Project Syndicate Carla Norrlöf Says More… Jun 11, 2024

 Project    Syndicate 

Carla Norrlöf

Says More…

Jun 11, 2024

This week in Say More, PS talks with Carla Norrlöf, Professor of Political Science at the University of Toronto and a non-resident senior fellow at the Atlantic Council.

Project Syndicate: You have refuted the claim – made, most prominently, by Donald Trump – that, unless NATO members meet the alliance’s defense-spending target (2% of GDP), the United States would be better off without them. What changes to NATO – including America’s role within it – would make it more effective at advancing US interests and global security?

Carla Norrlöf: NATO’s defense-spending target is appropriate in today’s security environment, and countries should be aiming for it. But the US should also look beyond financial benchmarks and value other kinds of assets, such as specialized military capabilities, advantageous geographic locations, or innovative technologies. By making the most of such diverse contributions, NATO can enhance its capabilities, adaptability, and resilience.

The goal of strengthening European strategic autonomy is also a worthy one, with the potential to ease some of the burden on the US – and possibly reduce America’s influence within NATO in the process – while amplifying NATO’s collective-defense capabilities in a dynamic security landscape.

The US would also do well to push for an expansion of NATO’s operational focus to address emerging global security challenges, such as the rise of China and geopolitical risks in the Arctic region. This expansion would involve deepening NATO’s engagement with partners in the Indo-Pacific and developing capabilities in areas like cyber-defense and space, in order to secure the alliance’s interests in the Arctic. Such a shift – which aligns closely with contemporary US security priorities – would ensure that NATO remained relevant in the face of changing global power dynamics.

PS: Last year, you explained that the US dollar is likely to retain its global hegemony for the foreseeable future: given the greenback’s “full-spectrum dominance,” unseating it would require other actors to pursue collective action and bear high costs. In a world that is increasingly “adversarial and fraught with risk,” what could change their cost-benefit analysis?

CN: Several factors could change the cost-benefit analysis for governments. If other countries think the US is pursuing an overly aggressive or unilateral foreign policy, or enforcing biased policies at odds with the liberal international order it purports to support, they might seek to reduce the dollar’s influence over their economies. For example, the permanent seizure and transfer of ownership of dollar reserves, as currently proposed under the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act, is likely to influence government decisions more decisively than temporary asset restrictions.

A coordinated effort by a coalition of major economies – especially traditional US allies – to promote an alternative currency could well result in the establishment of a credible competitor to the dollar. But a scenario in which America’s allies unite to end the dollar’s dominance appears improbable. An initiative spearheaded by a rival, such as China, is far more likely. But for such an effort to succeed, “swing” countries would have to perceive the alternative currency as safe and reliable.

The US dollar’s dominance could be eroded by other developments, especially a significant reorientation of global trade and investment flows, such as a shift toward Asian markets or an increase in renminbi-denominated trade among the BRICS (Brazil, Russia, India, China, and South Africa, plus Egypt, Ethiopia, Iran, and the United Arab Emirates). Moreover, the adoption of digital currencies could accelerate the rise of alternative international payment systems that do not depend on the dollar. Countries might also consider diversifying their foreign-exchange reserves away from the US dollar – though, again, this would probably happen only as a reaction to biased, unilateral, or aggressive US policy.

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PS: How significant is that risk? The dollar system’s network effects, you have argued, mean that the US “retains significant leverage to enforce international order through coercive sanctions against states that violate international norms.” Do we tend to overestimate the effect sanctions risk has on demand for dollars and dollar-denominated assets?

CN: It is true that sanctions and other geostrategic measures could undermine the dollar’s dominance, but the risk is often overstated. The dollar’s centrality in global finance – reinforced by its position in trade, financial markets, and countries’ foreign-exchange reserves – creates substantial barriers to any large-scale shift away from its use.

Even amid rising geopolitical tensions and the emergence of alternative payment systems like China’s Cross-Border Interbank Payment System, the scale and depth of dollar usage remain unparalleled. It helps that, in times of crisis, countries and institutions become all the more likely to embrace the US dollar for its unmatched liquidity and safety. While the global currency landscape may well evolve, the US dollar is likely to retain its central role for the foreseeable future, thanks to its size, incumbency, and network advantages.

BY THE WAY . . .

PS: Even if the US dollar remains on top overall, could its role weaken in certain areas, and is there anything the US should be doing to reinforce the greenback’s position further?

CN: The US should work to reinforce the stability and reliability of its financial systems, in order to support global confidence in the dollar. Ensuring domestic political stability is also essential, as internal divisions could undermine confidence and jeopardize the dollar’s status.

Moreover, to prevent the formation of counter-coalitions that seek to challenge the dollar’s dominance, the US should pursue a foreign policy that does not provoke antagonism. Pursuing strategic economic partnerships and alliances can further solidify the dollar’s role in international transactions.

Finally, a proactive approach to delivering tech-based financial solutions could stabilize or even increase use of the dollar. By fostering innovation in areas like digital payments, the US could ensure that the dollar remains convenient and cost-effective for international businesses and financial institutions.

PS: Any residual perception of the US as an “honest broker” in the Middle East has vanished since the outbreak of the Israel-Hamas war. How, if at all, can President Joe Biden’s administration shore up the credibility of US diplomacy in the region?

CN: America’s continued support of its ally in the Israel-Gaza war – a conflict in which children account for one-third of Palestinian deaths, and tens of thousands of youngsters have suffered injuries and amputations, often without anesthesia – will be remembered as a catastrophic nadir in US foreign policy. To push back, Biden must condition US aid to Israel on a ceasefire and respect for the international rules of war. Amid fresh reports of mass graves in Gaza, making sure that American weapons are not used to commit human-rights violations, as mandated by the Leahy Laws, is vital. Greater efforts to ensure that humanitarian aid reaches all affected civilians would demonstrate a genuine commitment to resolving long-standing regional conflicts.

The Biden administration must also work to prevent escalation and a wider conflict. To this end, it must take a fair and principled stance on the right of self-defense: the US cannot act as if Israel’s strike on Iran’s embassy compound in Syria was justified, while condemning Iran’s retaliatory strike on Israel.

Finally, to increase the chances of achieving lasting peace in the region, the Biden administration should devise and implement a comprehensive and balanced regional strategy, rather than pursuing isolated bargains with Arab governments that eschew Palestinians’ legitimate aspirations for statehood. A course-change in US foreign policy is not only a moral imperative; it is also in America’s own interest. After all, as history has shown, instability and radicalization in the Middle East can ricochet back onto the US.

PS: In 2020, you described the COVID-19 pandemic as a “blow to the ailing liberal democratic order.” But you acknowledged that, given the “paucity of the data” and “cross-country reporting differences in a still evolving crisis,” your conclusion amounted to a preliminary assessment of its consequences. How has your assessment changed in the last four years, and what lessons does the pandemic hold for those committed to defending liberal democracy?

CN: My 2020 article identified COVID-19 as a significant stressor on the liberal international order. I highlighted, for example, that fatality rates were higher in liberal democracies than in authoritarian countries like China. And I warned against the potential erosion of political and economic freedoms.

Some of my concerns were borne out. In particular, democratic governments struggled to balance public-health imperatives with respect for civil liberties. Over time, however, many democracies managed to find ways to navigate the trade-offs between collective safety and individual rights. Moreover, the successful development and rollout of vaccines demonstrated two key strengths of liberal societies: resilience – that is, a capacity for adaptation and recovery – and scientific innovation.

Meanwhile, the approaches used by authoritarian regimes, which may have conferred on them an early advantage, came under growing scrutiny for their lack of transparency and sustainability. In fact, as the pandemic unfolded, it became clear that myriad factors – including testing rates, the health-care system’s efficiency, and population demographics – had influenced those early fatality statistics. A meaningful comparison of COVID-19 fatality rates would account for those influences, as well as reporting differences. To this end – as I suggested in my article – an analysis of “excess mortality” is essential.

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Carla Norrlöf

CARLA NORRLÖF

Writing for PS since 2020

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Carla Norrlöf, Professor of Political Science at the University of Toronto, is a non-resident senior fellow at the Atlantic Council.