by Peter Zeihan
As the strategic competition of the Cold War took firmer shape, the Americans were able to identify critical locations in the geopolitical contest and invite key countries to join their trading system. Among the first postwar expansions, the Americans approached none other than the defeated Axis powers.
If America’s Western allies thought the deal was a boon, the Germans and Japanese perceived it as too good to be true. The primary reason Germany and Japan had launched World War II in the first place was to gain greater access to resources and markets. Germany wanted the agricultural output of Poland, the capital of the Low Countries, the coal of Central Europe, and the markets of France. Japan coveted the manpower and markets of China and the resources of Southeast Asia. Now that they had been thoroughly defeated, the Americans were offering them economic access far beyond their wildest prewar longings: risk-free access to ample resources and bottomless markets a half a world away. And “all” it would cost them was accepting a security guarantee that was better than anything they could ever have achieved by themselves.
Bretton Woods expanded swiftly:
• India joined shortly after independence, which at a minimum complicated any Soviet efforts to gain a toehold in South Asia.
• Sweden, which controls the bulk of the Baltic coastline and boasts a potent regional navy and air force, joined in the 1950s, denying the Soviets the ability to use the Baltic safely.
• Argentina’s membership in the 1960s limited Soviet influence in Latin America by putting the most advanced South American power in the other camp.
• After the failure of the 1973 Yom Kippur War, Egypt jumped into the Bretton Woods pool, robbing the Soviets of their largest client state in both the Middle East and the Mediterranean basin.
• Indonesian (1950), Singaporean (1973), and Thai (1982) membership both curtailed meaningful Soviet penetration into the most valuable portions of Southeast Asia and eliminated any hope of the Soviets exercising naval power in South or Southeast Asia.
The lure of Bretton Woods proved to be the critical component that made the Sino-Soviet split of the 1960s a reality. The unlikely partnership between America and China of course helped rework the strategic math of Southeast Asia in the age of Vietnam, but that was only a small piece of a much larger puzzle. The Soviets had plenty of Pacific coastline, but the only good ports they had access to were Chinese locales like Tianjin and Hainan Island. Once China joined Bretton Woods, the Soviet Union’s only remaining deepwater, ice-free port was Petropavlovsk on the Kamchatka Peninsula, a base so removed from Russian population centers that it could only be supplied by air.
For their part, the Chinese were desperate. In the Korean War, superior American technology resulted in a four-to-one casualty ratio. The Chinese knew that as a maritime power the Americans would eventually lose interest and go home, but in 1969 the Chinese had skirmished with their Soviet “allies” along the Ussuri River. Soviet military technology was nearly as good as American military technology, but Soviet troops didn’t come by boat: They were already on the ground and there to stay. Chinese human-wave tactics would be met by Soviet human-wave tactics—only the Soviet waves would also have tanks and aircraft. Unless the Chinese could also change the strategic math, they faced a war on their northern border that they could not hope to win.
The Chinese had to industrialize. But that required money. Raw materials. Technology. Markets. Sea-lane access. And that required the Americans.
But both countries also needed to change the public perception of the other. Luck intervened in 1971 at the Ping-Pong world championships in Nagoya, Japan, when U.S. team member Glen Cowan mistakenly got on the Chinese team’s bus, where he was approached by Chinese champion Zhuang Zedong. After a brief translator-assisted conversation, the two exchanged gifts and found themselves plastered across first Japanese and later global media. Time magazine called it “the ping heard round the world.”
Very quickly thereafter their friendly chat segued into big-time politics. China invited the U.S. team to play a series of exhibition matches in China later that year (making the team the first Americans to visit China since the 1949 revolution). Washington’s reciprocation was accompanied by an end to the trade embargo. And in February 1972, Richard Milhous Nixon up and went to China to talk about, among other things, Bretton Woods.
The collective result of the American scheme was not simply a firm break with the imperial era, but the active and enthusiastic co-option of every meaningful non-Soviet power on the planet. Without firing a shot or engaging in any more than the mildest of arm-twisting, the Americans founded the greatest alliance in history while surrounding the Soviets with a thick hedge of hostile countries who were willing—even eager—to serve as the Americans’ first line of defense against the Red Army.
The Soviets didn’t stand a chance against the American-backed coalition. On one side stood an American-dominated maritime-and-trade alliance of states comprising North America, Western Europe, Japan, Korea, Taiwan, Australasia, and a double handful of key countries elsewhere—such as China—that the Americans flat-out bribed to join them. Facing off against this unprecedentedly potent alliance was the Soviet Empire, complete with its occupied satellite states in Central Europe and an eclectic variety of extraordinarily poor allies, such as Cuba, Yemen, Mozambique, North Korea, and Syria, scattered around the world and whose loyalty the Soviets had to secure with occupying forces or purchase with subsidies. One side controlled the money, the markets, and the ability to move across the oceans; the other didn’t. The Americans started the Cold War with an economy far larger than the entire Soviet world, and by the end of the Cold War a lengthy list of states—including the once crushingly impoverished South Korea—had leveraged American economic offerings with such success that they themselves surpassed Soviet living standards.
Of course every plan has its complications. First, not every country had the same interpretation of signing over its security policy as the Americans did. Many of the European states assumed that the Americans had of course intended for the European empires to continue on, now simply under the American aegis. Such was not the American intent, and convincing some of the Europeans otherwise took a little doing. As the premier prewar maritime powers, the British and French proved the most in need of attitude adjustments. The Suez Canal Crisis of 1956, which concluded with the Americans intentionally and publicly humiliating the English and French by withdrawing post–World War II recovery aid and spearheading international opposition, was the most visible manifestation of the Americans driving home just who was in charge. Over the next generation every significant European colony got its independence. The Americans didn’t take any of them over, because it didn’t need them. Its goal was to break the European hold over the world and make the European powers dependent upon the Bretton Woods system.
The mass independence of the now-former imperial territories did that very well indeed, as it both forced resource supply chain responsibility into the hands of the U.S. Navy and removed a primary logic for the European states even having navies in the first place.
Second, as the security guarantor of their alliance network, the Americans had to, well, guarantee the security of the alliance network. It wouldn’t do to tell your allies that they didn’t need a navy or expeditionary forces if you didn’t use your navy and your expeditionary forces to protect their core interests. That meant that the Americans had to abandon many of the strategic advantages of being a maritime power, the biggest of which is the ability to choose the time and place of combat.
The Americans could still initiate conflict wherever and whenever they liked, but the need to maintain their new alliance network meant that their foes could force combat upon the Americans at times and places of their choosing. Should the Americans decline to defend a Bretton Woods participant, the entire alliance structure would shiver. For if the Americans proved unwilling to engage the Chinese in Korea, then was their security guarantee for the Germans against the Soviets re
ally worth what they said it was? Korea and Vietnam were wars the Americans had to fight not because they wanted to fight them or even because local strategic considerations were worth a war, but rather because failure to rise to battle would have generated a crisis of confidence that risked bringing the entire alliance structure down. The Americans’ new grand strategy transformed them from a nimble, offensive power into a reactionary power forced to make large, static deployments in a manner of land powers. American military bases in places like Germany, Turkey, and Korea made little sense except to directly contain Soviet power. They certainly didn’t help with traditional maritime power projection.
The third complication was one of perspective. Throughout the Cold War, the grand geopolitic between the Americans and the Soviets raged as sharply as ever. But as little as one tier down, things could not have been more different. Quite intentionally, the American system suspended local geopolitical competitions, relieving Bretton Woods members from needing to seek out markets or protect their trade flows. That freed America’s allies from the need to defend against age-old rivals, many of whom were now allies. A few examples:
• France and Germany didn’t have to arm to protect themselves from each other; instead they collaboratively formed the supragovernmental institution of the European Union, something that would have been laughable prewar.
• Mid-tier European states such as Sweden and the Netherlands were able to focus on their trade and brokering strong points with a minimum of effort to defense.
• With global trade lanes guaranteed, the need to occupy this or that point of resource product dissolved. The world’s oldest wheat producer—Egypt—breathed free for the first time in two millennia.
• European colonies around the world were freed. The Southeast Asian states formed the Association of Southeast Asian Nations (ASEAN) and with it their own—also American-guaranteed—free trade network.
• Japan no longer had need to prey upon the East Asian rim. With American security guarantees, South Korea, Taiwan, and Singapore emerged as three of the world’s most dynamic economies. China, for the first time in its history, existed in a security environment that allowed it to consolidate free of outside interference.
After eons of struggling for economic growth and physical security, both were now guaranteed. Instead of wealth and security being the goal, they became the starting point. What we now think of as the developed world forgot what it meant to be in want, and broad swaths of territories that had never been able to incorporate into modern states were able to do so once the threat of European and Japanese imperialism disappeared. The deficits of geography and antagonisms of the past were put on hiatus.
Which brings us to the final—and what is about to prove the most problematic—complication. Many players—Germany, Korea, the two Chinas, Ireland, and Singapore, to name a few—did more than use Bretton Woods to simply export their way to stability. They redesigned their economic systems to take full advantage of a world of risk-free international shipping and easy American market access. These places, and many more, are now dependent upon the continuation of the current system for their economic wherewithal. And even those that expanded their international footprint more modestly lack the military capacity to protect their overseas trade networks. Most lack the ability to patrol much more than their own coastlines, if even that.
Scared New World: An Expensive Antique
However, one very important country doesn’t need the economic benefits of Bretton Woods. It is the country that designed, imposed, and now sustains that system.
For the Americans, Bretton Woods is a strategic tool, not an economic strategy. As such, they plan and deploy their military efforts around it; American forces have global reach, and the American navy patrols the sea lanes to keep them open. But the Americans never redesigned their economic system around Bretton Woods, and even now, seventy years after the inception of Bretton Woods, only 11 percent of U.S. GDP comes from exports. That places the United States on the same list with some odd companions that are similarly economically isolated from the world: Ethiopia, Afghanistan, Rwanda, and Sudan. But unlike those poor countries, which have minimal international connections due to war and/or their landlocked nature, the American isolation is due to the extreme opportunities it enjoys at home. Its internal size and local connectivity are simply unparalleled.
Consequently, for the Americans international trade has typically been a sideshow. And now, as throughout the past seventy years, the global system persists only because the Americans continue to pay the full price of sustaining it. The commitment to that system has been steadily falling for some time. The efforts of three post–Cold War American presidents—Bill Clinton, George W. Bush, and Barack Obama—highlight an ever-so-steady shift away from support for expanding the free trade network:
• Clinton inherited negotiations and completed ratification and implementation for the formation of the World Trade Organization and NAFTA, the two most significant trading systems with which the Americans are involved.
• Bush initiated—but failed to finish—talks for the next effort to deepen WTO commitments. The new free trade areas he initiated and completed were either with close neighbors such as the Central American states, or with allies like Australia, Colombia, and Korea.
• Obama has initiated no new free trade agreements with any countries, only implementing or continuing with talks launched by his predecessors.
Free trade isn’t cheap from a military point of view. U.S. defense spending throughout the Cold War regularly topped 5 percent of GDP—typically over twice the ratio of its allies. The American navy costs a cool $150 billion annually (with another $30 billion for the Marines). And most of all, the countries that have chosen to specialize in exports turned the American trade deficit into a $700 billion monster at the peak of the last economic boom.
Such costs were easily justified in the context of superpower competition, but as you may have noticed, the Cold War ended in 1989 and the Soviet Union collapsed just three years later. The Russians may have emerged from the corpse of the Soviet Union, but they are a pale shadow in terms of their capability, ambition, and threat. Containing contemporary Russia requires no global network.
The looming crisis of the contemporary system is actually pretty straightforward. Everything that makes the global economy tick—from reliable access to global energy supplies to the ability to sell into the American market to the free movement of capital—is a direct outcome of the ongoing American commitment to Bretton Woods. But the Americans are no longer gaining a strategic benefit from that network, even as the economic cost continues. At some point—maybe next week, maybe ten years from now—the Americans are going to reprioritize, and the tenets of Bretton Woods, the foundation of the free trade order, will simply end.
That will hit hard enough, but it is only the first of three imminent convulsions that will tear the global order asunder.
CHAPTER 6
The Demographic Roller Coaster
Individual persons tend to act pretty randomly and only rarely can anyone anticipate what a particular individual will do. But put those individual persons into large groups and individual randomness gives way to group patterns. Young people raise children. Old people retire. Babies scream. The experts in the study of population data, demographers, make their livelihoods out of predicting what entire populations will do. In that their study has a fair amount in common with geopolitics, where the base unit of a population is the nation.
Demographics leaves very little room for interpretation. For example, as a group, twenty-year-old Generation Yers behave in ways that are demonstrably different from forty-year-old Generation Xers and a world apart from sixty-year-old Baby Boomers. Similarly, the population of any age group is more or less solid, and thanks to mortality rates, we know that an age group will become a slightly smaller age group every few years. Put another way, there is a fixed number of Yers alive today. From that simple number we have a very go
od idea of how many thirty-five-year-olds we’ll have in a decade, how many forty-five-year-olds in two, and so on.
Why the certainty? It’s a simple matter of data and inevitability. Data in that once you know death and birth rates—information that any marginally competent tax office can provide—the math of figuring out the population structure is straightforward. Inevitability in that you cannot manufacture twenty-year-olds—that opportunity ended twenty years ago and their numbers can only decrease from here on out. There will be no more Boomers or Gen Xers or even Gen Yers. We can only manufacture Generation Z babies: Their generation is still being formed, and it will continue to be until about 2019, when the rolls of their ranks close for good and the next generation begins.
Marry demographics with geopolitics and you have a series of powerful tools for predicting everything from political instability to economic outcomes. Considering how complex and ever-shifting the “politics” part of geopolitics can be, demography’s solidity and high levels of certainty can be incredibly refreshing.
That is, until you look at demographic data closely and it sucks the optimism out of the room. Just as geopolitics tells us that the free trade era is closing, demography tells us that the era of consumption-driven growth that has been the economic norm for seventy years is coming to an unceremonious end.
Demographics, Capital, and Technology
Industrialization has changed many things in human history, but one of the most important is birth rates.
