Nouriel Roubini writes: Donald Trump’s election as President of the United States does not just represent a mounting populist backlash against globalization. It may also portend the end of Pax Americana – the international order of free exchange and shared security that the US and its allies built after World War II.
That US-led global order has enabled 70 years of prosperity. It rests on market-oriented regimes of trade liberalization, increased capital mobility, and appropriate social-welfare policies; backed by American security guarantees in Europe, the Middle East, and Asia, through NATO and various other alliances.
Trump, however, may pursue populist, anti-globalization, and protectionist policies that hinder trade and restrict the movement of labor and capital. And he has cast doubt on existing US security guarantees by suggesting that he will force America’s allies to pay for more of their own defense. If Trump is serious about putting “America first,” his administration will shift US geopolitical strategy toward isolationism and unilateralism, pursuing only the national interests of the homeland.
When the US pursued similar policies in the 1920s and 1930s, it helped sow the seeds of World War II. Protectionism – starting with the Smoot-Hawley Tariff, which affected thousands of imported goods – triggered retaliatory trade and currency wars that worsened the Great Depression. More important, American isolationism – based on a false belief that the US was safely protected by two oceans – allowed Nazi Germany and Imperial Japan to wage aggressive war and threaten the entire world. With the attack on Pearl Harbor in December 1941, the US was finally forced to take its head out of the sand.
Today, too, a US turn to isolationism and the pursuit of strictly US national interests may eventually lead to a global conflict. Even without the prospect of American disengagement from Europe, the European Union and the eurozone already appear to be disintegrating, particularly in the wake of the United Kingdom’s June Brexit vote and Italy’s failed referendum on constitutional reforms in December. Moreover, in 2017, extreme anti-Europe left- or right-wing populist parties could come to power in France and Italy, and possibly in other parts of Europe. [Continue reading…]