On September 2, 1945, the United States of America stood atop a world shattered by war. Germany and Japan lay in ruins, as did the lands they’d conquered over the previous decade. The colonial European powers were bankrupt and would soon let go of their overseas possessions, which inevitably became independent (but weak) nation-states. Even the Soviet Union, though mighty on land with its victorious armies occupying Eastern Europe, could not hope to match America’s economic or naval strength—let alone its nuclear monopoly—for years to come. If ever there was a moment for one country to seize control of the entire globe, this was it. But the United States did not. Why?
I ask my US History students this question at the end of every school year. Their answers are usually a combination of “war weariness,” a unique element in American political culture like “free markets” or “natural rights,” and also something like “countries get more through trade than war.” This is all true, and the fact that America chose to build a globalized trading system rather than a Pax Americana points to something out of the ordinary about its leaders and people. But there is one more element to this question that a lot of students miss: fear. Fear of the Soviets? Fear of another world war, this time with atomic weapons? Those were certainly part of the American national psyche during the Cold War. But in the autumn of 1945, with only one superpower left standing and holding the world’s most devastating weapon in its hands, America feared something else.
The Same Old Thing
From the Age of Discovery to the Second World War, most of human history ran in a cycle. Countries built up overseas empires by colonizing areas beyond their borders. They explored these new lands for labor and resources. They built large armies to protect or expand their empires and navies to defend trade coming to and from the colonies to the imperial heartland. If an empire needed something it did not possess and could not find in a colony, it went to war to secure a supply, whether of new workers, precious metals, or natural resources. As empires grew larger and technology became more deadly, so did the wars they fought. From the earliest conflicts on the high seas between Spanish treasure fleets and English privateers to the cataclysm of World War Two, the cycle repeated again and again.
This was what American leaders feared, and they hoped to break the pattern. Doing so would take time. It would involve a lot of talking with longtime friends, wary rivals, and even defeated enemies. And it would take money—lots of money. If peacekeeping was the goal, Americans would have to become the peacekeepers.
A knowledge of history helped policymakers craft their plans even as the war still raged in Europe and the Pacific. Contemporary documents include many references to then-recent events. Two stand out in particular. In 1860, Great Britain and France signed the Cobden-Chevalier Treaty that ended all tariffs between the two countries. For the first time, two empires opened their markets to one another and could purchase needed raw materials or the latest consumer goods instead of having to go to war to get them. In only a few years, the British and French economies were growing rapidly, and their citizens enjoyed new levels of prosperity as prices fell and shop shelves heaved with imported foreign goods. And by 1875, a dozen other European countries had joined the Cobden-Chevalier “network” and were also reaping its benefits. Eventually, though, the system fell apart at the turn of the century as populists in France gained power and reimposed tariffs to protect their workers from low-wage competition in Britain. The would-be peacemakers in America came to believe that international economic growth might keep the peace, and that depended on free trade and no taxes on imports.
The peacekeepers also looked at the failed League of Nations and other international institutions created after the First World War. Why had they failed to stop the dictators of the 1930s from launching another war? The answer seemed to be clear: these bodies lacked an enforcement mechanism to either compel or frighten would-be aggressors to sit down and negotiate their demands rather than attacking their neighbors. Peace after the Second World War thus seemed to depend on two international conditions, one a carrot and the other a stick. First, a globalized economy with easy, tariff-free access to markets; second, an international rules-based order enforced by a superpower playing the role of “world policeman.” This could work, but only if everyone else in the world shared America’s peaceful, money-making priorities.
The Soviet Problem
The Nazi invasion of Soviet Russia was probably the worst calamity ever to strike a single nation. Almost 27 million people died in four years (nearly 15% of the prewar population), and the Germans wiped out one-third of the Soviets’ national wealth and either destroyed or damaged more than half of its food and industrial production capacity. Though they ultimately prevailed—thanks in equal part to American Lend-Lease aid and the stubborn bravery of Red Army soldiers—the Soviets were not interested in global economic prosperity. Nor did its leaders trust the United States to guarantee its security against future threats. Joseph Stalin and his cronies would protect the Motherland by creating buffer states along its borders to ensure the Soviet Union’s physical safety. And when the Americans began meddling in the developing world to create their capitalist utopia, the Soviets exported their revolutionary Marxist dogma to further protect themselves against what Stalin believed was an attempt to encircle his empire. That was the beginning of the Cold War.
Even before the Berlin Crisis, the Red Scare, and the Korean War, American foreign policy experts knew the Soviets would be a problem. Their communist ideology was antithetical to a world of free markets, and they were actively pursuing nuclear technology and would soon be a second superpower. So the would-be peacemakers intended to add a caveat to America’s offer to the world. Anyone who wished to take part in the new postwar international order would have to commit themselves—meaning their military, their resources, and if necessary their entire population—to the anti-communist cause. To quote an American president of another era, “Either you’re with us, or you’re with them.”
The New World Order
First there was imperialism, a world of multi-ethnic, intercontinental states who competed with one another. Then came nationalism, which challenged the empires for holding down their ethnic, civic, or religious minorities. Together these ideas brought war, and it devastated the planet. What followed then was globalization, the system under which most of you in our audience grew up. Nations would now compete with money rather than missiles, and each could buy and sell freely in one another’s markets, all while operating under a security guarantee provided by the world’s strongest military power. History teaches us (and current events confirm) that such a system requires two firm foundations.
First, globalization needs open markets and free trade. At the 1944 Bretton Woods Conference in New Hampshire, the United States and its democratic wartime allies created two financial organizations to smooth out trade differences between old competitors. The International Monetary Fund created a “fixed exchange rate” system based on the US dollar. Rather than trying to negotiate a fair exchange rate, for example between British pounds and Mexican pesos, companies in each country would convert their funds into dollars at a set rate. This made trade cheaper by eliminating conversion fees and easier because a British textile firm wouldn’t have to receive useless (to them) pesos in exchange for a bale of wool. Bretton Woods also created the International Bank for Reconstruction and Development, later part of the World Bank, to offer loans to countries still struggling to rebuild after the war. American financiers saw this as an investment; these nations would need supplies and materials, and their companies would sell them whatever they needed. And four years after Bretton Woods, most participants signed the General Agreement on Tariffs and Trade, or GATT, which completed the economic “half” of globalization by lowering or eliminating all barriers to international trade among the signatories. America now presided over a free trade network with its democratic partners and watched as prices fell, economies recovered, and markets reacted.
When it came to securing this new global order, the United States took the lead among its wartime partners by creating the United Nations. This international peacekeeping body ended up with a mixed record, thanks largely to the presence of the Soviet Union and, later, Red China as veto-wielding members. But on paper, the peacekeepers thought it might work. Far more important are two postwar security moves America made. Once the major anti-communist states of Western Europe had signed on to the IMF, World Bank, and the GATT, the United States extended an offer of military protection in the North Atlantic Treaty. Again, using the carrot-and-stick approach, America would open its markets to any NATO member and give additional recovery loans if those countries pledged to stand in front of American forces in a future war with the Soviets. As NATO began to grow, new members like Greece, Turkey, West Germany, and Spain all agreed to the same terms. And in the wider world, the United States reaffirmed an old idea called “freedom of the seas,” that any nation could send unarmed cargo ships anywhere in the world without paying fees or worrying about threats from competitors. The US Navy’s unchallenged supremacy—a result of the Second World War—would complete and protect the globalized economic system that, America hoped, would keep the world at peace.
I want to pause here to make three things clear. First, the United States didn’t do any of this just for altruistic reasons. Americans didn’t collectively decide to make humanity safer and more prosperous because we’re just that nice. Remember what I said at the beginning of this podcast: Americans feared communism, they feared another war, and they feared anything that threatened their interests. Together with Great Britain, the United States is a textbook example of a mercantile power; its wealth comes largely from trade with other nations. Imperial wars threatened that trade, and that was a problem. Solution? Stop the wars. That’s why we took on the role of world policeman in the middle of the 20th century. We didn’t want to protect global trade—we chose to because it made us rich. Second, many of our partners in globalization resented the way America imposed this new economic model on them. Britain in particular tried their best to resist decolonization because they knew American businesses were circling, ready to step in and seize new economic opportunities. Which leads to my last point: America made plenty of mistakes in this period. Some have names attached to them, often with the modifier “War.” We supported horrifying dictators who brutalized their people because the other side opposed globalization and were too close to the communists. So please don’t take anything you’ve heard today as a defense of globalization—this is history, not commentary.
Globalization Forward
It’s not possible to cover every historic result of globalization in this podcast, so let me recommend the geopolitical strategist Peter Zeihan (who I’ve mentioned before and to whom I’m indebted for some insights I’ve brought to you today). He covers much of this ground from a geographic and economic standpoint, and while I don’t always agree with his conclusions, his YouTube videos and presentations are always informative. So let me close by discussing just one long-term effect globalization has had on many nations’ histories and then briefly explain how one country avoided this whole messy, though profitable, enterprise.
The primary effect of free trade is cheaper access to raw materials. History tells us this is how societies progress from subsistence farming to mass production; in other words, how they industrialize. Great Britain was the first country to go through this process, and it took nearly a century. America did it in forty years after our civil war. But thanks to globalization and cheap access to the world’s resources, many developing countries have industrialized in a single generation. This brings us to what I think is its most history-shaping effect: declining birth rates. Peter Zeihan describes it like this: “When you live on a farm, kids are free labor, so you have as many as you can. But when you move into a city and take a factory job, they become an expense, so you have fewer kids.” If a society industrializes in a single generation, you can watch in real time as they begin to run out of children, then working-age adults, then mature adults. It’s hard to overstate just how dramatically this affects every aspect of a country’s society. When scholars and pundits discuss the worldwide problem of falling birth rates, they tend to blame it on shifting religious values or new cultural trends and are often ignorant of its biggest driver: globalization.
Again, that’s just one of dozens of historic trends we see coming from globalization, so be sure you listen to next week’s discussion for more. We’ll also discuss how it shaped the future of one particular country, the one that jumped into international trade with both feet and benefitted from the American security guarantee the most. What about the opposite? Did any countries look at what America was offering and say, “No thanks”? During the Cold War, the Soviet Union and its satellites were blocked from most international markets by government edict, but once communism fell, the Russian Federation plunged headlong into the European and Central Asian economies with lakes of gasoline and cases of cheap vodka and caviar. Similarly, India straddled the fence on both sides in the Cold War and never really bought into globalization until this century; today it’s a major player in global trade. The one country that never really integrated its economy into the American globalized system…is the United States of America. During the Cold War, imports never made up more than 10% of our national wealth, and even now as it seems like everything we own has a “made in” pick your country label on it, we’re holding steady at 15%. Other nations have lower percentages than us, particularly Ethiopia and Argentina, but there is a big difference. Those two, and nearly every other country on earth, imports large quantities of raw materials or necessities such as food and fuel. The United States imports a good amount of finished goods but very few components or commodities. And this is what puts America in a very unique position if globalization ever collapses—as Peter Zeihan and other people far wiser than me think is happening right now. Countries that rely on imported necessities or basics for economic growth will be absolutely hosed if they cannot ship them in from overseas. America will go through an adjustment if we can’t get cheap Chinese junk or high-end semiconductors from Taiwan, but it will be much easier for us to adapt. We won’t have to bulldoze cities to create farmland or figure out how to power our cars and homes with cow pies; we’ll have to build new factories to make replacement cheap American junk and high-end American semiconductors. It’ll take time, it’ll mean talking to with longtime friends, wary rivals, and even political enemies, and it’ll take lots of money. But we’ve done it before, and if we have to, I think we can do it again.
