Tribute

In his Among Empires: American Ascendancy and Its Predecessors , Harvard’s Charles Maier describes the trade-off that other countries have established with the “empire of consumption” that is the US. Why, he asks, do other countries, especially China, continue to extend credit to us?

As he sees it, the US provides “public goods” that foreign countries want to maintain: “The U.S. capacity to sustain its deficits for so long was not just a tribute from clients exacted by empire. It was in fact the counterpart of the public goods that the United States provided to those who were willing to hold its dollarized paper assets – a public good, however, that public officials would never have been able to claim publicly they were providing. American consumption on credit facilitated the continuing export of social capital into Asia and Latin America . . . . The sustained purchase of American debt was the price that Asian societies, above all, paid to acquire the manufacturing jobs American stockholders, if not American workers, wished to distribute abroad.”

He describes this as “a form of reverse banking”: “foreigners bankrolled American consumption – private and governmental – so America could invest indirectly in their industrial development.” The US provides technical equipment, training, skills that make it seem “a worthwhile bargain to hold American government debt or other dollar assets that might well depreciate.”