From hegemon to has-been, remarkably quickly too. But think, post American hegemony, not Chinese hegemony but rather (hopefully peaceful) balance-of-power, and of influence, global politics...
I've been reading "The Price of Victory", the third and final volume of N. A. M. Rodger's magisterial "Naval History of Britain". (Those who loathe military history needn't fret; the book is mostly about politics, sociology, and economics. Not until Chapter 9 do we encounter anything on the nuts and bolts of the navy and even that is about ships and guns, not battles.)
The whole work is, as they say, fascinating from every point of view. But there is a particular passage I would like to quote here:
"[The] convergence of living standards, as poor people and poor countries caught up with the rich, was driven by free trade, and particularly by the steep decline in long-distance shipping costs, which halved between 1870 and 1913.
"British governments were pleased to see these changes, because they knew it was both just and wise that Britain should share her prosperity ... In an influential memorandum of 1907, Sir Eyre Crowe ... explained:
'It would ... be but natural that the power of a State supreme at sea should inspire universal jealousy and fear, and be ever exposed to the danger of being overthrown by a general combination of the world. Against such a combination no single nation could in the long run stand, least of all a small island Kingdom ... dependent for its food supply on overseas commerce. The danger can in practice only be averted ... on condition that the national policy of the insular and naval State is so directed as to harmonize with the general desires and ideas common to all mankind ... and closely identified with the primary and vital interests of a majority ..."
Profound. I think the US has followed this policy since WW2, and it is not unreasonable to ask that those who have grown rich bear more of the costs of maintaining those public goods, but the problem is we do not appear to agree on what those goods are. China and Russia, in particular, disagree with the US.
I'm not sure where Trump is heading, but I'm not prepared to dismiss it as stupid at this point. If the Philippines packages and tests semiconductors and their goods are subject to a 19% tariff, while China's are taxed at 30%, this provides the Philippines with an advantage. As I believe they are a more reliable supplier, I am willing to pay the higher price, and I do not think this is an industry that will ever exist in the US, so I don't think it is asking the Philippines to pay a higher tariff, as the cost will be passed on to buyers.
In many respects, I view it as a cost accounting problem. Goods from China bear more risk/costs and in a world with no tariffs, they are not carrying the proper cost. We do not have a system to allocate costs as of today, and perhaps it is impossible to develop. It would be a lot easier if China were our friend and we used standardized tariffs, or better yet, passed a US VAT into law to reduce the deficit. Since a VAT is politically impossible, what is wrong with tariffs as long as they don't distort trade too much?
The public goods in question were the Royal Navy. The British wealthy class was reluctant to pay the cost of this but the British public was not and one of the factors driving the expansion of the Royal Navy in the late 19th century was the extension of the franchise. Military funding remains largely popular with the American public, particularly the Republican-voting public.
You have focused on costs but the point of paying costs is the benefits and the British public, like the American public, benefited enormously from Britain's arrangement of the global economy. In material terms, they ate a lot better (Rodger notes that foodstuffs became much cheaper and consequently "the working class" - 80% of the population in 19th century British terms - not only ate more calories but more meat, sugar etc.) The main costs of free trade in Britain were to the landed aristocracy who lost their tariffs protections on agricultural products. Likewise, the main losers of free trade in America would be the oligarchs who reap monopoly profits from their sales and monopsony profits from their workforce.
A VAT is a tax only on end consumption; at each stage in production, producers recover the difference between the VAT they charge on outputs and that paid on inputs. Exporters recover all of their VAT because the consumption will be taxed abroad. America's highest tariffs are levied on critical inputs such as steel, aluminum, and semiconductors as well as other commodity inputs such as lumber and sugar. American producers cannot recover the taxes they pay on their inputs. Even a stable and predictable tariff regime, which America does not have, would put it at a disadvantage. Finally, countries that charge VAT happen to use the money to compress after-tax incomes. By contrast, American tariffs are very regressive and expand inequality. They have no resemblance to a VAT.
You have mentioned "reducing the deficit" as though it is self-evidently desirable. It is not. "Trade deficit" is another way of saying "foreigners give cheap capital to American enterprises". If you want this investment in dollars - if you don't want to borrow EUR or JPY or whatever - then foreigners must perforce sell more to America then America sells to them; how else could they possibly get dollars to invest?
Thanks for your comment. I agree that the US benefited greatly from the UK expenditures as well as innovation. I sometimes joke that the US and other countries should pay a royalty to the UK for all the benefits they brought to the world at significant cost to themselves.
I think you mischaracterize European VAT by saying it is to compress after-tax incomes. While true, it is highly regressive and has similarities to tariff impacts. That said, I am not sure about the effect on efficiency losses yet. I don't like imposing tariffs on Europe. Still, I am pleased to impose them on China and any country whose economic systems are heavily integrated with them, at least concerning products we cannot do without.
I think Americans, including myself, are undertaxed. I would have preferred a very regressive VAT system, as I believe that is the only way to make US social programs sustainable in the long term, but it is not politically feasible. Given this fact, the tariffs on tangible goods are likely the best alternative. Yes, they do expand inequality, but the social program benefits that offset inequality dwarf the negative impacts, and it means I can still afford to hire someone to paint my house.
Yes, I believe reducing the fiscal deficit is beneficial, and trade deficits are currently being recycled into US treasuries. Still, this would be tough to maintain indefinitely when they are used to fund consumption.
No, you are not making sense at all. Trump is not heading anywhere - his direction is chaotic and he is obviously stupid. Tariffs are a national sales tax with no relation to production costs or risks. All nations are worse off without the US hegemony.
You're entitled to your opinion, but it is not the same as a national sales tax. Rates differ between countries of origin, and sales taxes do not apply to goods incorporated into manufactured products.
I do worry that it is not practical to develop systems, and I sure hate to protect US manufacturers from US friends but it might be the least bad alternative.
Trump is improvising along the way to hold together coalitions. Of course, that will be chaotic. If you want to call Bessent stupid, be my guest, but it will not result in my holding you in high esteem unless you address what I believe are his concerns.
Your argument deserves a counter. It only looked at the supply side. Demand is important, too.
Hegemons provide services that others desire. Even the more hateful hegemons promise the basic Hobbesian service: protection from the rapacity of all but the hegemon. (They don't always deliver even this basic service, but they do promise it.) And less hateful hegemons provide other services, which you described well.
Since China does not seem to be an option, there is still a demand for a relatively benevolent hegemon. The demand creates what may be a delusion. The rest of the world has been (all too) willing to believe that American craziness will pass: handing out Nobel Peace prizes in token of this. Even now, the EU, the Anglosphere, and the Asian democracies are acting as if their task is to wait out the crazy, rather than introduce their own hegemony. This delusion may be self-fulfilling. They might continue to force hegemony on the US, even if the US is no longer fit for it.
What if there are no trade agreements, nothing is written down, and everything is a show for the President to look like a great deal maker?
What if Japan's agreement to invest over $500 billion in the US is just rolling over their current holdings of $315 billion of US corporate bonds, $252 billion of Agency bonds, and who knows how much in corporate bills?
It’s useful to view Trump as a random number generator. The issues he fixates on and what he wants to do about them change weekly, or faster. (Whatever he saw on Fox yesterday. ) Of course he’s surrounded by moral zeros, who race to carry out today’s brainstorm.
Such leadership makes it impossible to be a hegemon.
"Under the United States-Mexico-Canada free trade pact (USMCA), which the Trump administration has confirmed remains in place, Canada and Mexico can export chocolate to the U.S. tariff-free no matter where they sourced their inputs of cocoa - a tropical crop that does not grow in the United States.
Canada also has zero tariffs on imports of raw and semi-processed cocoa like butter and powder, while Mexico grows its own beans, meaning factories both north and south of the U.S. border can produce more cheaply than those domestically who now have to pay tariffs of between 10-25% on cocoa inputs. The rates could rise to 35% on August 1."
if only there was another hegemon to step in...but there isn't....so what happens in a very financialized world without a hegemon to keep finance safe?
is that the goal of the tech-bros? to create a wizard that scares people into maintaining fungibility for their riches?
have they even considered that they need such?
so much effort spent in destroying, so little spent in creating some world view that would justify their continued existence at the top of the food chain
You're far more the economist than I am but I will boldly venture...IF global commerce flees the US$ as "medium of exchange/investment medium/store of wealth" the thing which impels them to do so will determine the eventual effect
The mechanisms of trade/investment/wealth storage are less important than the conceptions of the world which create the conditions for such (this is the answer to your question)
the 2008 resolution was ultimately (oddly from standard Keynesian national income accounting) more stabilizing to the US$ regime...I doubt this will recur but this remains to be seen
Tooze, inter alios, idea of a $ trap works to facilitate overstaying - which, without chaos-monkey effects would keep things going for a few decades...BUT whom did Trump target for extra tariffs today?
inviting discussion of another great fear of mine; tokenization of special collateral coincident with extended duration of repos...5 day repos with multiply promised "special" US bonds is a disaster waiting to happen
**
an old rule of thumb for me..is there a financial asset people desire to own indiscriminately...where you find that asset is where you find the coming disaster... owning anything above arbitrage level pricing is madness ...but such is happening now...often
I would think that the US's position hegemonic position would have been gravely threatened by the Viet Nam War era - inflation, a shameful war, political instability after 3 major political assassinations would have quite shaken the world's confidence in the US. Instead, we abandoned Viet Nam, solved the inflation problem and watched the Soviet Union dissolve itself. What are the salient differences now that show the US has now path back to hegemony?
Demographics and the ability to absorb immigrants might be.
That said, I don't think US hegemony is feasible anymore as US citizens, or those in swing states, are prepared to pay the costs anymore. It is conceivable that a coalition might be able to do so, given China's imbalances.
Comments like that are part of why Trump won certain swing states you view as cesspools. No, they don't care about hegemony, but they do care about jobs and wages. They are not free traders, and they are part of the new Republican coalition for now, and old-style free trading Republicans like myself have to accommodate their views. Besides, China's impact shows I was wrong regarding free trade in any event.
Why would you say something rude and counter-productive like that?
Trump won those slave states because the Dems abandoned the field. I am normally not rude, but those voters in swing or red states producing < 20 per cent of GDP knowingly elevated a criminal. They are bad Americans in my book, deserving calumny.
I've been reading "The Price of Victory", the third and final volume of N. A. M. Rodger's magisterial "Naval History of Britain". (Those who loathe military history needn't fret; the book is mostly about politics, sociology, and economics. Not until Chapter 9 do we encounter anything on the nuts and bolts of the navy and even that is about ships and guns, not battles.)
The whole work is, as they say, fascinating from every point of view. But there is a particular passage I would like to quote here:
"[The] convergence of living standards, as poor people and poor countries caught up with the rich, was driven by free trade, and particularly by the steep decline in long-distance shipping costs, which halved between 1870 and 1913.
"British governments were pleased to see these changes, because they knew it was both just and wise that Britain should share her prosperity ... In an influential memorandum of 1907, Sir Eyre Crowe ... explained:
'It would ... be but natural that the power of a State supreme at sea should inspire universal jealousy and fear, and be ever exposed to the danger of being overthrown by a general combination of the world. Against such a combination no single nation could in the long run stand, least of all a small island Kingdom ... dependent for its food supply on overseas commerce. The danger can in practice only be averted ... on condition that the national policy of the insular and naval State is so directed as to harmonize with the general desires and ideas common to all mankind ... and closely identified with the primary and vital interests of a majority ..."
Profound. I think the US has followed this policy since WW2, and it is not unreasonable to ask that those who have grown rich bear more of the costs of maintaining those public goods, but the problem is we do not appear to agree on what those goods are. China and Russia, in particular, disagree with the US.
I'm not sure where Trump is heading, but I'm not prepared to dismiss it as stupid at this point. If the Philippines packages and tests semiconductors and their goods are subject to a 19% tariff, while China's are taxed at 30%, this provides the Philippines with an advantage. As I believe they are a more reliable supplier, I am willing to pay the higher price, and I do not think this is an industry that will ever exist in the US, so I don't think it is asking the Philippines to pay a higher tariff, as the cost will be passed on to buyers.
In many respects, I view it as a cost accounting problem. Goods from China bear more risk/costs and in a world with no tariffs, they are not carrying the proper cost. We do not have a system to allocate costs as of today, and perhaps it is impossible to develop. It would be a lot easier if China were our friend and we used standardized tariffs, or better yet, passed a US VAT into law to reduce the deficit. Since a VAT is politically impossible, what is wrong with tariffs as long as they don't distort trade too much?
Does this make any sense to you?
The public goods in question were the Royal Navy. The British wealthy class was reluctant to pay the cost of this but the British public was not and one of the factors driving the expansion of the Royal Navy in the late 19th century was the extension of the franchise. Military funding remains largely popular with the American public, particularly the Republican-voting public.
You have focused on costs but the point of paying costs is the benefits and the British public, like the American public, benefited enormously from Britain's arrangement of the global economy. In material terms, they ate a lot better (Rodger notes that foodstuffs became much cheaper and consequently "the working class" - 80% of the population in 19th century British terms - not only ate more calories but more meat, sugar etc.) The main costs of free trade in Britain were to the landed aristocracy who lost their tariffs protections on agricultural products. Likewise, the main losers of free trade in America would be the oligarchs who reap monopoly profits from their sales and monopsony profits from their workforce.
A VAT is a tax only on end consumption; at each stage in production, producers recover the difference between the VAT they charge on outputs and that paid on inputs. Exporters recover all of their VAT because the consumption will be taxed abroad. America's highest tariffs are levied on critical inputs such as steel, aluminum, and semiconductors as well as other commodity inputs such as lumber and sugar. American producers cannot recover the taxes they pay on their inputs. Even a stable and predictable tariff regime, which America does not have, would put it at a disadvantage. Finally, countries that charge VAT happen to use the money to compress after-tax incomes. By contrast, American tariffs are very regressive and expand inequality. They have no resemblance to a VAT.
You have mentioned "reducing the deficit" as though it is self-evidently desirable. It is not. "Trade deficit" is another way of saying "foreigners give cheap capital to American enterprises". If you want this investment in dollars - if you don't want to borrow EUR or JPY or whatever - then foreigners must perforce sell more to America then America sells to them; how else could they possibly get dollars to invest?
Thanks for your comment. I agree that the US benefited greatly from the UK expenditures as well as innovation. I sometimes joke that the US and other countries should pay a royalty to the UK for all the benefits they brought to the world at significant cost to themselves.
I think you mischaracterize European VAT by saying it is to compress after-tax incomes. While true, it is highly regressive and has similarities to tariff impacts. That said, I am not sure about the effect on efficiency losses yet. I don't like imposing tariffs on Europe. Still, I am pleased to impose them on China and any country whose economic systems are heavily integrated with them, at least concerning products we cannot do without.
I think Americans, including myself, are undertaxed. I would have preferred a very regressive VAT system, as I believe that is the only way to make US social programs sustainable in the long term, but it is not politically feasible. Given this fact, the tariffs on tangible goods are likely the best alternative. Yes, they do expand inequality, but the social program benefits that offset inequality dwarf the negative impacts, and it means I can still afford to hire someone to paint my house.
Yes, I believe reducing the fiscal deficit is beneficial, and trade deficits are currently being recycled into US treasuries. Still, this would be tough to maintain indefinitely when they are used to fund consumption.
No, you are not making sense at all. Trump is not heading anywhere - his direction is chaotic and he is obviously stupid. Tariffs are a national sales tax with no relation to production costs or risks. All nations are worse off without the US hegemony.
You're entitled to your opinion, but it is not the same as a national sales tax. Rates differ between countries of origin, and sales taxes do not apply to goods incorporated into manufactured products.
I do worry that it is not practical to develop systems, and I sure hate to protect US manufacturers from US friends but it might be the least bad alternative.
Trump is improvising along the way to hold together coalitions. Of course, that will be chaotic. If you want to call Bessent stupid, be my guest, but it will not result in my holding you in high esteem unless you address what I believe are his concerns.
Your argument deserves a counter. It only looked at the supply side. Demand is important, too.
Hegemons provide services that others desire. Even the more hateful hegemons promise the basic Hobbesian service: protection from the rapacity of all but the hegemon. (They don't always deliver even this basic service, but they do promise it.) And less hateful hegemons provide other services, which you described well.
Since China does not seem to be an option, there is still a demand for a relatively benevolent hegemon. The demand creates what may be a delusion. The rest of the world has been (all too) willing to believe that American craziness will pass: handing out Nobel Peace prizes in token of this. Even now, the EU, the Anglosphere, and the Asian democracies are acting as if their task is to wait out the crazy, rather than introduce their own hegemony. This delusion may be self-fulfilling. They might continue to force hegemony on the US, even if the US is no longer fit for it.
There is a lot of ruin in a nation.
What if there are no trade agreements, nothing is written down, and everything is a show for the President to look like a great deal maker?
What if Japan's agreement to invest over $500 billion in the US is just rolling over their current holdings of $315 billion of US corporate bonds, $252 billion of Agency bonds, and who knows how much in corporate bills?
But the show has consequences, for example: https://www.bloomberg.com/news/articles/2025-07-29/taiwan-investors-turn-to-europe-as-us-assets-lose-their-allure?utm_source=website&utm_medium=share&utm_campaign=copy
We traded hegemony for kayfabe, and we will get chaos.
It’s useful to view Trump as a random number generator. The issues he fixates on and what he wants to do about them change weekly, or faster. (Whatever he saw on Fox yesterday. ) Of course he’s surrounded by moral zeros, who race to carry out today’s brainstorm.
Such leadership makes it impossible to be a hegemon.
"But think, post American hegemony, not Chinese hegemony but rather (hopefully peaceful) balance-of-power, and of influence, global politics."
I'm not sure where you find the optimism in this sentence.
The next level of stupid tariff design.
https://www.reuters.com/world/americas/trumps-tariffs-give-chocolate-makers-canada-mexico-an-edge-over-us-firms-2025-07-30/?utm_source=Sailthru&utm_medium=Newsletter&utm_campaign=Daily-Briefing&utm_term=073025&lctg=6378e8c30eb503a67d0faa5b
"Under the United States-Mexico-Canada free trade pact (USMCA), which the Trump administration has confirmed remains in place, Canada and Mexico can export chocolate to the U.S. tariff-free no matter where they sourced their inputs of cocoa - a tropical crop that does not grow in the United States.
Canada also has zero tariffs on imports of raw and semi-processed cocoa like butter and powder, while Mexico grows its own beans, meaning factories both north and south of the U.S. border can produce more cheaply than those domestically who now have to pay tariffs of between 10-25% on cocoa inputs. The rates could rise to 35% on August 1."
It's the intersection of the political and the economic that concerns me.
The stock of foreign investments in the US is $62T and counting. The stock of US investments abroad comes to $37T.
What happens when foreign asset holders begin to truly fear the chaos-monkeys in charge?
What happens when our asset holders begin to fear retaliation in response to our chaos-monkeys?
Adam Tooze' Chartbook today speaks to some of this: https://substack.com/home/post/p-169614598?source=queue (global cross border bond holdings chart is most useful)
When does Trump nationalize foreign investments that refuse to do his bidding?
What does Trump do when he feels his control slipping...as he may already be feeling?
The question is: would a dollar collapse be more stabilizing or destabilizing?
if only there was another hegemon to step in...but there isn't....so what happens in a very financialized world without a hegemon to keep finance safe?
is that the goal of the tech-bros? to create a wizard that scares people into maintaining fungibility for their riches?
have they even considered that they need such?
so much effort spent in destroying, so little spent in creating some world view that would justify their continued existence at the top of the food chain
You're far more the economist than I am but I will boldly venture...IF global commerce flees the US$ as "medium of exchange/investment medium/store of wealth" the thing which impels them to do so will determine the eventual effect
The mechanisms of trade/investment/wealth storage are less important than the conceptions of the world which create the conditions for such (this is the answer to your question)
the 2008 resolution was ultimately (oddly from standard Keynesian national income accounting) more stabilizing to the US$ regime...I doubt this will recur but this remains to be seen
Tooze, inter alios, idea of a $ trap works to facilitate overstaying - which, without chaos-monkey effects would keep things going for a few decades...BUT whom did Trump target for extra tariffs today?
inviting discussion of another great fear of mine; tokenization of special collateral coincident with extended duration of repos...5 day repos with multiply promised "special" US bonds is a disaster waiting to happen
**
an old rule of thumb for me..is there a financial asset people desire to own indiscriminately...where you find that asset is where you find the coming disaster... owning anything above arbitrage level pricing is madness ...but such is happening now...often
I would think that the US's position hegemonic position would have been gravely threatened by the Viet Nam War era - inflation, a shameful war, political instability after 3 major political assassinations would have quite shaken the world's confidence in the US. Instead, we abandoned Viet Nam, solved the inflation problem and watched the Soviet Union dissolve itself. What are the salient differences now that show the US has now path back to hegemony?
Demographics and the ability to absorb immigrants might be.
That said, I don't think US hegemony is feasible anymore as US citizens, or those in swing states, are prepared to pay the costs anymore. It is conceivable that a coalition might be able to do so, given China's imbalances.
There is no evidence that US voters, even in the shithole states, act on beliefs about US hegemony.
Comments like that are part of why Trump won certain swing states you view as cesspools. No, they don't care about hegemony, but they do care about jobs and wages. They are not free traders, and they are part of the new Republican coalition for now, and old-style free trading Republicans like myself have to accommodate their views. Besides, China's impact shows I was wrong regarding free trade in any event.
Why would you say something rude and counter-productive like that?
Trump won those slave states because the Dems abandoned the field. I am normally not rude, but those voters in swing or red states producing < 20 per cent of GDP knowingly elevated a criminal. They are bad Americans in my book, deserving calumny.
And spare me the absurd grievance about naming the problem of the laggard States with very low educational attainment and poor economic performance.