Investors Beware Pax Americana Fading Fast

International investors need to take note when making decisions about future asset purchases. The United States seems to no longer have the will to intervene in major international crises. As more nations challenge the international order and only receive tepid responses from the superpower they are emboldened.

The recent turn of events are very similar to previous situations in the last century that did eventually lead to war. There are parallels with both the prewar periods.

The United States government is being hamstrung by a voting public that is not eager for more commitments and involvements abroad. There is also the increasingly difficult financial, monetary and economic circumstances both domestic and abroad.

One of the realities of running huge budget and trade deficits on an annual basis is that it weakens a nation over time in relative strength. American debt now limits options that were once available to the lone superpower.

It does not help to have an American administration in power that does not understand foreign policy very well. As has been pointed out by a number of foreign leaders the American president wants to view the world differently. That world events contradict this outlook seems to have little impetus for change up to this point.

Being against the actions of the previous president is not a foreign policy. Neither is a goal of non military involvement in the affairs of other nations. Leading from behind is not real leadership.

To not keep American commitments and participation in ongoing crises overseas is destabilizing the international order. This may be good for some investors in commodities but overall it is bad for business and hampers international economic growth.

More capitalists will hesitate on making decisions for investment because the calculated risk in some areas of the world has now become too great.

An example of this would be for someone who had invested in the Ukraine. Although the United States through a treaty with Russia, Britain, and the Ukraine is obligated to defend the sovereignty and territorial integrity of the aforementioned it has now failed to do so.

A previous investment there especially in the Crimea would be in jeopardy at this point.

The treaty signed in 1994 was based on the the principle that the Ukraine would give up nuclear weapons in exchange for a guarantee in respect to the internationally recognized border it shares with Russia.

The treaty known as the Budapest Memorandum reminds one of similar guarantees made to Czechoslovakia that were not honored in the late 1930’s. It is expedient now for world leaders especially signatories to the treaty to pretend that the obligation no longer exists.

Ukraine or at least parts of the country are seen to be expendable. This is the reality as it is. Despite protests to the contrary tough talk alone will not dislodge Russian troops from Crimea nor will it force the Russian leader Putin to recalculate his position.

The Russian leader Putin has sized up the present American administration and has calculated correctly up to this point, that he will be able to achieve his territorial ambitions with a minimum cost. To be fair the same can be said of the Europeans as well.

For the American government to continue to make verbal threats which are not backed by credible actions will only serve to further erode American power and credibility. It will only multiple the challenges that will be made against American and Western interests.

Events on the ground have already passed the deliberations in the United States. As the Obama Administration dithers on what symbolic protest will be enacted world leaders particularly in Europe are more worried about more land grabs in the Ukraine or elsewhere by Russia.

Crimea like the Sudetenland (German speaking areas of Czechoslovakia) in 1938 is already gone. The question is will Russia now wish to incorporate all Russian speaking areas of Ukraine or perhaps absorb it all over time as was done to Czechoslovakia by Germany in 1939?

Other nations that were former republics of the Soviet Union and countries in Eastern Europe are beginning to wonder if they are next? They may be members of NATO (North Atlantic Treaty Organization) but if the United States continues to hesitate in enforcing treaties how secure are they?

It will most decidedly change the amount of money investors are willing to put in Eastern Europe.

Some would credit NATO in keeping the peace during the Cold War with Russia because an attack on one was an attack on all. Every American administration Republican or Democratic was unwavering in this principle. It did not matter that it was negotiated years before (1949) every successive President incorporated the principle into their foreign policy.

Canceling a previous negotiated treaty (2007) as was the case in 2009  that would of called the United States to install anti missile sites in the Czech Republic and Poland was unwise at the time and has proved foolhardy in the long run.

The claim that as a transformational leader your administration is entitled to disregard the security interests of allies of the United States and abrogate previous negotiated agreements will not inspire confidence in any future American promises or endeavors.

There was no consideration by the Americans at the time how controversial the installation of these sites were in the host countries. It made these countries prime targets. The leaders there took a big political risk and now were totally undermined.

Another case in point was the issue of Syria. Here again the United States made brash pronouncements and policy decisions that in the end failed to materialize. It was a disaster for the American administration and its world leadership. It failed to achieve any Western objectives.

The tyrant Assad was left in power and has gradually gained the upper hand against the rebels. A political leader was again allowed to gas and kill his own people in great numbers. The Russians were able to enhance their position in Syria and gain new international status.

The settlement called for the dismantling and turning over of the regime’s chemical stocks which is largely unenforceable. Worst yet, the word of an American president ended up having very little meaning which will have grave future repercussions.

Little is made of the new military and technological agreements between the new government of Egypt and Russia negotiated last month during the Olympics. This was the result of the naive American policy of supporting the Muslim Brotherhood during its brief tenure in power.

Russia as a result has now regained the influence in the area that had largely been lost to the United States in the 1970’s. In the Middle East Russia is now definitely as it were “back in the game”.

Further to the east, China is becoming more assertive in land claims in the South China Sea. Territorial claims are being made against Taiwan,Vietnam, Malaysia, Brunei, Indonesia and the Philippines. The intimidation of these countries is quite obvious. What will be the American and Western response? Not much up to this point.

China has also made new claims over air and water beyond accepted international norms in the East China Sea. The issue of the Japanese administered islands the Senkaku (called Diaoyu by the Chinese) goes beyond a land dispute between two nations as there is an attempt by China to have greater influence over the shipping and trading lanes of East Asia.

The United States is obligated to defend Japan against attack by a treaty negotiated in 1952. Although the United States does not necessarily accept Japanese ownership of the previously mentioned islands it does agree to the Japanese administration of them.

Up to this point the military of United States, Japan and South Korea have ignored the zone’s rules since China announced a new geographical area of influence over air and water space late in 2013.

The point of divergence is Japan also refuses for its commercial flights to make the Chinese aware that they will be flying over the area. Where as some United States airlines are notifying the Chinese that they are flying into the zone which begins to undermine the Japanese refusal.

The American action begins to lend some credence to Chinese claims. That the Chinese really can’t enforce the zone at this point makes no difference. They are being permitted to make the challenge. It will also have repercussions down the road.

The impasse with Iran over that country’s attempts to acquire nuclear weapons is just another example where a failure in resolve by the United States and its European partners will have dire results.

To the historic parallels of the 20^th century. Britain was the enforcer of international norms and principles in the early part of the last century. In the 1930’s Britain also preferred to focus on domestic issues for political and economic issues.

Appeasement towards aggression at the time was also supported by public opinion in many countries. The United States had largely taken a pass internationally after the First World War and was following a policy of isolation. This left Britain alone to maintain the international order with French support.

The maintenance of this system was becoming increasingly expensive and untenable to Britain during the years leading up to World War II. It induced the country to attempt to make treaties and allowances with dictators and newly aggressive nations.

In the end, all these initiatives did not preserve peace and only made the Western position more dire when the policy of appeasement finally had to make way for the new reality.

As the United States government focuses more on domestic issues it leaves the world order more open to attack and influence of individuals and nations that will benefit or have a vested interest in removing this model that serves the political and economic goals of free enterprise.

The hesitation of the United States to assert itself and take a leadership role in the international arena will have consequences in the world of investment as well. As the international framework set up after World War II unravels it will make entrepreneurs much more cautious in taking financial risks.

It is ironic that the reason given not to intervene in international issues is often the impact it will have on trade and economic growth. In the long run however, it is frequently the lack of decisive action that will cause major upheavals.  Delays in forceful decisions merely forestall the unfortunate results to business and investment.

As a final note it must be said that elections in democratic nations have consequences that can prove to be either of great benefit to the nation or have disastrous results. Too many politicians in the United States and elsewhere remain too focused on short term issues to the neglect of the long term benefit of their own nation.

Since the United States is the lone superpower and has supplanted Britain as the enforcer of the present world set up the decline of U.S. influence will have world repercussions of a major magnitude.

Investors will need to make future calculations based on risk that will increasingly factor out the United States presence and viability in maintaining present world structures.