The US is shutting a door to the world

The dominant characteristic of the post–World War II period has been the evolving, freer, cross-border movement of goods, services, and capital. Those trends needed time to take root. As the revisionist power early in the 20th century, the U.S. embraced the spirit of Pax Britannia and dubbed it the “Open Door.” John Hay, the 1898-1905 U.S. Secretary of State, articulated the idea. The Open Door was an alternative to the carving up of China by European imperialist powers and Japan through political concessions such as Hong Kong or Shanghai’s Bund District.

The implications were larger than China. Rather than the traditional fixed spheres of influence, Hay, in effect, proposed variable shares. The variability would depend on economic prowess, not political concessions.

The U.S. elites weren’t convinced. The eventual U.S. rejection of the League of Nations and reluctance to replace the United Kingdom in international finance signaled that the Open Door wasn’t ready for prime time.

It took the global spasms of World War II for the U.S. elite to recognize that U.S. peace and prosperity required it to shape the postwar order. In effect, the U.S. globalized the Open Door. Washington was instrumental in constructing a multilateral system anchored by institutions such as the International Monetary Fund, the World Bank, and the General Agreements on Tariffs and Trade, which was later succeeded by the World Trade Organization. This liberal international order promoted open trade and cooperative conflict resolution, with the U.S. serving as the primary global rule-enforcer.

The rise of Japanese producers in steel, autos, and consumer electronics by the late 1970s challenged the U.S. commitment. The protectionism the U.S. adopted—such as “voluntary export restrictions” and “orderly market agreements”—undermined the GATT. The Cold War and the Soviet threat deterred defections from the U.S.-led order.

The end of the Cold War, the rise of China, and arguably growing disparities of wealth and income in the U.S., Europe, and Japan undermined the domestic alliances that embraced the Open Door. The shift began around the time of the 2008-09 financial crisis and was reinforced by the pandemic. MAGA and Project 2025 have surpassed the visions of the earlier Tea Party. A segment of Europe’s electorate has long declined to embrace regional integration or globalization; those forces appear to have strengthened. Still, during its sovereign-debt crisis, Greece remained in the euro and European Union. No country has followed the U.K.’s Brexit.

The “G-Zero world” is how Ian Bremmer, founder of research firm Eurasia Group, describes the early 21st century. It is a clever name for what some political scientists call the “hegemonic stability crisis.” The idea is that international capitalism works best when there is one country strong enough to impose and enforce rules of engagement. No country now does, and the Open Door may no longer be the optimal strategy for the U.S.

The fragmentation of trade, the slowing of globalization, and the rise of economic nationalism aren’t simply a function of populists or President Donald Trump. The U.S. discovered it had leverage against terrorist financing after 9/11. Those powers have since evolved and grown. For more than half a century, the U.S. provided a public good—a ubiquitous currency and lower transaction costs—and offered a stable global savings vehicle in credit-worthy and transparent U.S. Treasuries. Some countries may wish to reduce their reliance on the dollar. But those most exposed to dollar-driven coercion, such as Russia and Iran, didn’t quit the dollar. Instead, the U.S. fired them, denying them access to the previous public good.

Consolidating the abandonment of the Open Door and the return to spheres of influence offers a useful framework to understand the changes the new administration is ushering in. It may not have campaigned on the apparent need to retake control of the Panama Canal, make Canada a U.S. state, and to possess Greenland, but they seem to be a logical extension of eschewing the Open Door.

Trump wants the U.S. to secure its sphere of influence. That also implies that the U.S. may not spend American lives blocking another power from securing a sphere of influence. Trump’s team seems to be willing to concede some (more) Ukrainian territory (in addition to Crimea) to Russia.

The dissolution of the old global order is overdetermined. President Joe Biden embraced the globalization of the Open Door after Trump’s first term. But that was a brief restoration of the old elite. Once may be dismissed as an accident, but the U.S. has now withdrawn twice from the Paris Accord and the World Health Organization.

The open, collaborative system that defined the past 80 years was predicated on one country—the U.S.—with sufficient strength and will to erect and defend global rules of engagement. Without this, a new era—returning to the older spheres of influence and balance-of-power tactics—lies ahead.

Marc Chandler is chief market strategist for Bannockburn Global Forex, a division of First Financial Bank.