world's GDP was ‘Made in USA’, which sustained its formidable military might and gave it the wherewithal to provide the economic support and political stability Western Europe needed—through the Marshall plan, NATO and other economic and trade institutions—to rebuild after its civilisational catastrophe and to withstand Soviet Russian domination throughout the Cold War.American-led trade and investment policies have also lifted most of the rest of humanity out of its subsistence existence and given rise to phenomenal global economic growth. Thanks to Pax Americana, the world has never known more prosperity or more peace.

[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]B[/fusion_dropcap]ut America’s share of global GDP is now half of its post-war zenith, and it will continue to trend down as the rest of the world’s economy grows. Deindustrialisation is not a problem unique to the US; Australia, Canada and Europe are also grappling with its consequences. But the US uniquely shoulders a global defence burden while also providing the reserve assets that underpin global trade and finance but which undermines US trade competitiveness, while its strategic adversary China applies its global trade surplus—now equal to the US defence budget—towards the largest peacetime military build-up in history.

As Stephen Miran, now chair of the president’s Council of Economic Advisers, wrote last year: “The root of the economic imbalances lies in persistent dollar overvaluation that prevents the balancing of international trade, and this overvaluation is driven by inelastic demand for reserve assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets and the defence umbrella, as the manufacturing and tradeable sectors bear the brunt of the costs.”Successive administrations, from George W.

Bush on, used tariffs against China piecemeal. Biden imposed 100% tariffs on China-made EVs—quadrupling President Donald Trump’s first-term tariffs—as well as a range of new tariffs on lithium batteries, aluminium, steel, cranes and solar cells. "I'm determined that the future of electric vehicles be made in America by union workers.

Period," Biden thumped.His administration also restricted China’s access to advanced semiconductors. And days before Trump was elected to his second term, the EU slapped 45% tariffs on China-made EVs to protect Europe’s $750-billion auto industry.

Those tariffs got a bit of intended news, but there were few ‘Gates of Hell’ headlines. And you could have been forgiven for not being able to keep track of the raft of tariffs, subsidies and non-tariff measures that permeate the global trading system.In walks Trump, slapping 145% tariffs on almost all imports from China, and a range of tariffs on virtually every other country including 25% tariffs on Australian aluminium and steel, as well as a 10% “baseline” or “reciprocal” tariff on most other goods.

Leaving aside the whimsical formula used to compute Trump’s tariff broadside (to which I will return in a moment), the White House’s National Emergency fact sheet justifying the president’s executive action points out, correctly, that the US “needs to have a large upstream manufacturing and goods-producing ecosystem” to support its defence industrial base.It is also true, as the fact sheet states, that America’s share of global manufacturing output has declined since 2000. But so too has its share of global GDP as other nations’ economies grow and contribute relatively more to global economic activity.

And although the contribution of domestic manufacturing to US nominal GDP has shrunk, it has remained fairly constant on a real GDP basis, keeping pace with the growth of the economy due to productivity gains, some economists argue. Many of these jobs have been replaced with new industries or lost to automation, which will accelerate with the introduction of AI, whether factories are on-shored or not; other, low-value-add jobs will not return.But as historian Stephen Kotkin put it recently, “There are 32-33 million young people in the United States, 18 to 24.

.. About 13 million of them are in higher education.

So there's 19 million people who are 18 to 24 who are not in higher ed. What are we doing for them?”[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]A[/fusion_dropcap] healthy society needs to be able to offer dignified work for everyone. The loss of so many once good-wage manufacturing jobs, whether due to foreign competition or increased productivity, has devastated many communities and contributed to political instability not only in America but throughout much of the developed West.

In Australia, once thriving industrial cities like Geelong, Newcastle and Wollongong have shed tens of thousands of manufacturing jobs—a trend that began in the 1970s but accelerated with China’s WTO entry, along with rising energy and labour costs, declining investment, and increased regulatory and tax burdens—now 30% of GDP.To get back to Trump’s tariff formula, it’s not clear how blast-them-all tariffs, much of them directed at friends and allies that pose little or no threat to US manufacturing, will address some of the China-specific economic and security threats Xi’s China poses to the global economy and security. Moreover, the rationale for Trump’s so-called “reciprocal” tariffs ie.

, Australia’s GST makes no sense unless US state sales taxes are treated the same.Tariffs are a blunt instrument, with the potential to cut economic growth and raise prices. And, to be sure, the administration’s sometimes crass trade and security bluster, not to mention its bullying, cack-handed posture towards Ukraine has rubbed almost everyone except Putin the wrong way, poisoning America’s other wellspring of advantage: its soft power.

Trump’s shock-and-awe approach has at least got the world’s attention. But instead of giving every country a serve across the board, a better approach would have been to target the biggest and proximate threat to jobs, security and global trade—China—and work with allies cooperatively.The US and its allies can, for example, impose embargoes, as it has on some goods, that have defence implications.

Cutting deficit spending will reduce trade deficits and help in the effort to cut taxes which discourage productive investment and create jobs. But there aren’t many effective tools in the trade tool kit to level the playing field with a serial trade abuser like China.Being irritated and/or offended by Trump’s trademark abrasiveness won't resolve the global economic and trade imbalances.

Nor will holier-than-thou posturing substitute for security policies that aim to meet the threat. Europe is wealthy. It can and must step up to share more of the burden for its own defence.

Allies Australia, Canada and Japan need to lift their defence effort, too -- and not by a little in the never-never.Déjà vu AU over againAustralia has been here before with Trump, when, in his first administration, he threatened to impose tariffs on Australian aluminium and steel. Part of Trump’s claimed rationale then, as now, was security.

Then-prime minister Malcolm Turnbull denied that security played any role in the negotiations that led to a waiver (a new security agreement was only raised as an ostensible reason to tick the box for Trump to exercise executive authority). In any case, security discussions between the two countries, begun during Trump’s first term, eventually led to AUKUS.This time around it appears that Trump really means it when he says he wants allies to lift their defence game as part of a trade settlement.

And in case the Albanese Government had not already got the message, a month before Treasurer Jim Chalmers handed down an unexpected third Budget, he and Australia’s Ambassador to Washington Kevin Rudd were in the room when US Treasury Secretary Scott Bessent laid it out, specifically linking trade to defence burden sharing.[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]Y[/fusion_dropcap]et once again, after years of neglect and underspending, the Labor Government kicked much-needed defence spending beyond the Budget’s forward estimates—improvements that would not be enough to meet Australia’s defence requirements if they were in the Budget today. Prime Minister Anthony Albanese must know Labor’s proposed meagre, slothful defence effort, to reach just 2.

3% of GDP in the 2030s, will have the half-life of a sausage roll in post-election trade and security talks with Washington.The Coalition, on the other hand, proposes to double the defence budget by 2035 to hit Trump’s expectation of at least 3% of GDP. This will not put Australia on a “war footing” in a relevant time frame as one headline suggests.

But Opposition Leader Peter Dutton has at least got the message, and it will make a difference in trade talks with Washington—which is not asking for something that is not already in Australia’s interest to do.But how even this modest defence increase will be maintained in competition with baked-in social spending commitments—the NDIS alone is forecast to outstrip the age pension and be twice the current defence budget—without a miracle of the loaves or more deficits and borrowing remains to be seen.A further dilemma for Australia, for the reasons outlined above, is that though it is in its national security and economic interest that China’s aggressive mercantilism be checked, a material slowdown in China’s economy has the potential to spill over to Australia’s and result in slower growth, with implications for defence imperatives as well as for other Budget priorities.

But Australia is not helpless. In addition to carrying more of the share of the allied defence burden, there are other measures that it can take to make it much less vulnerable to China’s predatory trade practices and more resilient to global economic black swans which seem to come along with increasing frequency.Australia can and must cut its tax burden—now trending higher as a share of the economy than at any point in Australia’s history—as well as wasteful spending, on which so much tax revenue is spent, as well as red tape, which chews up as much as 10% of GDP and prevents its economy from achieving its full competitive potential as a first-order global trading nation.

Second, Australia relies on China to absorb more than 30% of its exports, much of it in the form of minerals and cheap, reliable energy resources that are returned to Australia in the form of expensive, unreliable renewable energy infrastructure, and subsidised manufactured goods—further undermining Australia’s trade competitiveness and fund China’s asset purchases of Australia’s strategically vital national infrastructure.Australia is completely reliant on China for its energy transition. In addition to providing 96% of Australia's solar panels, China virtually controls the entire battery value chain, from extraction to manufacture.

The Albanese Government ought to have spent its useful time working to diversify Australia’s trade away from its China dependency and not fetishising unrealistic net-zero emissions targets including subsidising made-in-China renewables and EVs.Third, Australia will perhaps never make another Holden but it can and must pursue strategic-minded reindustrialisation. Any such strategy to be successful will need affordable, reliable sovereign energy.

And there are just three choices and only one is emission-free: coal, gas or nuclear.Fourth, Australia must wean itself from its property-immigration Ponzi scheme—which poses a broad set of socio-political and security challenges—that suppresses more productive capital creation in other sectors of the economy.Fifth, the community of free nations would do well to form closer trade arrangements amongst themselves especially when it comes to strategically sensitive resources and manufacturing.

Australia should be at the forefront of such initiatives so that it is less vulnerable to China’s coercive trade practices and able to produce or reliably source what it needs to defend itself.This year will mark 80 years since the Allied victory over the Axis powers; a period over which the world has experienced relative peace and unprecedented prosperity—Pax Americana. Many commentators believe that era, established and sustained by American power, is waning if not over due to American isolationism, manifested in the election of Trump.

That is a mistake.[fusion_dropcap boxed="no" boxed_radius="" class="" id="" color="" hue="" saturation="" lightness="" alpha="" text_color=""]E[/fusion_dropcap]very president since Dwight Eisenhower has been asking America’s allies to share more of the burden of their own defence. The isolationist sentiment being expressed in America today has been a fixture of its politics since the birth of the Republic; its resurgence—a social media-amplified echo of its more emphatic pre-WWII expression—is a response to the failure of successive US administrations to set right its progressively wobbly economic and security mantle.

America isn’t going anywhere. It needs the world as much as the world needs it. Though trade only represents a little over a quarter of its GDP, America is the world’s leading global trader and is highly reliant on foreign markets for economic growth, productivity gains and lower consumer costs.

America's security is also as reliant on its extensive alliance network, in Europe and the Indo-Pacific, as it is upon its own still-peerless military.The re-balancing of America’s global engagement has been ongoing since President Barack Obama attacked the North American Free Trade Agreement and announced that the US would ‘lead from behind’ as it pivoted to Asia. This re-balancing doesn’t merely reflect a political mood swing; there are very real structural imbalances in the Pax Americana architecture that must be sorted, one way or another, if the US is remain the indispensable nation.

The outcome of this messy, difficult undertaking in the face of China’s long game will have high-order security implications that will largely define the 21st century’s global order. It is in Australia’s vital interest to not only get its own house in order; but to work with the Trump administration as best it can including providing constructive counsel—as well as to stand up for its own economic and security concerns—to ensure that that project succeeds.Alan RM Jones was a chief of staff and adviser in the government of John HowardThe post Whither Pax Americana? first appeared on Quadrant.

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