The American Question
To be or not to be an empire — that is the question America faces today.
However, you won’t hear this question being discussed openly. One must read between the lines to reveal the subtext. It’s a conversation within a conversation, the whispers barely audible to only the most astute listeners.
A global trade war, primarily directed against China, and conflicts in the Middle East and Eastern Europe have put America and its hegemony under severe strain and stress.
Will the center hold amid such geopolitical tensions?
For now, it seems so. Allies are still being supplied with their weapons, and negotiations for trade deals continue (with minimal, if any, success).
Yet, doubt lingers.
The first sign of questions came from then-U.S. Senator JD Vance, asking Federal Reserve Chair Jerome Powell on March 7th, 2023, in a Senate hearing about America’s advantages and disadvantages of the US dollar as the global reserve currency (GRC).
What’s incredibly interesting from the session is how Senator Vance insinuates America is suffering from “the resource curse” of having the dollar as the GRC, similar to Appalachia having an abundance of coal that was the cornerstone of their economy at the expense of other sectors.
There is a principal contradiction at play: the GRC benefits the American empire, but at the expense of the American nation.
What’s good for the goose turns out not to be good for the gander.
The second sign of questioning came from the rationale behind launching the global trade war by President Trump, claiming that trade deficits symbolize America getting taken advantage of and losing to others.
Barring the fact that neither he nor others in his administration understand what a trade deficit means, he indirectly questions the value of the USD as the GRC for America.
(Trump and Vance should have taken BGIE at HBS!)
The dollar as the GRC is the basis for America’s hegemony or empire. Having the GRC allows the US the “exorbitant privilege” (coined by former French Minister of Finance Valéry Giscard d’Estaing) of running up limitless trade and fiscal deficits via money printing.
The world demands dollars because those are needed to purchase dollar-denominated assets, such as US Treasuries. These sovereign bonds are coveted because they are viewed as “risk-free” assets and thus perfect for being a safe saving mechanism for foreign countries' USD holdings. There is essentially zero risk in holding American sovereign debt because creditors are assured that the full faith and credit of the United States Government.
‘Full faith and credit’ means loaning money to U.S. is a safe bet.
However, will that always be true?
Trump’s trade war against China and the rest of the world (RoW) damaged the “brand” of the U.S., especially its financial markets, per hedge fund billionaire Ken Griffin, founder and CEO of Citadel.
The staunch Republican megadonor isn’t wrong, as treasury yields across a range of maturities have gone up since Trump launched his trade war.
For example, the rise in the 10-year UST yield indicates that investors perceive the risk of owning the bond as increasing, and thus require higher returns to make the holding asset worthwhile on a risk-adjusted basis until the bond matures.
If yields continue to increase, it means that the US Government must pay more in interest to borrow to fund the nation’s operations. That’s not inherently bad, depending on how much tax revenue the US government collects from its citizens. However, there’s a danger that the interest expense will spiral out of control.
This is why Elon Musk was so upset over Trump’s Big Beautiful Bill (BBB), because the more borrowing would be needed to fund the $5 trillion deficits over the next decade, and with interest rates as high as they are now, future interest expense payments will take up a greater share of US federal tax revenue.
Clearly, this path is unsustainable.
Yet, can the US abandon it?
Without the exorbitant privilege, our ability to fund our military, which plays an integral role in maintaining the rules-based international order which allows global trade and finance to function unabated, is at risk. Yet, suppose America continues to leverage its “exorbitant privilege” in the same manner. In that case, there is a major risk of default as the interest expense from the debt dwarfs the US’s ability to pay its outstanding creditors.
Thus, the dollar remaining the GRC is contingent on the belief of the full faith and credit of the US government.
(Interesting question: Do we issue bonds to finance deficits, or do we finance deficits in the form of bonds to meet the demand for US sovereign debt?)
It’s a confidence game between foreign US bondholders (such as Japan, China, the UK, etc.) and the US Government. Who will blink first?
America is primarily a financial power, first, and a military power second. America can afford to lose on the battlefield, but it cannot afford to lose in the markets.
This makes the Trump administration’s actions and philosophy put at risk the nation’s hegemony remaining a going concern.
Trump and Vance, whether they are conscious of it or not, are signaling, if not outright telling the RoW through their administration’s philosophical positioning and executive actions, that they do not want the dollar to be the GRC.
The burden of the “exorbitant privilege” is too much to bear.
Obviously, no one wants to be known as having the empire lost on their watch, but we are six months into Trump 2.0, and it has now become an open question in my eyes.
Does it make sense for the US to give up its global empire? Would this benefit American interests?
Potentially, it may be good for the world, and even better for the American nation, if the latter stops trying to maintain its global hegemony. The US could focus its immense financial power towards rebuilding the nation at home rather than expending its efforts in stabilizing hegemony abroad, then rejoin an international order built on win-win relationships rather than the zero-sum relations currently in place.
However, if the U.S. were to go down this path of unwinding its global empire, could it realistically do so?
There are two perspectives to consider here: one from the fabled Athenian general and statesman Pericles, and the other from the legendary American diplomat George Kennan.
Let’s start with Kennan’s lucid exposition of justifying America’s standing as a World Power with an excerpt from his famous X article.
“It is rather a question of the degree to which the United States can create among the peoples of the world generally the impression of a country which knows what it wants, which is coping successfully with the problem of its internal life and with the responsibilities of a World Power, and which has a spiritual vitality capable of holding its own among the major ideological currents of the time.”
Kennan believed prior to the Cold War that it mattered how the USA engaged in the contest against the USSR, but even more importantly, that US hegemony would make sense to itself and the world. Both had to be true for the pursuit of empire to be worth it for all involved.
And for a time, it was true. The world flourished under American hegemony, hence the term "Pax Americana," referring to the past eight decades without global war and widespread prosperity. However, the Trump administration is unconsciously calling Pax Americana into question.
Pericles, however, has a more strict perspective grounded in raw or Great Power politics (emphasis added):
“Then it is right and proper for you to support the imperial dignity of Athens. This is something in which you all take pride, and you cannot continue to enjoy the privileges unless you also shoulder the burdens of empire. And do not imagine that what we are fighting for is simply the question of freedom or slavery: there is also involved the loss of our empire and the dangers arising from the hatred which we have incurred in administering it. Nor is it any longer possible for you to give up this empire, though there may be some people who in a mood of sudden panic and in a spirit of political apathy actually think that this would be a fine and noble thing to do.
“Your empire is now like a tyranny: it may have been wrong to take it; it is certainly dangerous to let it go.
“And the kind of people who talk of doing so and persuade others to adopt their point of view would very soon bring a state to ruin, and would still do so even if they lived by themselves in isolation. For those who are politically apathetic can only survive if they are supported by people who are capable of taking action. They are quite valueless in a polis which controls an empire, though they would be safe slaves in a polis that was controlled by others.”
As much as I appreciate, respect, and praise Kennan for his expertise and craftsmanship of American foreign policy, it is in Pericles’s words where we find the reality of the American situation. Ben Rhodes, former Deputy National Security Advisor to the Obama Administration laments Washington’s inability to abandon its “maximalist policies” in pursuit of maintaing American primacy.
“If Washington allows foreign policy to be driven by zero-sum maximalist demands, it risks a choice between open-ended conflict and embarrassment,” states Rhodes in his illuminating piece, “A Foreign Policy for the World as It Is” in Foreign Affairs.
America, even if it wanted to, cannot give up its empire and the hegemony that comes with it. As Pericles says, “it is no longer possible for you to give up this empire.”
If they do, the US’s adversaries and enemies alike will be looking for their pound of flesh, according to America’s perception of the zero-sum game that is international relations.
American foreign policy realist practitioner John Mearsheimer defines international relations as existing in an “anarchic world” where there is “no higher authority to adjudicate disputes among states or protect them when threatened.” Thus, “all great powers, be they democracies or not, have little choice but to compete for power in what is at root a zero-sum game.”
Thus, can America continue to maintain its hegemony competently?
Answering this question requires confronting a deeper contradiction between the initial one stated earlier in this article.
This question represents the contradiction: Can America produce a George Kennan today?”
The answer is no.
Let’s examine Kennan’s career in his own time, through the eyes of the eminent American diplomat and policymaker Henry Kissinger:
“George Kennan’s thought suffused American foreign policy on both sides of the intellectual and ideological dividing lines for nearly half a century. Yet the highest position he ever held was ambassador to Moscow for five months in 1952 and to Yugoslavia for two years in the early 1960s. In Washington, he never rose above director of policy planning at the State Department, a position he occupied from 1947 to 1950. Yet his precepts helped shape both the foreign policy of the Cold War as well as the arguments of its opponents after he renounced — early on — the application of his maxims.”
Even in his own time, with his own brilliance, the promise and potential of such a diplomat and policymaker was never fully realized, as Kennan failed to ascend the highest rungs of the American foreign policy apparatus today due to his quirks and foibles, as well as failing to navigate the political swamp that is Washington. America has long struggled to allow its best and brightest to rise through the ranks.
The challenge holds true today. In December 2024, a recent study titled, Under Pressure: Attitudes Towards China Among American Foreign Policy Professionals, examined the how social pressures and career ambitions shaped foreign policymakers opinions on China. Rory Truex, Associate Professor of Politics and International Affairs at Princeton University, describes the results of his findings below (emphasis added):
“How do career and reputational concerns affect China policy discourse within the Washington foreign policy community? We conducted over 50 semi-structured interviews and a novel survey experiment of nearly five-hundred American foreign policy and national security professionals about their views towards the People’s Republic of China. Contrary to concerns of a rigid consensus, we identify a noticeable diversity of policy perspectives among these professionals.
“However, many participants perceived a degree of what they referred to as “hawkflation” or “groupthink.” Roughly one fourth of survey respondents noted instances of professional pressure to voice a more hawkish point of view towards China, and many feared being perceived as naive or compromised by their views on, ties to, and experiences in China.
“These pressures were particularly noteworthy for foreign policy professionals that are traditionally marginalized from power- those who are younger, non-white, or female. Our subjects reported a number of different strategies to cope with these pressures, including mirroring hawkish rhetoric in their advice, modifying or self-censoring their views in public settings, and even exiting the field entirely. Taken together, these social dynamics appear to foster perceptions of “consensus” and bias policy discourse towards hawkish prescriptions and inflated threats.”
Here’s a juicy quote from the paper itself:
“As one interviewee put it, “Anybody who is of the Chinese diaspora and to the left of Gordon Chang, it’s open season on us.”
Kennan would not be able to have an office in the State Department under the current prevailing establishment perspective on China, because the current establishment excludes rational views on China and her interests due to “hawkflation.”
In fact, just a few days ago (at the time of this writing):
The central contradiction is that America cannot cultivate the talent needed to maintain its hegemony because such talent ultimately threatens such an empire if it is autonomous. The same human capital that is necessary first to establish and then maintain such an empire is also a threat to, say, the ‘Vested Interests’ that primarily benefit from hegemony. Such human capital that could assemble itself into the form of a Sovereign, a Leviathan if you will, could constrain these Vested Interests.
These ‘Vested Interests’ simultaneously depend on yet are existentially threatened by the existence of a true Sovereign that allows their freedom to accumulate capital but could end it at any time. So the Vested Interests engage in ‘sabotage’ of various forms, not to eliminate, but to neutralize the Sovereign from ever acting against their interests.
This has been our status quo since before my time. No use crying over spilled milk.
The philosophers whom the Vested Interests favor rejoice in such a state of affairs. One of them, by the name of Francis Fukuyama, cherishes the aftermath of the Cold War, racing to define a new, yet final, era of human activity called "The End of History" in 1989, the same year that the Berlin Wall fell.
A slender, almost frail, yet erudite and disciplined Chinese academic by the name of Wang Huning visited America in 1988, spending six months observing the cultural, social, and political life of the United States as a visiting scholar. He marveled at the nation that was America at the time. Later, in the same year that the USSR dissolved after history had apparently ended, he wrote a book detailing his observations of the US called America Against America in 1991.
In his book, he had the following idea “to oppose the imaginary America with the factual America.”
Huning’s original comparisons yielded stunning, prescient insights in the form of observed contradictions that have only gotten worse to this day. Huning elaborates on the danger of these contradictions amid the US’s serious economic competition with Japan.
“The United States today encounters a challenge from Japan, in large part because American institutions, culture and values oppose the United States itself.”
He ends his foreboding, near clairvoyant tome with the following passage, foreshadowing a future challenger in the form of China to come (emphasis added):
“It can be said that Japan was only the first nation to challenge the United States. In the next century, more nations are bound to challenge the United States as well. It is then that Americans will truly reflect on their politics, economy and culture.”
History would not end for Huning as it did for Fukuyama; it would continue on its primordial struggle of battling ideas. Will it be China versus America will be in a future battle yet to come as the determining debate?
No.
“The problem is that the existence of all the mutually exclusive factors and forces in American society, if they continue to move in this way, will not only make their advantages unavailable, but will also constitute an unstoppable undercurrent of crisis.”
To be or not to be an empire was the wrong question.
Let us repeat Huning’s analysis with a slightly modified comparison: the imaginary America is America as a nation, juxtaposed against the factual America, America as an empire.
The real dilemma is in this internal conflict of America, the nation, against America, the empire?
Who will win?
Time yields an answer: America lost.
Soda
