Is The End of The American Empire Near?

The potentially biggest event in our lifetimes occurred this week. No, it wasn’t the indictment of a former President of the United States by a politically motivated District Attorney. China and Brazil agreed to use their own currencies in trade and financial transactions instead of using the U.S. dollar. We need to look at the current international trade and financial system to understand why this is important.

Over the last 40 years, American corporations moved thousands of manufacturing facilities from America to China, Mexico, and other countries. Over 7 million jobs making critical products from microchips to pharmaceuticals were shipped overseas. For more than 20 years, American corporations have also shipped technology jobs in software engineering and more to India and other countries. Given all of the economic activity that has moved overseas, why has America remained a wealthy country?

At the end of World War II, the United States, Canada, Australia, Japan, and Western European countries created the Bretton Woods agreement, replacing the international gold standard with the U.S. dollar as the world’s reserve currency. Under the agreement, U.S. dollars were tied to gold, and other national currencies were tied to the dollar. The agreement, along with America’s industrial strength and military might, made America the overwhelmingly dominant country in the world.

In 1971, the U.S. government announced that the dollar would no longer be tied to gold. Instead, the U.S. government and Saudi Arabia agreed to set oil prices in dollars. Any country that purchased oil from the Saudi government would have to exchange its currency for U.S. dollars to buy the oil. The other OPEC countries followed along. The petrodollar was born, ensuring America’s continued economic hegemony in the world. Over the last several decades, most international trade and financial transactions have been priced in dollars.

The dollar’s status is what has enabled America to sluff off inflated dollars on other countries who want to sell us their products and services. Even though America can no longer produce products that other countries want to buy, those countries can use dollars to purchase goods made elsewhere, including oil. This enables America to run up huge trade deficits. Foreign governments also use excess dollars to purchase U.S. government debt, enabling the government to run up enormous budget deficits to fund social programs and foreign military escapades. In addition, foreign nationals use dollars to purchase American real estate, which has driven up real estate prices in desirable U.S. markets. The status of the dollar has allowed Americans to live far beyond what our productive capacity would otherwise allow. The currency agreement between China and Brazil signals that a big change is coming.

China and Saudi Arabia are also negotiating for China to buy oil using the Yuan instead of the dollar. Other OPEC countries are likely to follow. If OPEC countries move away from the dollar, additional countries that have strong ties to China may do the same. How likely is this to occur?

China and Brazil are founding members of an international organization nicknamed BRICS. The organization also includes Russia, India, and South Africa. BRICS is poised for a huge expansion. China recently invited 12 additional countries to join BRICS. Five of these countries have either already applied for membership or are preparing to do so, namely: Saudi Arabia, Argentina, Egypt, Iran, and Turkey, which is a member of NATO. If all 12 countries decide to join, BRICS will have an economy 30% larger than the United States. The world of international trade and finance could be turned upside down.

And China is not stopping with BRICS. China’s Belt and Road Initiative is building infrastructure like roads, pipelines, and ports all over the developing world. In return, they are receiving rights to mine cobalt, lithium, silver and other essential minerals and metals. 151 countries have signed up for Belt and Road. It has already made China the new dominant colonial power in Africa. They are making big inroads in Latin America as well.

The consequences of the dollar losing its international status would be catastrophic for America. Americans would no longer be able to trade dollars for products that are made overseas, unless we produced products that they wanted to buy. This would drive down America’s standard of living. Foreign governments would no longer buy U.S. government debt, making it impossible for the government to run up huge deficits. Since the politicians don’t have the courage to cut spending and balance the budget, the government would have little choice other than inflating the money supply, like the Weimar Republic did in Germany. This would result in an economic collapse, the magnitude of which has never been seen in America.

China is also challenging America by embarking on a massive military buildup. Estimates are that China’s annual military budget is between 70% and 87% of America’s, when measured in purchasing power parity. The goal of the People’s Liberation Army is to match U.S. military spending by 2027. China has already built a larger navy than the U.S. And its naval forces are largely concentrated in the South China Sea, unlike America whose naval forces are scattered all over the world. This has enormous implications for the future of Taiwan, which produces 60% of the world’s semiconductors and 90% of the most advanced ones. Without semiconductors, there aren’t any more mobile phones, laptops, automobiles, or even washing machines. For decades, China was also satisfied with having a few dozen nuclear weapons. Today, it is estimated that China has more nuclear warheads on its ICBM’s than the United States.

China’s rise and America’s decline didn’t happen overnight. We’ve been shipping manufacturing jobs overseas since the late 1970’s. And the Immigration Act of 1990 led to the creation of the technology outsourcing business in India. China has been a huge recipient of American companies moving overseas ever since Deng Xiaoping began implementing economic reforms after the death of Mao Zedong. With the help of American politicians and American businesses, China has achieved near parity with America’s economy and military in a mere four decades. The only super power that America has left is the dollar. And China is working hard to knock that off its pedestal.

Of course, China is not invincible. They have their share of problems. They are still an authoritarian country. They have imprisoned a million Uyghurs, who are an ethnic minority, and use them as slave labor. Some of their banks have recently experienced insolvency issues. Over the last few decades, China built several new cities to house peasants who were supposed to be relocated from rural areas. Today, many of those cities remain empty. Some of their Belt and Road projects have also encountered financial issues. China is not destined to run the world. But neither is America.

A fair assessment today might conclude that America’s issues far outweigh those of China. A big portion of America’s manufacturing capacity has been shipped overseas. America’s schools are failing to teach the math and science needed for America to compete in the 21st century. America’s border is overrun by illegal aliens. Over 100,000 Americans are dying each year of opiate overdoses, including from Fentanyl whose precursors are made in China. And America’s military is not in good shape. Recruitment has fallen far below targets. The military seems more concerned with teaching critical race theory and performing gender transition surgeries than teaching our soldiers how to fight. Stockpiles of weapons and ammunition are being depleted in Ukraine. One estimate concludes that it will take 13 years to replenish America’s arsenal at current production capacities.

America’s allies are in even worse shape than the United States. Canada is descending into woke authoritarianism. Japan’s national debt is 263% of GDP, more than twice that of the United States. Germany has foolishly shut down reliable coal and nuclear plants in favor of unreliable wind and solar power. And people in Japan and Germany don’t want to have babies anymore, so their populations face a steep and economically devastating decline.

So, what can be done to change course? Realistically, not much. Many American politicians are living in a delusion of America’s grand past. They think that the dollar and therefore America’s dominant position are invincible. It’s incomprehensible to them that this could ever change. Joe Biden is one of them, but so are many Republican politicians. The average American is a little smarter than the politicians. They can feel that something is really wrong, but they don’t know what it is.

I realize that I am painting a bleak picture. But for good reason. While we were shipping our jobs overseas and angrily tweeting at each other about pronouns, China has positioned itself to be the dominant power in the world. When the dollar’s status falls, so will the American Empire. What comes next should frighten us all.

The Blankenburg Report

Eric Blankenburg

Eric is a husband, father of four, technology guy, U.S. Air Force veteran, and left coast refugee. He is a lifelong conservative and “disgruntled” Republican, who has sought ways to help the GOP live up to its values. When Eric is not working or spending time with his family, he likes to write about a variety of current issues. Eric is a regular writer for Liberty First Grassroots (LFG).