The Malevolent Hegemon: Part I

Since the election of Donald Trump, there has been much discussion about the demise of the “Liberal International Order,” or LIO. Several books on the topic have been published recently[1] and the general tenor is that the U.S. is giving up global leadership and the world is in trouble. We have been making this argument as well for a rather long time. However, there is an alternative viewpoint, which is that the U.S. isn’t giving up global leadership but is ending the LIO for something different.

What we may be seeing is not a retreat from the world but a significant change in management style, hence the title of this week’s report. We have dubbed this new style “The Malevolent Hegemon,” as opposed to “The Benevolent Hegemon” or the LIO, which describe how the U.S. managed the world from 1945 until 2008. We argue that the LIO began to wane under the Obama administration but a replacement model wasn’t evident. The Trump administration does appear to be creating a new model of hegemony.

In Part I of this series, we will begin with the basics of hegemony. From there, we will describe the unique model of U.S. dominance, Pax Americana, with the U.S. as a benevolent hegemon. Part II will discuss why the U.S. has become jaded with this role, which has spawned the search for another model. Part III will analyze what appears to be the emergence of a new model, which we describe as the malevolent hegemon. We will discuss the differences between the two models. With this analysis in place, we will examine the possible outcomes from this shift. At the conclusion of the series, we will discuss potential market ramifications.

The Basic Role of the Hegemon

Global hegemons supply the world with two broad global public goods. The first is security. The hegemon is a dominant enough power to protect the global sea lanes for trade and maintain order by keeping small wars from evolving into large ones. The second global public good is economic; the hegemon provides the reserve currency that other nations use for trade. This requires the hegemon to run persistent trade deficits. Under a gold standard, this would eventually lead to gold shortages and undermine the hegemon’s economy. Some of the early hegemons, such as Portugal and Spain, maintained this role by mining a steady flow of precious metals from the Americas.

Every European hegemon established colonies. This was done to provide precious metals (a driving force in the 1400s), a compliant labor force and allow for the expansion of power by establishing military bases on the colonial property. It also created a submissive consumer base for home nation exports and a venue for foreign investment.