Financial Crisis Likely to Further Erode U.S. Influence
WASHINGTON - While the White House and U.S. lawmakers hash out final
terms of a proposed 700-billion-dollar Wall Street bailout, foreign
policy analysts are warning that the current financial crisis could
very well hasten the decline of U.S. power and influence overseas.
course, much depends on whether the impending bailout will be
sufficient to quickly restore international confidence in the U.S.
economy, and particularly the U.S. dollar whose status as the world's
preferred reserve currency has long encouraged foreigners to buy U.S.
Treasury bills, thus propping up an economy which consumes far more
than it produces.
But coming on top of unprecedented deficits racked up by the
administration of Pres. George W. Bush, especially in its ongoing
15-billion-dollar-a-month wars in Iraq and Afghanistan, the current
crisis -- and the major new burden it adds to U.S. taxpayers -- will
almost certainly damage Washington's ability to get its way abroad,
according to many experts.
"It's not as if the rest of the world is looking at America's
financial crisis and jumping to the conclusion that they can now test
American power," Charles Kupchan, an analyst at the Council on Foreign
Relations who teaches at Georgetown University. "But I do think that,
from a psychological perspective, this financial crisis, coupled with
America's troubles in Iraq and Afghanistan, will take a toll on respect
for and deference to American strength as concerns both hard and soft
Coincidentally, it was just two weeks ago that the nation's
top intelligence analyst, Thomas Fingar, warned that, while Washington
"will remain the (world's) pre-eminent power in 2025, "...(its)
dominance will be much diminished." Moreover, he told other
intelligence professionals, Washington's leadership will ''erode at an
accelerating pace (in the) political, economic and arguably cultural
The subsequent collapse, or nationalisation, of several of the
country's leading financial institutions seemed to confirm that
prognosis all too quickly. Notable was not entirely sympathetic
reaction of foreign leaders who, assembling in New York for the annual
opening of the UN General Assembly, seemed agreed that the drastic
measures taken by the U.S. Treasury marked the effective end of the
"Anglo-Saxon" model of free markets and unfettered capitalism that
Washington has been avidly exporting for several decades, often through
the World Bank and the International Monetary Fund (IMF).
"Models in history are very important, and I think this
clearly damages the prestige of the Anglo-American model that we've
been pushing," according to Michael Lind, a senior fellow at the New
America Foundation (NAF), a Washington-based think tank. "The Chinese
model could now be seen as more the wave of the future."
"People in Latin America, the Middle East, and elsewhere are
probably saying, 'The Americans have been preaching this free-market
ideology, and look what it did to them, so maybe we should try a
different model,' he said. "In terms of competing in terms of soft
power, reputation and prestige, I think we've been severely damaged
Indeed, China in recent years has already become a much bigger
player in terms of aid and investment in Africa and Latin America, and,
what with the "U.S. banking sector in a shambles...it's much less
likely that countries will go to New York to get finance and do
business" than before, according to Dean Baker, co-director of the
Centre for Economic and Policy Research (CEPR) here.
Moreover, the latest crisis is likely to contribute to growing
dissatisfaction both with the neo-liberal model at home and with the
public willingness to make economic sacrifices for other countries.
"I don't expect the United States to be the enthusiastic supporter of
free trade that it has been over the last several decades," Kupchan
told IPS. "If there were to be a serious economic crisis abroad, would
the U.S. today serve as the lender of last resort as it did in the
1997-98 financial crisis? I doubt it. We're too busy bailing ourselves,
as opposed to bailing out Malaysians or Mexicans."
Similarly, Congress is certain to be tempted to reduce the
skyrocketing budget deficit by cutting traditionally unpopular
programmes, such as foreign aid, that Washington has used as another
means of leverage to influence the behaviour of countries overseas.
Whether that budget-cutting pressure will apply as well to more than
half-trillion-dollar defence budget (not including spending on the Iraq
and Afghanistan wars) -- the largest single pot of discretionary
spending in the national budget -- is not so clear, although one key
lawmaker, the chairman of the House of Representatives Appropriations
Defence Subcommittee, Rep. John Murtha, predicted Wednesday that it
"If I were in the Pentagon, I'd be as worried as one of the people at
investment banks, because its budget is going down," according to Lind.
"Suddenly all kinds of cuts in the military that were unthinkable up to
a couple of weeks ago will become clear."
"Depending on the actual expense, this package is going to be
put a huge squeeze on all kinds of security-related spending," said
Bill Hartung, who heads NAF's Arms and Security Initiative. "It'll
force the Pentagon to finally make some trade-offs [among weapons
systems] and will make it a lot easier for advocates of getting rid of
some of the Cold-War conventional systems, like the F-22 fighter, the
Osprey [warplane], and attack submarines that don't seem relevant to
wars in Iraq and Afghanistan to prevail."
Other analysts, however, are not so sure the Pentagon, which
currently accounts for nearly half of the world's total military
spending, will be forced to cut back.
"One would think that an economic crisis like this would produce a
re-ordering of priorities," said Boston University Prof. Andrew
Bacevich, an author and retired Army colonel whose just-released book
is entitled 'The Limits of Power: The End of American Exceptionalism'.
"But I'm not sure that it will because there seems to be this
strange unwillingness on the part of our political leaders to simply
acknowledge that American power has limits and then to examine the
implications of that fact," he said.
Indeed, Kupchan noted that, while the financial crisis "will
encourage a more restrained and less costly foreign policy, national
security will still trump economic expediency."
Nonetheless, depending on the seriousness and duration of the
crisis, he said, "there is likely to be a rising inner voice [in the
public] saying it's time for the United States to tend its own garden
and focus on its own problems instead of other peoples'. It necessarily
means a more inward-looking and pre-occupied America."
Indeed, a poll by the Pew Research Centre just before the
Treasury announced its bailout package earlier this month found a sharp
decline in public support for an assertive foreign policy compared to
four years ago. Forty-five percent of respondents said that reducing
U.S. overseas military commitments should be a top policy priority of a
new administration, up from 35 percent in 2004.