How the Financial Crisis Undermined America’s Place Atop the Global Order - TIME Business

How the Financial Crisis Undermined America’s Place Atop the Global Order

Posted: ( will be posted in October isue of TIME )


Ten years on, the reverberations from the global financial crisis are still shaking up the world order. While the catastrophe led to movements toward nationalism in several countries, it also accelerated America’s departure from its position as leader of the world–and in the void, a new power has begun to rise.

Confidence that the U.S. is a force for international stability began eroding well before Lehman Brothers declared bankruptcy. U.S. policymakers had presided over a downsizing of the nation’s role in the world in advance of the 2008 crash, and Americans elected increasingly isolationist Presidents. Widespread opposition to the U.S.-led war in Iraq marked a crucial post–Cold War turning point by aligning the views of a majority of America’s European allies with Russia.
The financial crisis and all that followed sharply exacerbated these negative attitudes by calling into question the long-term viability of Western capitalism. (If the U.S. can’t properly regulate its own banks, how can it serve as a model for developing countries?) The search for an alternative model took on new urgency.

A decade ago, China wasn’t yet ready to offer one. But the U.S.-based meltdown presented Beijing with an unprecedented opportunity to showcase the virtues of state-driven economic development. The country’s political leaders demonstrated their ability to respond to the crisis with fast and effective emergency measures. In 2008, China’s economy was smaller than Japan’s. Today it’s more than twice as large–and about equal to the combined total of the 19 countries that use the euro. As China’s economy expanded, so did its influence.

Stability had rarely been more appealing. A sovereign debt crisis created existential threats for the euro zone. A collapse in commodity prices–in late 2008, oil fell from $147 per barrel to about $30 per barrel in less than five months–helped create conditions for the wave of unrest that toppled governments in Tunisia, Egypt and Libya; set the Saudis on edge; and shoved Syria and Yemen into civil war. Waves of desperate migrants fleeing this upheaval made their way north, further irritating Europe’s precarious politics and inspiring pressure for tighter borders and new attitudes toward immigration.

These pressures certainly boosted support for Brexit and Trump. They also led voters to turn from traditional parties of center right and center left in France, Germany, Italy and elsewhere toward new voices and political parties promising new kinds of change. But this was not just a U.S.-European trend. Voters in Mexico and Pakistan pushed aside establishment parties and political dynasties in search of a new direction. Voters in Brazil may well follow suit in October.

Today, the global balance of power is no longer clear. Trump says the U.S. can win a trade war with China, but his political vulnerability has only emboldened Chinese President Xi Jinping. In the realm of cyberspace, meanwhile, conflicts are even more dangerous because unlike nuclear missiles, these weapons can actually be used to test an adversary’s strength.

China also now offers an increasingly credible alternative to both multiparty democracy and free-market capitalism, one with real appeal for governments, particularly in the Middle East and Africa, that want to maintain a tight grip on power. As China’s investments expand in every region of the world, it becomes ever more obvious that U.S. power isn’t as persuasive as it used to be.

Additionally, the U.S. has not responded to the 2008 crisis by investing in the future. It’s one thing to bail out industry and banks. It’s another to address the country’s growing inequality that leaves many people feeling as if they have no future. There is no credible plan to help those who lose jobs as the workplace automates. And Americans still invest for short-term gain rather than long-term productivity. That’s why the stock market is rising while infrastructure crumbles. Ten years on, these important lessons have still not been learned.

As a result, America’s longevity at the top is now very much in doubt. China, North Korea and Iran have reason to believe they can wait Trump out. And given that the U.S.’s influence has been eroding so quickly and for so long, it’s clear that for the foreseeable future, its leaders will need to continue to grapple with the limits of a superpower’s power.


This appears in the October 01, 2018 issue of TIME.