Trajectory #6: American Isolationism

American Isolationism, Oil and Energy Independence

It’s Mikal Khoso and welcome to Trajectory, a newsletter about where the world is heading, delivered straight to your inbox.

This week’s key issue is the question of America’s increasing return to isolationism. Public sentiment and the media pin the cause of this on President Trump’s unilateral foreign policy moves and his “America First” doctrine. But this is lazy analysis and doesn’t delve into the true drivers of America’s return to isolationism. Deep US engagement with the rest of the world is a historical anomaly. Isolationism has been the historical norm. This week I’ll briefly outline how the US emerged from isolationism to become the leader of the world and then analyze the real drivers behind the return of US isolationism.

Questions, comments and feedback are always welcome.

Have a great week,

Mikal

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Key Issue: The Return of American Isolationism

Today the American intelligentsia is increasingly up in arms at President Trump’s steady and consistent reining in of US foreign policy, military and economic engagement with the world. Hundreds of news articles in publications like the Wall Street Journal, New York Times and others have lambasted these decisions and the long-lasting damage that they are perceived to have done to America’s reputation and ability to lead the world. President Trump is an economic nationalist and isolationist and centered his electoral platform around the slogans “America First” and “Make America Great Again.”

Blaming or crediting President Trump for America’s growing isolationism is to overstate his influence on this trend. For most of its history the United States has been an isolationist power. The United States has historically been a fortress, protected and separated from the rest of the world by the giant Pacific and Atlantic oceans and surrounded by loosely populated, less industrialised and friendly neighbours. Most of early American history was focused on conquering (where necessary) and occupying the vast stretches of the North American continent, and in the process expanding the union of states under the American flag. The United States adopted the Monroe Doctrine in 1823 which aimed to halt European colonialism in the Americas and establish the Americas as a region within the American sphere of influence. The policy was deeply successful and by the early 19th century European powers had little to no territories in the Americas - thanks in no small part to American intervention.

America’s Emergence from Isolationism

It took the United States 141 years to emerge from its isolationism for the first time and intervene far beyond its surroundings when US President Woodrow Wilson successfully mobilised the nation to join the side of allies and defeat Germany and Austria-Hungary in World War I. President Woodrow Wilson faced stiff opposition at home to his policy of entering the war and after WWI the US immediately regressed once again into a period of isolationism. It was only in WWII that the US finally emerged from its historical isolationism in the theatre of violence that was WWII.

The USS Arizona burning in Pearl Harbor

On December 7th 1941, when Japanese bombers attacked the US Naval Base at Pearl Harbor, the world was set on a trajectory that would redefine America’s role in the world forever. President Roosevelt struggled against isolationists during the first two years of the war and had failed to justify entering the war to the public. The Japanese however gave him his opportunity and the United States mobilised for war.

At the end of WWII the United States was the only industrial power left in the world. The war had obliterated all other industrial bases globally in Europe, Japan and Northern China. Incredibly, the economy of the United States was 90% larger in 1945 than in 1939 thanks to mass mobilisation of the US workforce and industrial base to generate the supplies to win the war (the so called “war economy”). WWII was won by the Allies not because they were smarter, because the Soviets had endless manpower or because the Nazis made critical mistakes. The war was won because President Roosevelt was able to mobilise the “arsenal of democracy” and produce the guns, tanks, aircraft and medicines needed to overwhelm the Germans and Japanese.

Architecting the post-WWII World Order

At this point, instead of retreating into isolationism the United States took on the mantle of global leadership. The US did so because it was deeply in its economic and political interests to do so, and in order to architect a global order that would prevent another world war and necessitate American intervention. As the only industrial power in the world the United States could rebuild the world at great economic benefit to itself. But the US also had the unique opportunity at the end of WWII to reshape the global order around itself and create international institutions that advanced its core interests.

Thus, after the war the US initiated the European Recovery Plan (colloquially known as the Marshall plan) and unleashed $135 billion (in today’s dollars) to rebuild Europe. Similarly, the US occupied and rebuilt Japan for a 7 years period and spent about $15 billion (in today’s dollars) doing so. In addition to reconstruction efforts the US set up the Bretton-Woods monetary order that established the rules for commercial and financial relations globally including:

  • Establishing the US dollar as the global reserve currency, replacing the gold standard

  • Signatories to the agreement promised to maintain fixed exchange rates between their currencies and the US dollar

  • Signatories agreed to avoid trade wars

  • The International Monetary Fund and World Bank were set up

Finally, the US spearheaded the founding of the United Nations. Together US economic assistance, the setting up of the Bretton Woods regime and the establishment of the United Nations created a global architecture that advanced and protected the economic and political interests of the United States. The US only took on the mantle of global leadership because it was in its economic and political interests to do so. But the US also took on this role of leadership for another simple reason: oil.

America’s Thirst for Energy and Oil

By 1945 oil had become increasingly critical to the US economy with key roles in transportation, energy generation and manufacturing (thanks to petrochemicals industry). By 1945 oil had overtaken all other sources of electricity generation. Electricity usage is very closely correlated with the size and growth rate of an economy and the relative level of wealth in a society. Thus, the US assumed the role of the global policeman as well as leader, but mostly in the interest of protecting and securing a strategic energy supply. Without a strategic energy supply US power and US economic growth would always be under threat.

US foreign policy in the Middle East has been explicitly designed around the goal of securing a consistent supply of oil. For example, in the early 20th century the US forged a strategic alliance with the Kingdom of Saudi Arabia to help protect its long-term access to oil. Similarly, all the US wars in the Middle East have all been motivated out of a desire to protect and maintain a strategic oil supply.

However, the last decade has seen the US once again returning to isolationism. The economic interests and need for oil that drove it to take on the role of global leadership are no longer active drivers. With the breakneck economic growth the world has witnessed in the last few decades, industrial capacity has soared worldwide. In many of these new industrial powers producing goods is cheaper than the United States. This has had a significant ripple effect on the US economy.

Manufacturing Jobs in the United States 1975-2019

Source: United States Bureau of Labor Statistics

Since a peak in the late 1970s the US has lost about 9 million manufacturing jobs. These losses have been driven by the practice of offshoring. Today large parts of the American industrial base have been offshored to lower cost producers like China. Shoes, TVs, fridges and other goods that were once staples of the American manufacturing base are imported from India, South Korea, China and others. America’s industrial dominance has waned, and the factory of the world is no longer America but China. Thanks to this America’s interest in global trade and engagement has waned. Almost 50% of America’s trade happens with just three countries: Mexico, Canada and China.

But an even more powerful driver of America’s growing isolationism is that its need to ensure and protect a strategic oil supply has essentially disappeared. Shockingly to most the United States is the world’s largest producer of oil today. Thanks to a revolutionary technology known as fracking, US oil production has nearly tripled since 2010.

Impressively the US passed a record production milestone of over 12 million barrels of oil per day in April of this year and production is expected to continue to climb in the coming years. The Permian Basin in Texas is close to becoming the world’s single most productive and important oil field.

Public sentiment and the media have wrongly placed the lion’s share of the blame or credit for America’s growing inward focus at the feet of President Trump. While President Trump is unique among recent US presidents in his commitment to isolationism and disregard for the international norms and institutions the United States set up, America’s return to isolationism has deeper roots than him. Future US presidents are going to face increased isolationist pressure domestically thanks to fatigue from costly foreign interventions. But more importantly, the core drivers that led the US to take on the role of global leadership - core economic interests and the need for an oil supply - have disappeared and are not going to come back. The United States is only going to retreat further into isolationism.

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