Chartbook 248: "American leadership is what holds the world together." Joe Biden October 2023 ... just let that sink in.

American leadership is what holds the world together. 

The President wasn’t just improvising. He has not done a lot of speeches from the Oval Office. A speech-writing team crafted that extraordinary line.

It reflects deeply held views on the part of Washington. Back in February 2021, the newly appointed Secretary of State Antony Blinken gave several speeches and interviews in which he repeated the line:

The world doesn’t organize itself. When we’re not engaged, when we don’t lead, then one of two things happens: either some other country tries to take our place, but probably not in a way that advances our interests and values, or no one does, and then you get chaos.

This idea, that there is a “place” in the world, which is that of “America as the organizer”, and that without America occupying that place and doing its job, the world will fall apart, or some other power will take America’s place as the organizer, is deep-seated in US policy circles.

As a metaphysical proposition it is silly and self-deluding. It is bizarre to imagine that the world needs America to “hold it together”. America itself is hardly in one piece.

It isn’t true that the world doesn’t organize itself without top down leadership from a power sitting in America’s “place”. Indeed, what would it mean for America’s “place” to be vacant and free for another power to fill, the specter conjured by Blinken? Does America disappear from the map when it elects Donald Trump President? The United States is always present in one form or another, even as an absence in international discussions - as was the case, for instance in the 1920s.

America’s power - potential or realized - is a force that world politics has been built around for just over a century. In the book Deluge I argued that 1916 was the moment that this became indisputably true. The Presidential election of that year was the first followed by the world in the way that the world will follow the 2024 election.

Whoever governs America, dysfunctionally or not, speculating about a post-American world, is a waste of time. And there a few key areas of global affairs in which American institutions today play a crucial organizational role. I have written often in this newsletter about the dollar system and its resilience. The dollar continues to be the basis for global finance. Though it dare not speak its name, the Fed acts as a global central bank.

It is also true that American leadership and military spending does hold structures like NATO together. But that is not “the world”. It is an exclusive military alliance.

For the most part, to make sense of the sort of thing that Biden and Blinken say, you have to realize that they are talking not to the world or about the world, but to Americans about America. Above all, Biden and Blinken’s rhetoric is directed against Trump, who conjured up a scenario in which America was, as Biden and Blinken see it, a chaotic, disruptive and untrustworthy force. This shames their self-understanding as a liberal elite. With a tight election in 2024 those fears will overshadow all America’s interactions with the world, whoever actually sits in the Oval Office.

American democracy, the system that produces the leadership that Biden and Blinken so self-confidently evoke, is clearly broken. Pervasive and well-merited skepticism about America’s system of government, is now a massive reality in world affairs.

Source: Pew

It is not coincidental that the dollar system and the Fed, one dimension of American world-ordering that is very much intact, is also relatively insulated from its partisan politics. Once one might have said the same about the military command chain, the anchor of NATO. But then came the late stages of the Trump presidency when ordinary wrangling between civilian and military leadership exploded into an open breach between the chairman of joint chiefs and the President, which has now culminated in personal death threats.

But fixating on Trump serves to vindicate the amour propre of the Biden team and to deflect attention from another no less serious scenario, a scenario that should give liberal centrists more pause than the Trump spectacle. It is the scenario in which intelligent, seemingly well-meaning and worldly Americans set about, in a highly organized way to sabotages the effort of most of the rest of the world to organize itself.

Just as the President was making his televised appeal for $106 billion this is what an American delegation was doing at the negotiations in the Transitional Committee tasked with designing the UN Fund for Climate Loss and Damages.

The UN negotiations over a climate Loss and Damage Fund are a major effort at global organization to face the climate disasters to come. Beyond long-range mitgation efforts and adaptations to unavoidable new risks, the world needs an institutionalized mechanism to provide assistance to those most directly impacted by climate disasters particularly in poor countries. In 2022 the disaster in question was the catastrophic flooding in Pakistan which left a third of the country underwater and cost an impoverished and debt-ridden country $30 billion in damages. It was touted as one of the great breakthroughs at the UN climate talks in Egypt in 2022 (COP27) that at the last minute, and to general surprise the US delegation agreed to start talks over a fund to compensate victims of climate catastrophes. The decision was vital in political terms, because though it did not include an admission of historic responsibility or liability it implied a concession to the cause of climate justice, by the United States, for so long the chief polluter.

But now, only weeks ahead of the COP28 meeting in Dubai, the loss and damage talks have collapsed acrimoniously. There was no agreement between the rich countries that will have to come up with most of the funding and the claimant countries, the Small Island Developing States and the larger grouping of the G77 and China.

The Americans were very much there. After Trump’s withdrawal from the Paris agreement, the Biden administration immediately restored America’s adherence to the UN climate talks. The diplomats negotiating on behalf of the Biden administration are good internationalist committed to the climate cause. But they represent an administration committed to asserting American leadership and behind the White House stands a Congress that defines narrow terms of engagement. It cleaves to the Byrd-Hagel Senate Resolution that rejected common and differentiated responsibility already in 1997. America will agree to no climate treaty that does not place obligations on all parties, not just the rich states. It will under no circumstances accept liability or any idea of compensation, the basis for the climate justice movement. It might conceivably find a few billion with which to top up a World Bank fund - there are a few billion for the World Bank tucked into the Ukraine-Israel aid package - but is not going to provide tens of billions to a stand alone UN fund with a governing board whose majority is likely to be skeptical if not hostile towards America. And if money is to be handed out, there will be conditions, qualifying rules and strings attached.

Like them or not, these are largely non-negotiable positions on the American side. They are unacceptable to the vast majority of the rest of the world. Given America’s entrenched power, all its negotiators need to do is to spell out their terms. This provokes indignation, a breakdown in trust, deadlock and thus the perpetuation of a disorganized status quo.

Brandon Wu’s tweets from the conference hall give a sense of the atmosphere:

US has language reiterating Loss and Damage Fund (LDF) "does not involve liability or compensation" in financial inputs section (para 78). Some members thought it seemed an odd inclusion. US responds, "The fact that this is a point of contention is absolutely unacceptable to the United States." #TC4

US TC member Christina Chan explicitly threatens that if the no-liability/compensation language is taken out, we will not get a Fund. Noticeable change in tone from previous interventions. #TC4

US says "We would not accept language on principles & provisions of the Convention" in proposed language on scope of the Fund being based on the Sharm mandate. This is consistent w/previous US statements that L&D is divorced from e.g. equity, CBDR, historical responsibility.

In this role, America becomes a force that does not hold the world together but blows it apart. If some compromise on the loss and damage fund is not stitched together in the coming few weeks, COP28 will likely be a fiasco.

If you want a global loss and damages fund, the most constructive response at this stage would be to find another great power sponsor to bypass the US veto and set up a free-standing fund. The sums involved are large, but manageable. $100 billlion per annum would go a long way. If the Europeans had guts and wanted actually to demonstrate strategic autonomy they would go ahead and anchor the fund. The EU is responsible, after all, for at least 22 percent of historic emissions, a share barely smaller than that of the US at 25 percent. If Beijing wanted to make a splash, it could easily do the same.

If China were to act on these lines, we already know how the US would respond. It would denounce the funding as influence-mongering and might then attempt to respond, as it currently is doing, by leveraging up the World Bank. A little noted passage in Biden’s $106 “Ukraine-Israel” request to Congress includes:

To provide a credible alternative to the People’s Republic of China’s coercive and unsustainable financing for developing countries around the world, the Administration’s request will advance high-leverage solutions through the international financial institutions. This historic U.S. action will support the mobilization of $200 billion of new financing for developing countries backed by our partners and allies. The requested funding will:

• Materially expand development finance to the countries hard hit by the spillovers of Russia’s war through funding for the World Bank.

• Unlock up to $21 billion in new transparent lending with no additional appropriations through the authorization to lend to two International Monetary Fund (IMF) trust funds.

One of the remarkable aspects of the impasse on the Climate Loss and Damage Fund is that the US is insisting it should be located in the World Bank, precisely at the moment that it is openly proposing to mobilize the World Bank as a China containment vehicle.

If this is actually in earnest it would amount to a Cold War style mobilization in the climate space. Under the circumstances that would be a second-best outcome, far better than the current deadlock.

As Brandon Wu of Action Aid Notes:

“The cognitive dissonance is unbelievable. The fact that we can spend billions of dollars on war machines and we have to fight tooth and nail for every few million dollars for climate finance is just an insult. It’d be nice if one of those wars that we were fighting was a war on climate change.”

But it is far from obvious that the Biden administration can actually get Congressional approval or the cooperation of its allies to turn the World Bank against China. So far, decision-makers are willing to regard “infrastructure” in terms of geopolitical competition, but not yet climate.

Between the specter of Trump and an “absent of America” and Biden and Blinken’s self-aggrandizing view of America’s role in the world, a more realistic vision would be based on a matrix organized around two criteria, the degree of agreement within the US on the desirability of making a world-ordering effort and the presence of a significant world-ordering alternative. The 2*2 would look like this.

Despite the inward turn of Bidenomics and the advocacy of Matt Klein and Michael Pettis, commitment to dollar hegemony remains intact and there is no remotely credible alternative contender, so here the US does continue to hold the world together.

On security policy, notably on China, the consensus in Washington is strong, and the presence of antagonists is real or at least plausible, so what emerges are strategies of alliance building and bloc formation. They organize the world, but rather than holding it together, they split it into opposing blocs.

In the era of One Belt One Road, large-scale development finance was a field where there was a credible alternative in the form of China, but the US was internally divided on how to mobilize resources for world-ordering efforts. The same is true for trade policy where the question of market access is considered off limits by Congress. The Bidenomics industrial policy agenda, which is funded to the tune of hundreds of billions of dollars over a decade time horizon poses further questions for trade policy. The best that Jake Sullivan and co have to offer so far, are ad hoc coalitions of the willing. The Biden team knows that branding its World Bank expansion scheme as anti-China is the best hope of slipping a few billion in extra capital past Congress. If they do not succeed, they have reason to fear that in these domains a new world order may be built without the United States. With regard to trade and infrastructure finance this is far more plausible than with regard to the global financial system. It is already a fact that the chief motor of trade globalization is expanding trade between EM, above all in Asia.

Right now, as the failed loss and damages talks indicate, climate policy drifts into the fourth quadrant, where there is no substantial interest on the American side in seeing large-scale global action and no threat of an effective counterforce. Demands for global organization based on climate justice are toothless because they are not backed by billions of dollars or any effective means of enforcement. Nor is there a real threat that their cause will be taken up by a rival to the USA. So in this domain, the US acts as a spoiler. Contrary to both Biden and Blinken’s vision, the US prefers a status quo of disorganization and organized irresponsibility to any actually realistic possibility of global cooperation.

Apart from climate policy, a similar deadlock prevails in the area of global public health policy with the Europeans joining the Americans as spoilers.

One can compare and rank these different domains in terms of the financial commitments involved: trillions in dollars in Fed balance sheet and swap lines for global financial stability (balance sheet entries, admittedly, not actual spending), well nigh a trillion dollars in actual spending on the Pentagon budget and foreign security, a few hundred billion per annum on Bidenomics and new industrial policy, a few billion for the World Bank (fingers crossed) and a pittance for the global climate fund. That gives you an idea of priorities.

But the bigger question is how these different forcefields of power and policy fit together. How does a world function in which dollar hegemony is entrenched, security policy drives the formation of antagonistic blocs, the pattern of real economic activity is increasingly multipolar and the major issues of global public goods - climate and public health - go systematically unaddressed? What is the impact of a dysfunctional US political system, where the more reasonable wing of the ruling elite cling to ideas about America’s role that are systematically self-deluding. You could say that hypocrisy is normal. It is the besetting sin of liberalism. But in light of the scale of looming global problems and the shift in the balance of power that has already taken place, let alone that which may still to come, how long can this tension be maintained and what will be the price?

The only thing that seems for sure is that we should avoid falling into the trap of what I’ve called fin-fiction or fin-fin, which assumes that because these tension seem unbearable they must therefore resolve in some logical way, for instance in the speculation over the end of dollar hegemony, or what appears be the Biden fantasy of a return to the normality of American leadership. I am skeptical even of invoking terms like “interregnum”, signifying a temporary hiatus between orders of power. What gives us confidence that our current situation is temporary and that some new order, like the old, will emerge? Is that not another version of the kind of thinking that says the world “needs organizing” by a power sitting at the head of the table - in “America’s place”?

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