May 2025

Welcome to the May edition of The American Enterprise! This month, we are featuring pieces from Aaron L. Friedberg on the unraveling global order, Tobias Peter and Ethan Frizzell on how communities can better address homelessness, Desmond Lachman on the economic consequences of tariff uncertainty, Sally Satel, Greg Lukianoff, and Adam Goldstein on how a university president can navigate campus free speech
challenges, and Stan A. Veuger and Jeffrey Clemens on how the European Union is rethinking their economic institutions and defense capabilities.

Make sure to subscribe <[link removed]> and read
the online version here <[link removed]>!
The Unraveling Economic Order <[link removed]>
By Aaron L. Friedberg

The world has entered a period of extraordinary turmoil and uncertainty characterized by, among other disruptive developments, the breakdown of the international economic order that has existed since the end of the Cold War. The interval that is now ending has been described as an age of globalization, a period of exceptionally high levels of economic interconnectedness, with relatively unobstructed transnational flows of goods, capital, and data encompassing virtually the entire planet. Now, after falling for several decades, barriers to trade and investment have begun to rise and seem set to spring up markedly in the years immediately ahead. It is not yet clear how far this process of fragmentation will go, how fast it will unfold, or what will take the place of the highly integrated, largely open global system that has now begun to unravel.

In trying to explain recent events there is always a temptation to simplify, personalize, and focus only on the latest
developments. While it is tempting to attribute everything to the whims and obsessions of Donald Trump, and especially his affinity for tariffs, this would be superficial and misleading. A deeper understanding of what has been happening lies in the realms of theory and history.

In contrast to economists, who generally prefer to analyze them in isolation, as if they operated solely according to their own, internally consistent rules, political scientists and historians insist that economic systems always rest on political foundations. How an international economic order operates depends on the distribution of power among the states it comprises. As my late Princeton colleague Robert Gilpin pointed out over 50 years ago, open international economic systems are rare because they depend on an unusually lopsided power structure. Their creation requires the presence of a liberal “hegemon,” a single state whose wealth and power vastly exceed those of all the others and whose domestic economy is based on liberal principles. These include private ownership of the means of production, a reliance on freely functioning markets, and limited intervention by the state.

Motivated by a mix of ideology and self-interest, liberal hegemons seek to create international economic systems organized around similar principles. Their leaders believe that open, market-based orders will enhance the welfare of all participants. But they are also confident that such systems will serve the interests of their own countries, creating outlets for domestic industries and enabling ready access to the raw materials and other inputs they need in order to grow.

Liberal hegemons are willing and able to pay the costs involved in managing an open international trading system, even at moments of crisis. The size of their domestic market and the relative sophistication of their industries give them the confidence to resist protectionism, their deep capital markets provide the liquidity that eases international trade, the power of their successful example and their diplomatic clout make it easier for them to persuade (or pressure) others to follow their lead, and they have the military capacity
needed to keep open the channels of global commerce.

Open systems can create prosperity for all, but thanks to what Vladimir Lenin labeled the law of uneven development, they are also inclined toward instability. This is because wealth is the ultimate source of power and national economies never grow at exactly the same rate. In time, differences in growth rates will change the distribution of national power, and, whether slowly or in a sudden crisis, such changes will eventually alter the character of the international economic order. Ironically (and inadvertently), a liberal hegemon’s preferred policies actually serve to accelerate this process. By promoting the widespread diffusion of goods, technology, and capital, the open systems that liberal hegemons create help spur the rise of other states, eating away at their own margin of advantage.

As its relative power diminishes, so too will the hegemon’s inclination to absorb the costs of preserving an open system. Increasing foreign competition will lead to mounting demands for protection from domestic industries. As its position erodes, the hegemon’s people and their leaders will be more inclined to believe that other countries have been taking advantage of their country’s openness. On the other hand, when the hegemon takes actions to shore up its position, others will see its behavior as self-serving and unfair. Disputes over trade will become more common and more likely to escalate. Open, integrated systems will grow increasingly fragile and prone to break apart, fragmenting into closed trading blocs.

Such an outcome is not inevitable, but it is more likely to be avoided under certain political conditions. Even as the hegemon declines it may be able to preserve openness if it can cooperate with other leading economic powers, creating agreements and institutions that help them to resolve their differences and preserve the system. Such cooperation is far more likely when the core group is made up of like-minded (i.e., liberal) states that share a belief in the virtues of openness and a commitment to preserving it...

Read the full piece here >> <[link removed]>
KEEP READING
Displacement by Design <[link removed]>____________
Tobias Peter and Ethan Frizzell
On The Road to a Tariff-Led Recession <[link removed]>
Desmond Lachman
Navigating Free Speech at "Hypothetical University" <[link removed]>
Sally Satel et al.
Can Europe Evolve? <[link removed]>  _______________
Stan A. Veuger and Jeffrey Clemens
THANKS FOR READING!
The American Enterprise is a product of the American Enterprise Institute. For previous editions and articles visit TheAmericanEnterprise.com. <[link removed]>
Tips? Comments? Questions? Let us know at <span style="color: #008ccc;"><strong><a href= "[link removed]" target="_blank" style="color: #008ccc;" >[email protected]</a></strong></span>.

View online | Ensure delivery <[link removed]> | Subscribe <[link removed]>


American Enterprise Institute for Public Policy Research
1789 Massachusetts Avenue, NW, Washington, DC 20036 <[[#]]>
202.862.5800 <[[#]]> | www.aei.org <[link removed]>


<[link removed]> <[link removed]> <[link removed]> <[link removed]>

Donate to AEI <[link removed]> in support of defending and promoting freedom, opportunity, and enterprise.

This message is for: [email protected] <[email protected]> | Manage Preferences <[link removed]> |

<!-- This is a comment -->