The global order as we know it is a system of trade alliances, and multilateral treaties that was designed by the US and her allies in the post-World War II era of the 1940s and 50s with one specific goal in mind – the US allies are ensured energy and economic security targeting the US economy for exports to rebuild their economies and move to affluence.
The Bretton Woods Agreement, established in the US in 1944 was a landmark system that ensured monetary and exchange rate management, and US leadership in the free world. It made the US dollar the reserve currency while building a platform for free trade.
But the Global Order, Free Trade, Reserve Currency? Is it working in 2018?
The US had the only global Navy and with it ensured that every third party country would have access to a global system of energy, finance and free markets in which to trade. World Bank, IMF, the EU, NATO, and a host of other international institutions were all designed to give everybody a seat at the table of Capitalism.
The US had one string attached – everybody must choose a side. Select the US, UK (English speaking countries of Canada, Australia and New Zealand – should read the beaches of Normandy in WWII) and European systems of trade and democracy or select the Soviet Union and Communist ideology. West Germany was part of the NATO and western block while East Germany fell under the Soviet Union and the Warsaw Pact.
North Korea was supported by the Soviets and China while South Korea was politically and economically aligned with the US, Japan, and Europe (Note that in the 1950 to 1953 Korean Conflict, US, UK, Canadian and Australian and New Zealand forces fought side-by-side). Only a iron fist with absolute rule can keep a Communist dictatorship alive in 2018 – Kim Jong un is doing a great job.
Also note that from an economic standpoint, the North American and Western European relationship – The Trans-Atlantic Alliance – became the driving force of all relevant security and trade treaties established from 1945 to 1985. From this alliance the global trading system was born. This US/European supported system resulted in global GDP increasing by a factor of 10 and 70 years of peace in Europe since 1945? This was the greatest peace and prosperity expansion in over 2000 years in world history. Yes, it worked well for the winning team – Capitalism.
BUT THE SOVIET UNION COLLAPSED IN 1991 AND BY 2008, GLOBAL ORDER STARTED TO COLLAPSE.
But again, it is important to note that from the US point of view, the system political gambit with one mission, to stop the spread of Communism (win the Cold War with the Soviets) and encourage free trade and make Western Democracy the global order.
In 1991, the Soviet Union fell and by 2008 the Bretton Woods Agreement was dated and useless as the US was supporting a system that allowed benefits to Germany and China ensuring energy security and free trade but for the US? Nothing in return. Think about it this way. The US Navy has protected every drop of oil leaving Saudi Arabia, directly or indirectly since 1945, to Germany, China, South Korea and other allies ensuring these allies energy security. They then produce goods and ship them around the world, again sea lanes protected by the US Navy. This US protection was built to fight off Soviet expansion – but the Soviet Union and Communism broke down in 1991 and the Bretton Woods system is now obsolete. How does it benefit the US now? Well, it doesn`t…..
So the US is pulling out of the global management business.
President Trump is the first of the next three US presidents who will work with allies in the English speaking world, France, Japan, India, South Korea and others to build a new system. As the Bretton Woods system implodes in slow motion, Germany and China, the two countries that benefit most, will be forced to implement diplomatic and military solutions to protect their export driven economies in a new world without the old trade system to protect them.
Imagine the tension in Europe in the coming years when the US announces that it will pull all 85 remaining bases out of Germany. These bases are leftovers fro post-WWII to defend against Soviet aggression. They are now useless.
Who protects German energy security and the export of its goods around the world? Now 45 percent of its GDP is from exports – so protection in necessary. So as the antiquated security structures and the global trade systems that Germany must have start to break down, the EU will look for a replacement of US power on the continent. Germany can say that it will build out a massive military and especially a Navy to protect itself and the EU, but each time in history this situation has arisen, its neighbors have formed an alliance to counter German power. And look at China now building out aircraft carriers to project power, while it populates islands (built into airbases). The result being that India, Japan, Vietnam, South Korea and even Australia are now countering the Chinese expansion. China is becoming a Superpower but an encapsulated Superpower. The US has recently formed an alliance with India, Japan and Australia to patrol the regional oceans and seas.
Reserve Currency? Free Trade? Trans-Atlantic Alliances? NATO? OPEC? These phrases will all be relegated to history books by 2030.
Welcome to the new world of global chaos….
We encourage you to study Ian Bremmer, George Friedman and Peter Zeihan