Yes, Henry Luce’s “American Century” is now over. Any further questions? Tariffs tax deterrence; & policy volatility prices U.S. reliability out of potential allies’ long-run planning along both the geostrategic and international globalized value-chain network economy dimensions. When rules wobble, allies reroute—and America’s promises lose compound interest…
The current exterior situation, deftly summarized by the sharp-witted and observant Andreas Kluth:
Andreas Kluth: America’s Friends Will Never Trust the US Again <https://www.ft.com/content/6ed386e3-642a-4564-bfdd-3db3470656e7>: ‘Trump keeps treating the nation’s allies with such contempt that the consequences will be lasting and ugly…. From Taiwan and the Philippines to Estonia and Germany, no American ally can be sure that Washington, in a pinch, would have its back. Trump’s willful destruction of America’s alliance capital is so self-defeating that it “discombobulates us,” says Graham Allison…. For the sake of argument, ignore factors such as honor, credibility, ideals and values for a moment and think only in terms of realpolitik…. The US’ allies are instead reacting as predicted by… “balance-of-threats”…. They’re forming other trading and security networks, excluding the US to hedge against hostility by Trump or a future president…. Gregory Meeks… “What keeps me up most,” he finally answered, is “whether or not our friends and allies will ever trust the United States again.” The way I heard it, the question was rhetorical. I fear the answer is simple and sad: They won’t…
This is overstated. But not by much.
This is the geostrategic bottom line: Without credible, rules-based trade and steady alliance signaling, the US forfeits its unique network power, and allies’ rational hedging makes “ever-trust again” less likely each cycle. What follows is a predictable erosion dynamic: when tariffs and export controls feel arbitrary, supply chains reroute; when defense commitments oscillate, capitals draft contingency treaties without Washington; when intelligence sharing becomes politicized, joint planning degrades.
Network power is multiplicative—trust compounds across trade, finance, tech, and security—so shocks don’t just subtract, they divide. As partners internalize counterparty risk, they invest in redundancy and mini‑laterals, reducing U.S. leverage precisely where collective action is decisive against revisionist powers. Rebuilding requires transparent rules, institutional ballast, and consistent signaling over time; absent that, each episode of unpredictability deepens the discount rate allies apply to American promises, turning doubt into structure rather than merely keeping it at mood.
It is unclear what form the human social practice of superpower cold and hot war will take in the rest of the 2000s.
The repertoire ranges from sanctions cascades and export‑control skirmishes to gray‑zone cyber-probes and proxy conflicts and beyond—each imposing costs without clarifying rules. What is clear, however, is arithmetic: with roughly four times the U.S. population and about twice U.S. manufacturing value added, China’s potential war‑economy “throughput” is structurally larger.
In any zero‑sum contestation, the United States therefore wins only by converting network power—alliances, supply‑chain alignment, tech standards, finance, intelligence sharing—into multiplicative force. That requires credibility in trade and security commitments, institutional ballast, and patience for compounding. Lose allies, and the U.S. fights a scaled adversary with autarkic tools; keep allies, and “allied scale” turns a demographic and industrial disadvantage into strategic overmatch.
But “allied scale” is the decisive advantage vis‑à‑vis China in zero‑sum contestation only if the U.S. coordinates. Absent credible leadership, partners rationally hedge toward EU mini‑lateral defense pacts and Indo‑Pacific plurilaterals without Washington—which means that U.S. well‑being is no longer a factor in other capitals’ diplomacy. When Brussels, Paris, Berlin, Tokyo, and Canberra optimize for resilience under U.S. volatility, they write treaties that insure themselves against American caprice, reroute supply chains around prospective U.S. chokepoints, and set tech and financial standards in fora where the U.S. no longer has agenda control.
The result is subtle but material: American preferences become parameters to be managed rather than objectives to be advanced, and the marginal value of U.S. promises declines. Coordination converts allied capacity into force; hedging converts it into redundancy. If Washington cannot supply predictable rules and steady signals, the network re-weights itself away from the U.S., and the very arithmetic that should yield overmatch instead yields isolation.
Plus transactional US trade policy—blanket tariffs on close partners—directly erodes alliance cohesion, not just by harming the very economies underwriting collective deterrence but by inducing a redivision of globalization’s gains away from the United States. Once allies price in tariff volatility, they redesign supply chains to minimize exposure to US policy risk, deepen intra‑EU and Asia‑centric sourcing, and negotiate standards that privilege their firms. The result is a shift in scale- and network-based quasi-rents: market access and scale economies accrue to networks that can promise stable rules, while US exporters face preference erosion and rising non‑tariff barriers crafted without Washington at the table. Tariffs meant to extract concessions instead catalyze import substitution abroad and capital redeployment that is hard to reverse, shrinking America’s leverage in geoeconomic bargaining both over political international-affairs focus and over economic quasi-rent division.
Hence TRUMPXIT: a 1.5%-point per year drag on U.S. real growth and living standards over the next decade, I think, is the right back‑of‑the‑envelope. Mechanically, layer three channels:
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tariff- and uncertainty‑induced productivity losses that shaves roughly 0.4%-points off trend TFP growth;
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alliance erosion that raises defense outlays and reduces “allied scale” spillovers, subtracting another 0.1%-points
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and capital misallocation and higher risk premia from institutional volatility—regulatory whiplash, politicized procurement, degraded immigration—costing another 1%-point, once, compounding effects on labor quality (fewer skilled migrants, slower diffusion of frontier tech) are factored in.
That arithmetic is not apocalyptic; it is cumulative. Each year of avoidable friction ratchets the level path down, so by year ten median households sit some 12–18% below the counterfactual, plus fiscal space narrows as nominal rates chase risk rather than productivity.
Meanwhile allies’ trust bifurcates. At the moment, public support for NATO remains high, but confidence in the U.S. president and the reliability of U.S. commitments is materially lower—and increasingly partisan—across member states. That split matters operationally. High latent support sustains the alliance’s legal architecture. Low leader credibility degrades crisis signaling, slows joint procurement, and invites adversarial probing. When Washington’s commitments look conditional on domestic politics, allied defense ministries hedge. The downstream is a trust‑to‑capability leak: polling majorities do not translate into readiness unless the political vector is stable.
Credibility is a stock variable: repeated shocks—from tariff salvos to alliance ambivalence—depreciate the U.S. reputation capital. Sporadic reassurance does not rebuild it. Each episode of volatility raises allies’ discount rate on American promises. Each year of steadiness lowers it only marginally. The asymmetry is cruel: one dramatic breach can erase years of incremental trust‑building, while “reassurance bursts” are treated as noise. Over time, the reputational balance sheet shifts from asset to liability, forcing partners to harden redundancy—mini‑laterals, non‑U.S. standards, alternative financing—so that what once compounded as network power now fragments.
Plus domestic attempted politicization of the military and threats of internal deployments reverberate externally, weakening allied confidence in U.S. civil‑military norms that underpin extended deterrence. Allies watch for guardrails: clear chains of command, apolitical orders, lawful use of force. When those appear negotiable in Washington, the practical consequences are immediate. And cumulative.
To summarize, my core claim here is this: In zero‑sum contestation over the rest of the 2000s, the U.S. wins only by converting allied capacity into multiplicative force. In positive-sum growth, the U.S. prospers only by doubling down on the network benefits we have seen over the past two generations with the growth of the globalized value-chain mode of production, benefits which promise to growth further as we move into the attention info-bio tech mode. Volatility—tariffs, ambivalent NATO signaling, politicized intelligence—raises potential allies’ discount rate on American promises. Potential allies insure against Washington, rewrite standards, and reallocate capital, moving quasi‑rents to networks that promise stability. Meanwhile, domestic attempts to politicize the military weaken confidence in civil‑military guardrails that underpin extended deterrence. Over a decade, these frictions cumulate into a growth drag—TRUMPXIT—via lower productivity, misallocated capital, and reduced spillovers from “allied scale.” The arithmetic isn’t doom; it’s compounding—downward. Allies cease to be allies. Network power amplification dissolves.
