By Stansfield Smith and Roger D. Harris – Sep 25, 2021
It is almost taken for granted, if not an article of faith, in the progressive milieu (e.g., here) that the US empire is declining. Does this hold up, or is it comfort food for the frustrated hoping for the revolution?
First, it is essential not to confuse the ongoing decline of the living conditions of US working people with a decline in the power of the US corporate empire. The decline of one often means the strengthening of the other.
In the aftermath of World War II, the US was the world manufacturing center, with the middle class rapidly expanding, and this era did end in the 1970s. It is also true the heyday of uncontested US world and corporate neoliberal supremacy is over, its zenith being the decade of the 1990s after the collapse of the Soviet Union and its allies. Now, looming on the horizon is China, with the US empire and its subordinate imperial allies (Britain, France, Germany, Japan, Spain, Belgium, Canada, Australia, Italy) unable to thwart its rise this century, even more than when China stood up in 1949.
Yet the US imperial system still maintains decisive economic and political dominance, cultural and ideological hegemony, backed by tremendous military muscle. If US ruling class power were in decline, why have there been no socialist revolutions − the overturning of capitalist rule − in almost half a century? What would the world look like if the US lacked the muscle to be world cop?
Imperialism continually faces crises; this is inherent to their system. The question is: which class takes advantage of these crises to advance their interests, the corporate capitalist class or the working class and its allies at home and abroad. In the recent decades, capitalist crises have resulted in setbacks for our class, and a steady worsening of our conditions of life.
Previous proponents of US empire decline have predicted its demise with an expanding Communist bloc, then Germany and Japan with their supposedly more efficient capitalist production methods, then the European Union encompassing most of Western Europe into a supra-national entity, then the Asian Tigers, and then BRICS (Brazil, Russia, India, China, and South Africa). All challenges turned out to be wishful thinking. Now the proponents of decline expect China itself will soon supplant US dominion. We explore a number of the economic, political, and military difficulties the US empire confronts in its role as world cop.
Imperial Decline or Adjustments in Methods of Rule?
A common misconception among believers of US ruling class demise holds that imperial failure to succeed in some particular aim signifies imperial weakening. Examples of setbacks include Afghanistan, the failure to block North Korea from developing nuclear weapons, catastrophic mishandling of the COVID pandemic, and seeming inability to reign in the mammoth US national debt. However, throughout history, successful maintenance of imperial hegemony has never precluded absence of terrible setbacks and defeats. Most importantly, the fundamental question arising from a setback is which class learns to advance its interests more effectively, the imperial overlords or the oppressed.
The US rulers, as with other imperial nations, have proven adept at engineering more effective methods of control from crises, as Naomi Klein’s Shock Doctrine illustrates. For instance, in the mid-20th century the imperial powers were forced to relinquish direct political governance of their colonial empires, often due to costly wars. Until after World War II, the Western nations owned outright most of Africa and much of Asia. Yet this new Third World political independence did not herald the end of imperial rule over their former colonies. The imperialists simply readjusted their domination through a neocolonial setup and continued to loot these countries, such as siphoning off over $1 trillion every year since 2005 just through tax havens.
Likewise, for seven decades the imperial ruling classes endured repeated defeats attempting to overturn the seemingly invincible Russian revolution. But they only needed to succeed one time, using a new strategy, to emerge victorious.
A third example, the growing US national deficit due to the cost of the war on Vietnam forced Nixon to no longer peg the value of the dollar to gold at $35 an ounce. After World War II, the US had imposed the dollar as the international reserve currency, fixed at this exchange rate. Today gold is $1806 an ounce, yet the dollar continues as the world reserve currency. The US rulers resolved their crisis by readjusting the manner their dollar reigned in international markets.
A fourth example is the world historic defeat dealt the empire at the hands of the Vietnamese. Yet Vietnam today poses no challenge to US supremacy, in sharp contrast to 50 years ago.
The US ruling class is well versed in the lessons gained from centuries of Western imperial supremacy. They have repeatedly demonstrated that the no longer effective methods of world control can be updated. Bankruptcy in methods of rule may not signify a decline, but only the need for a reset, allowing the domination to continue.
PART 1: US ECONOMIC AND FINANCIAL STRENGTH
Decline in US Share of World Production
A central element of the waning US empire argument comes from the unparalleled economic rise of China. As a productive powerhouse, the US has been losing ground. As of 2019, before the COVID year reduced it further, the US share of world manufacturing amounted to 16.8%, while China was number one, at 28.7%.
Similarly, the US Gross Domestic Product itself (GDP) slipped from 40% of the world economy in 1960 to 24% in 2019. GDP is the total market value of all the finished goods and services produced within a country.
When GDP is measured by the world reserve currency, the dollar, the US ranks first, at $21 trillion, with China number two at $14.7 trillion. Using the Purchasing Power Parity measure of GDP, which measures economic output in terms of a nation’s own prices, China’s GDP surpasses the US at $24.16 trillion. By either measure, a steady US erosion over time is evident, particularly in relation to China, and a major concern for the US bosses.
Worsening US balance of trade reflects this decline. In 1971 the US had a negative balance of trade (the value of imports greater than the value of exports) for the first time in 78 years. Since then, the value of exports has exceeded that of imports only two times, in 1973 and 1975. From 2003 on, the US has been running an annual trade deficit of $500 billion or more. To date the US rulers “pay” for this by creating dollars out of thin air.
Ballooning US National Debt
The ballooning US national debt is considered another indicator of US imperial demise. The US debt clock puts the national debt at $28.5 trillion, up from $5.7 trillion in 2000. According to International Monetary Fund (IMF) numbers, the US debt is 118% of the GDP, near a historic high point, up from 79.2% at the end of 2019.
The international reserves of the imperialist nations do not even cover 2% of their foreign debt. In contrast, China tops the list with the largest international reserves, which covers 153% of its foreign debt.
However, today US debt as a percent of GDP is lower than in World War II, at the height of US economic supremacy. Germany’s debt to GDP ratio is 72%. Japan’s is 264%, making its debt over two and a half times the size of the country’s GDP. China’s is 66%.
Yet a key concern with the ballooning national debt − inflation caused by creating money backed with no corresponding increase in production − hasn’t been a problem in any of these countries, not even Japan. The immediate issue with debt is not its size in trillions of dollars, but the degree annual economic growth exceeds the annual interest payment on the debt.
In the US, this payout costs almost $400 billion a year, 1.9% of GDP. Federal Reserve Board president Powell stated: “Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future.” Former IMF chief economist and president of the American Economic Association, Olivier Blanchard likewise declared: “Put bluntly, public debt may have no fiscal cost” given that “the current US situation in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception.” According to these ruling class economists, the huge size of the US national debt presents no economic difficulty for their bosses.
Patents are an indicator of a country’s technological progress because they reflect the creation and dissemination of knowledge in productive activities. Today China is on the technological cutting edge in wind power, solar power, online payments, digital currencies, artificial intelligence (such as facial recognition), quantum computing, satellites and space exploration, 5G and 6G, drones, and ultra-high voltage power transmission. In 2019, China ended the US reign as the leading filer of international patents, a position previously held by the US every year since the UN World Intellectual Property Organization’s Patent Cooperation Treaty System began in 1978.
The failure of the US rulers to thwart China’s scientific and technological advances threatens the preeminence the US holds on technological innovation. Rents from the US corner on intellectual property is a major contributor to the US economy. The drastic measures the US has taken against Huawei exemplify the anxiety of the empire’s rulers.
US technological superiority is now being challenged. Yet, as John Ross points out, “Even using PPP measures, the US possesses overall technological superiority compared to China…. the level of productivity of the US economy is more than three times that of China.”
The US Still Controls the Global Financial Network
While the world share of US manufacturing and exports has shrunk, the US overlords still reign over the world financial order. A pillar of their world primacy lies in the dollar as the world’s “reserve currency,” an innocuous term referring to US sway over the global financial and trade structure, including international banking networks, such as the World Bank and the IMF.
Following the 1971 end of the dollar’s $35 an ounce peg to gold, Nixon engineered deals with the Middle East oil exporting regimes, guaranteeing them military support on condition they sell their oil exclusively in dollars. This gave a compelling new reason for foreign governments and banks to hold dollars. The US could now flood international markets with dollars regardless of the amount of gold it held. Today, most of the world’s currencies remain pegged directly or indirectly to the dollar.
To facilitate growing international trade, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) was created in 1973. SWIFT is a payment and transaction network used by international banks to monitor and process purchases and payments by individuals, companies, banks, and governments. Dominated by the US, it grants the country even greater mastery over world trade and financial markets. Here, China poses no challenge to US supremacy.
After the euro became established, the percent of world reserves held in US dollars diminished from the 71% share it held in 2001. Since 2003, the dollar has kept the principal share, fluctuating in the 60-65% range. Today, the percent of world nations’ currency reserves held in US dollars amounts to $7 trillion, 59.5% of international currency reserves.
In 2021 the dollar’s share of total foreign currency reserves is actually greater than in the 1980s and 1990s.
Because only a few reserve currencies are accepted in international trade, countries are not free to trade their goods in their own money. Rather, over 90% of nations’ imports and exports requires use of the dollar, the euro, or the currencies of other imperial states. The Chinese RMB, in contrast, constitutes merely 2.4% of international reserves, ranking China on the level of Canada. The US continues as the superpower in world currency reserves, while China is a marginal player.
The US Dollar as the World Reserve Currency
The US maintains preeminence because banks, governments and working peoples around the world regards US dollar as the safest, most reliable, and accepted currency to hold their savings.
A capitalist economic crisis, even when caused by the US itself, as in 2008, actually increases demand for the dollar, since the dollar is still viewed as the safe haven. People expect the dollar to be the currency most likely to retain its value in periods of uncertainty. Ironically, an economic crisis precipitated by the US results in money flooding into dollar assets, keeping world demand for dollars high. The 2008-09 crisis enabled the ruling class to advance their domination over working people, fleecing us of hundreds of billions of dollars.
SWIFT data show that China’s RMB plays a minor role in world trade transactions. While China has become the world exporter, its currency was used in merely 1.9% of international payments, versus 38% for the US dollar, with 77% of transactions in the dollar or euro. This means almost all China’s own imports and exports are not traded in Chinese currency, but in that of the US and its subordinates.
Being the leading force in SWIFT gives the US a powerful weapon. The US rulers can target countries it seeks to overthrow (such as Venezuela, North Korea, Syria, Cuba, and Iran) with sanctions declared illegal by the United Nations. SWIFT enables the US rulers to prevent those countries’ access to their overseas bank accounts, blocks their access to international trade as well as loans from the World Bank, the IMF and most international banks. The US uses its authority in the World Trade Organization to prevent countries like Venezuela from demanding the WTO punish the US for disrupting Venezuela’s legitimate trade by means of these sanctions.
Arguments that China and Russia are abandoning the dollar point out that, while in 2015 approximately 90% of trade between the two countries was conducted in dollars, by spring 2020 the figure had dropped to 46%, with 24% of the trade in their own currencies. This shows some increasing independence, yet almost twice as much China-Russia trade still takes place in the dollar rather than in their own money. Further, their moves from the dollar have been in reaction to US imposed sanctions and tariffs, forcing them off the dollar, not from their own choice to cast aside the dollar as the international currency.
If China and Russia had the means to create a new world economic order they could withdraw their over $1.1 trillion and $123 billion invested in US Treasury bonds and use the funds to start their own international financial structure.
That China pegs the RMB to the dollar, rather than the dollar pegged to the RMB, also indicates the economic power relations between China and the US. China has expressed unease about the US potential to cut China off from the SWIFT network. Zhou Li, a spokesperson for China’s Communist Party, urged his party’s leaders to prepare for decoupling from the dollar, because the US dollar “has us by the throat… By taking advantage of the dollar’s global monopoly position in the financial sector, the US will pose an increasingly severe threat to China’s further development.”
While China has displaced the US as the primary productive workhouse of the world, it remains far from displacing the US as the world financial center. The size of China’s economy has not translated into a matching economic power.
Featured image: US map hanging on a lifesaver in the middle of the sea. File photo.