For half a century, US trade policy was shaped by the bitter lessons of the Great Depression. The experience of 1930s protectionism convinced Washington to pursue trade liberalisation and the resulting boost to global commerce, in turn, extended US influence abroad. It is highly likely that future US trade policy will reflect the lessons of the current Great Recession – and will have no less of an impact on its relations with the world.

The financial meltdown of 2008 that catalysed this Great Recession was due to global current-account imbalances that emerged over the preceding decade – and leaders of G20 nations made it clear they were aware of that lesson when they pledged in late September “to adopt macroeconomic policies that promote balanced global demand”.

In the process of such rebalancing, the US will produce more of what it consumes, while China, Germany and Japan (for example) will consume more of what they produce.

To facilitate this transition, Washington is likely to put new emphasis on reciprocity and a balance of benefits in trade relationships. With multilateral trade negotiations currently stalemated, the US approach to trade liberalisation may become more results-oriented and re-focused on trade deals with like-minded countries.

A more aggressive trade posture will undermine the US’s stature as a ‘city on the hill’ in the eyes of traditional allies. Recent complaints by Europeans that, in taking ‘buy American’ actions, the US has forsaken its decades-long commitment to free trade are merely a taste of what is to come.

By being more assertive, the US also risks forsaking long-term economic and security interests in the world’s fastest-growing, most populous regions. If Congress continues to block free-trade agreements with Colombia and South Korea, Washington will forego an opportunity to extend its influence in Latin America and allow Seoul to be drawn ever deeper into China’s economic sphere of influence.

In any case, China’s influence will inevitably grow as the US imports less and China imports more. If China is no longer simply the last stop on the east Asian supply chain for products headed for the US, but is also the region’s principal market, countries such as South Korea, Taiwan and Malaysia will fall even more into China’s economic orbit.

To the extent that any US current-account adjustment is a product of a weaker dollar, foreigners may become less willing to hold assets, to lend money and to make commercial transactions in dollars. This may raise new questions about the role of the dollar as a reserve currency, sow doubts about the US’s long-term superpower status and erode its leverage in world affairs.

Those are some of the risks posed by changes to the conditions that contributed to the US’s post-war hegemony. But American leadership built on living beyond the country’s means was and is unsustainable. In the long run, a US economy that is more stable and less dependent on debt, both domestic and foreign, will be stronger. A period of risk-filled transition lies ahead, but the basis for a new US foreign policy should eventually emerge.

Bruce Stokes is a transatlantic fellow with the German Marshall Fund and a columnist on economics for the National Journal.

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