During the presidential campaign Obama's opponents warned constantly of his inexperience in foreign policy. Indeed, his own future Secretary of State was prominent among the worriers. By now, we probably are more inclined to think that few presidents have come to office better prepared to conduct our foreign policy. A brilliant series of speeches and interviews, laced with cosmopolitan sensibility and pragmatic tactics, have given ample evidence of Obama's serious knowledge and reflection. In a few months he has halted the precipitous deterioration of America's reputation abroad. But, although Obama's springtime has been brilliant, the summer that follows may well be disappointing and the autumn and winter bleak. His early success conceals the weakness of the hand he has been given to play. That weakness derives not merely from the accumulated errors of his predecessors but from basic geopolitical and economic trends that no longer favor America's traditional global position. As the postwar world of the superpowers has been breaking down, a more plural international order has been forming. Several other great powers and groupings -- China, the confederating European states, Russia, India, Brazil, the Muslim world -- are growing more active and independent.
The collapse of the Soviet Union in 1991 was a dramatic, early sign of the change. America's current problems come to a great extent from how badly we misread that sign. Without the Soviets we assumed a new "unipolar" world would follow, with ourselves as its hegemonic manager. Predictably, our pretensions to global hegemony began to put us at odds with rising powers everywhere. We proceeded to quarrel with France and Germany over Europe, with Russia over its near abroad, with the Chinese in Asia, with the Arabs and Persians in the Middle East. By now, we find ourselves in numerous intractable military struggles with few real allies.
Today's economic crisis brings a further demotion of our unipolar pretensions. Throughout the Cold War the ability to summon credit from others at will was a critical basis for our hegemonic power in the world. By running very large balance of payments deficits, the U.S. regularly consumed and invested more than it produced. Unlike our Soviet rivals, we were able to be a superpower on the cheap -- without having to make the sacrifices of a garrison state. America's population consumed heavily even though the country was spending as much on its military as all its capitalist allies combined. We covered our deficits with dollars, whose supply we could more or less expand at will. Despite an often unstable exchange rate, others continued to accept the exported dollars and accumulate them as "reserves." Other countries continued to accord this "exorbitant privilege" for three principal reasons: mercantilist, geopolitical and monetary.
For our trading partners, accepting and holding the surplus dollars kept the dollar's exchange rate from falling and thus protected their lucrative export trade. The biggest earners of our surplus dollars were Germany and Japan. Both were also American military protectorates. For them, holding dollars was also a form of burden-sharing. Finally the postwar world's financial system had been built around the dollar and there was no alternative currency in sight.
The Soviet collapse changed the framework. Western Europe no longer depended on American military protection and the E.U. went forward to create the euro. Meanwhile, America's imbalance with the global economy has grown to be such that holding the dollar's exchange rate requires the rest of the world to absorb roughly a trillion dollars of fresh American deficit each year. In recent years the external deficit has been increasingly with Asia. As a result, the fate of the dollar continues to depend heavily on the Japanese, but also more and more on the Chinese. Japan, rich and stagnant, might be expected to go on with its present supporting role indefinitely. But in China, still a poor developing country in many respects, pressure is strong for diverting savings away from accumulating dollar reserves and into greater social and infrastructure spending at home. Massive internal projects are underway. Meanwhile, China has recently joined with Russia and Brazil in large deals that ostentatiously shun the dollar.
These trends were already well-established during the Bush years. Today's unfolding economic crisis undermines the dollar's unique position further still. America's federal government has assumed obligations of hallucinatory proportions. Experts reckon the American federal state to have a net worth of minus $11 trillion, with off-balance-sheet obligations of an additional $45 trillion! Investors fear servicing the consequent debt will force future governments into an abandoned printing of still more dollars. Obama's bold "stimulus package" to jolt the economy out of its deflationary path, or to address urgent domestic priorities like reforming health care, raises apprehensions still further. A fiscal deficit of $1.8 trillion is now expected for the current year and a deficit of $1.4 trillion for the year after. It seems only natural that pressure should be building on interest rates for long-term US bonds. Needless to say, the high projected budget deficits reflect Bush's elevated level of defense spending swollen by the cost of occupying Iraq while expanding the war in Afghanistan and Pakistan. None of these military undertakings is doing very well and Obama will not find it easy to terminate them successfully. From a fiscal perspective, further military adventures would seem unwise, perhaps impossible. Not surprisingly, the administration has launched a major reform of the defense budget.
These trends form the environment within which Obama's foreign policy must operate. They are not very promising for continuing America's traditional world role. The general trend toward a more plural dispensation of power, together with our own progressive loss of geopolitical and financial leverage, means a decline in our relative strength. Thus, despite all his talent and vision, Obama is unlikely to lead us back to the glory days of the Cold War. His fate is to guide the nation through a painful adjustment to a more plural world. His best strategy will be to lead the U.S. away from an isolated and militarized pursuit of global hegemony. This will be the right policy for us as an overextended nation, but doubtless will be intensely criticized at home. Abroad, it will also disappoint the comfortable expectations of those who expect Obama's America to reaffirm its role of deus ex machina in charge of world order. With luck, however, Obama may prove the president needed for our times: one who can bring America back to balance while inducing all the world's great powers to join in a concert to define and pursue their collective responsibilities and interests.