The semiglobal empire was made possible by American leadership of the so-called free world. This leadership, as was shown in Part II, was underpinned by global and regional institutions created by the United States itself as well as the support of numerous nonstate actors (NSAs). It therefore did not depend exclusively on hard power, although military force was often used.
US hard power remains undiminished, but American global leadership has withered. There are numerous reasons for this, both internal and external. The first is that the institutions established by the United States at the height of its imperial powers are no longer so effective. The second is the failure of many American NSAs to support the imperial project as vigorously as before. The third is the obstructive role played by Congress in many areas of foreign policy. Finally, the executive has failed to articulate a post–Cold War imperial program that resonates with a majority of countries around the world.
The key global and regional institutions established by the United States after the Second World War have been outlined in Chapter 5. They are all still in existence, although one (GATT) has evolved into another (the WTO), and they remain under US control or subject to strong American influence. However, they are no longer as effective in promoting American power because the rest of the world has found ways of circumventing them. And faced with external pressure to reform these institutions, the United States has frequently placed itself on the wrong side of history, running the risk of being seen as a follower rather than leader.
NSAs played a key role in the Cold War as supporters of the semiglobal empire. The relationship between the main NSAs and the US state is still important, but it has broken down in several areas. In particular MNEs, many of whom operate on a truly global scale, now have strategies that are often in conflict with the imperial project.
The media, another important NSA, is now so fragmented that large parts of it undermine the state’s efforts to articulate an imperial vision for the post–Cold War world, while the Internet has created unrivaled opportunities for America’s opponents to discredit the US government in numerous ways. Even the nonprofit sector has failed to be as supportive of the semiglobal empire as in the past.
The Constitution gave Congress a special role in the conduct of foreign affairs, and this created the possibility of conflict with the executive. In general, these conflicts were resolved pragmatically—especially when the United States faced a perceived existential threat. Now, however, that threat has gone and Congress is gripped by extreme levels of political partisanship that make pragmatic solutions much more difficult.
The result has been a Congress that in recent years has become ever more obstructive and which has done little to help the executive formulate an imperial policy for the post–Cold War age. Furthermore, foreign affairs no longer command the attention of the best lawmakers in the way that they did in the past, so that congressional expertise is thinner and many of those who are interested in foreign policy appear stuck in the past.
All this makes it very difficult for the executive to display leadership in global matters. Presidents have bolstered the power of the White House and circumvented Congress in many ways, but this leaves US policy susceptible to a change in government and creates suspicions and doubts not just among America’s enemies but also among its friends.
Just how serious these problems had become was made clear by the presidential transition in January 2017. President Donald Trump (2017–) promised a foreign policy based on “America first,” including a withdrawal from numerous international commitments on trade and the environment, but at the same time calling for the maintenance of US global leadership especially on security matters. However, this simply emboldened America’s enemies, encouraged its rivals, and confounded its allies. As America jettisoned its claim to global leadership in areas of special concern to its allies, it undermined its authority in other areas as well. As a result, imperial retreat accelerated.
At the epicenter of the global institutions established by the United States lies the United Nations Security Council (UNSC). It is the organ to which all countries, including the United States, turn when they seek to establish the legitimacy of their international actions. Failure to have the blessing of the UNSC risks rendering a state’s action illegal under international law, while its support provides moral as well as legal cover.
At one level, the UNSC appears to work well from a US perspective. A quick glance at the resolutions passed in the last few years reveals that nearly all of them are passed unanimously and that they cover many different parts of the world where conflicts arise. Notably, there was consensus for the numerous US-sponsored resolutions aimed at Iran to ensure that its uranium enrichment program was compliant with its international obligations.1
However, all is not well with the UNSC despite the fact that two permanent members (France and the United Kingdom) have not used their veto since 1989. The United States, with one exception, has employed its veto to block even the mildest resolutions critical of Israel.2 Russia followed suit, blocking all resolutions critical of its ally Syria or its behavior in Ukraine and Crimea. And China, until recently much more likely to abstain, has taken to using its veto on a number of occasions.
The result is that large numbers of conflicts around the world, including some of the most important for the United States, cannot be addressed by the UNSC. And just as worrying is the growing use of the “hidden” veto, where a permanent member makes it clear that it will use its veto if a vote is taken, thereby making it much more likely that no vote will be called.
Some will argue that these are old problems, and there is some truth in that. However, the end of the Cold War provided an opportunity for reform of the United Nations, including the UNSC, and the United States failed to provide the leadership both expected and required. The much-anticipated meeting held in 2005 in New York was noticeable more for the absence of concrete results than actual reforms.3
The overwhelming suspicion therefore is that the United States is no longer interested in substantive UN reform since it would dilute its historically privileged position.4 The UNSC therefore remains unreformed and increasingly unreceptive to US pressure while some of those changes that have taken place in the UN system, including the establishment of the Human Rights Council, were greeted at first with sustained hostility by the US government.5 And the United States also found itself increasingly marginalized on the question of Palestinian statehood, pursuing a course of action that left America isolated internationally and looking more like a follower than a leader.6
The International Monetary Fund (IMF) was one of the two key institutions established at the Bretton Woods Conference in 1944. It is an institution that has long been dominated by the United States as a result of the voting structure, US Treasury influence, and its location in Washington, DC. Legions of studies have demonstrated the imperial influence exercised by the United States over IMF lending policy, which remains highly orthodox in practice despite lip service being paid recently to more heterodox thinking.7
IMF reform, demanded for many years by developing countries, was finally achieved in 2016 after the US Congress accepted a change in the voting structure that would give more weight to China.8 However, the American share hardly changed at all, leaving the United States as the only country with enough votes to block major reforms in the future.
US hegemony in the IMF was therefore maintained, but it was a Pyrrhic victory. Frustration among developing countries against the Fund had been building for years, and many had used the first decade of the twenty-first century to build up their foreign exchange reserves to avoid the need to go to the Fund in the future, while others paid off their debts to the organization in order to escape IMF conditions.
By the end of the administration of President Barack Obama (2009–17), therefore, IMF lending was no longer flowing in the usual directions. Instead, it was overwhelmingly going to highly indebted European countries as part of a bailout orchestrated by the European Commission and European Central Bank.9 Apart from a few low-income countries with no alternatives, IMF (and therefore US) influence in developing countries was very modest.10
The other institution established at Bretton Woods was the International Bank for Reconstruction and Development (commonly known as the World Bank). Located in Washington, DC, with a president that has always been an American citizen, the US government has exercised a viselike grip on the World Bank from its inception and has never been afraid to use its leverage to secure support for US imperial interests, as many scholars have noted: “Our results provide support for . . . a particularly strong leverage of the United States on the World Bank. . . . [T]his [is] because the United States is the largest contributor to the IDA [International Development Association], the World Bank President is always American, the World Bank depends on U.S. capital markets to finance its operations, and the United States carries out detailed reviews of Bank loan proposals. This provides the United States with substantial influence as the Bank thereby pays closer attention to it than to any other major shareholder.”11
Over the years, the US government through the Treasury Department has fought off numerous attempts to make the World Bank reflect more closely the view of all its members. It has forced the resignation of one of its chief economists (himself an American citizen) as a result of his criticisms of US influence.12 It has also watered down all draft reports that reflected an approach to development economics that ran counter to official US thinking.13
As with the IMF, however, this ideological purity has proved to be a Pyrrhic victory. Frustration among developing countries over US control of the World Bank finally led to two initiatives that undermine the Bank’s influence in developing countries. The first is the New Development Bank, supported by the BRICS countries.14 The second is the Asian Infrastructure Investment Bank (AIIB).
China has been a leading proponent of the new banks, both of which are located in the country. However, the AIIB is likely to be the more important in view of its larger size and broader membership. In particular, it offers Asian countries a chance to escape from the conditions applied to World Bank lending. For that reason the US government was strongly opposed to the establishment of the AIIB but was unable to block it. The AIIB is therefore likely to represent a major challenge to US leadership and is a significant milestone in China’s quest for regional hegemony.
The World Trade Organization (WTO), successor to GATT, is the third global economic organization used by the United States to promote its interests. Very much a product of US thinking, the WTO after its founding in 1995 was at first highly successful in promoting free markets for goods, services, and capital while aggressively protecting intellectual property rights. And, although located in Geneva, its secretary-general was until recently always handpicked by the US government and could be relied on to promote an American vision of free market capitalism.
Under these circumstances, the launch of the Doha Round of trade negotiations in 2001 was expected by the administration of President George W. Bush (2001–9) to lead swiftly to a successful outcome. The United States, it was assumed, would build a coalition in support of its trade agenda (the WTO operates by consensus), as it had done in eight previous trade rounds. In the next fifteen years, however, the talks had ended in acrimony, a new secretary-general from Brazil was appointed without initial American support, and the member states had to settle for a weak agreement in 2013 on “trade facilitation” that did little more than save the blushes of the main participants.15
Kristen Hopewell, a scholar of the WTO, has explained clearly what went wrong:
For more than fifty years, the US has enjoyed the privileges of hegemony, acting and being treated as the exceptional state in the international system. . . . The US has long claimed the right to intervene in the affairs of other states, through its dominant position in multilateral institutions . . . and justified by the discourse of neoliberal economics. Now, however, the rising developing country powers are behaving in the same way and demanding an equal right to intervene in the internal trade and economic policies of the US. . . . The new powers have sought to curtail the privileges of the US and insist that it be treated as a state like any other. . . . Yet, in that process, they have destabilized that very system of global economic governance.16
The United States, not yet being ready to be “treated as a state like any other,” adjusted to the collapse of the Doha Round by embarking on a series of regional trade negotiations such as the Trans-Pacific Partnership (TPP) where it could more easily control the agenda and from which China could be excluded. Yet this was de facto recognition of the failure of US global leadership in trade negotiations. And, ironically, this more limited initiative was not certain to succeed in view of the growing opposition within the United States itself to any form of trade agreement.17
The global institutions have all survived and are still dominated by the United States, but their efficacy in projecting American power has diminished as other countries have successfully developed alternative strategies that undermine the reach of the global institutions themselves. In the trade-off between retaining American control of largely unreformed institutions and opening them up to far-reaching reform at the risk of diluting American power, the United States has invariably chosen the former.
The same happened to the regional institutions created by the United States after the Second World War, including in the Americas themselves. The Organization of American States (OAS) served US interests well during the Cold War and looked set to do the same afterward, when “democracy promotion” and “free trade” were added to its mission. Indeed, the OAS was the main institution involved in the launch of the Summit of the Americas in Miami in 1994 where the administration of President Bill Clinton (1993–2001) laid out a bold vision for the region under US leadership.
The US vision excluded Cuba, a policy opposed by all Latin American countries by the start of the new millennium. Anxious not to anger the United States, the main Latin American countries at first proceeded cautiously. A Rio Group, for example, was established during the 1980s by eight countries to find a peaceful solution to the Central American crisis, and this soon expanded to include other states, most of whom had no desire to antagonize the United States.18
US leadership of the OAS was at first not contested. Indeed, the tough OAS response to the failed coup in Venezuela in 2002 was seen as a demonstration of a welcome change of direction by the US government, as was the initial OAS response to the successful coup in Honduras in 2009.19 However, the subsequent decision by the Obama administration to ignore OAS resolutions and accept the outcome of the coup precipitated a crisis between the United States and Latin America.20
The result was the formation of the Community of Latin American and Caribbean States (CELAC) that includes Cuba and excludes the United States and Canada. And in 2013 at the Sixth Summit of the Americas, which excluded Cuba, CELAC members made it clear that future Summits of the Americas would only take place if Cuba were invited. This unprecedented challenge to US authority then precipitated the restoration of diplomatic relations between the United States and Cuba, a process that was announced at the end of 2014 and completed in July 2015.
Cuba was therefore present at the Seventh Summit of the Americas in Panama in 2015 but chose not to accept the invitation to apply to rejoin the OAS (Box 11.1). The institution, located in Washington, DC, is still under heavy American influence, but it is an increasingly empty vessel. The CELAC states now have an alternative institution to discuss hemispheric affairs, even if some of their more ambitious plans have so far failed to come to fruition.21
The final US-dominated institution to be considered is the North Atlantic Treaty Organization (NATO). Established at the start of the Cold War, NATO appeared to have served its purpose by November 1989 when the Berlin Wall crumbled. The hope at the time—not only of Mikhail Gorbachev but of many European leaders as well—was that NATO could be folded into a pan-European security arrangement embracing the USSR as well as European states.22
US administrations had other ideas. NATO remained firmly in existence and its membership expanded rapidly to embrace the countries of eastern Europe and parts of the Balkans. By the end of 2009, NATO had twenty-eight members, several of whom shared a border with Russia, and was contemplating further expansion. US governments would then deploy NATO forces in numerous “out-of-area” operations from Afghanistan to Libya.
The transformation of NATO, it would seem, has made a mockery of any notion that the United States was retreating from empire or failing to act as a global leader. It is an institution that remains firmly under US control and whose members appear to have no desire to create an alternative. For better or worse, it is the most visible symbol of US hard power and imperial reach.
This US strategy, however, has been fraught with problems. None of the other NATO members—not even the United Kingdom—was prepared to pull its weight in terms of military spending as a share of GDP.23 Yet these same countries expected the United States to come to their aid if they were ever under attack or threatened, while US relations with one member (Turkey) became increasingly complicated as their national interests diverged over the Syrian crisis.
BOX 11.1
THE OAS, CUBA, AND THE UNITED STATES
Although often described as an expulsion, Cuba’s membership in the OAS was merely “suspended” in January 1962 when fourteen countries voted in favor of the resolution (Argentina, Bolivia, Brazil, Chile, Ecuador, and Mexico abstained). Despite numerous attempts by Latin American countries to have the suspension lifted, it was not until June 2009, when President Barack Obama (2009–17) was in office, that it was finally ended.
This was assumed to be the prelude to an application by Cuba to rejoin the organization, during which the US government would have tried to use the Inter-American Democratic Charter to commit President Raúl Castro to political reform. However, Cuba had other ideas and in effect said, “Thanks, but no thanks.”
This left President Obama with no options other than to pursue normalization of US relations with Cuba outside the framework of the OAS. The secret negotiations, involving the Vatican as well as other intermediaries, finally led to the restoration of diplomatic relations in 2015 and the visit of President Obama to Cuba in March 2016.
The improved relations between Cuba and the United States, despite the cancellation of some measures by President Trump in 2017, have been widely welcomed. Travel restrictions have been eased, direct commercial flights have been restored, ferry links have been opened, and Americans can now bring back Cuban cigars and rum. However, all of this falls short of full normalization, as the trade embargo can only be lifted by Congress and the United States continues to occupy a part of Cuba (Guantánamo Bay).
This demonstrates the difficulties for the United States in exercising leadership when institutional control is no longer so effective. Lacking the leverage provided by the OAS, the US government was the one that had to make the most adjustment toward normalization of the bilateral relationship. The Cuban political system has not changed at all, and the OAS continues to be condemned by the Castro government as “an instrument of imperialist domination.”
There could, of course, be only one major source of threat for NATO members, and that was Russia, which had become increasingly irritated by the alliance’s enlargement. In the words of one Russian analyst, “NATO expansion is nothing more than the extension of its zone of influence—and in the most sensitive military and political spheres. And yet [American] unwillingness to abandon that effort is coupled with a repeated refusal to recognize Russia’s right to have its own zone of interest. So NATO expansion has left the Cold War unfinished. The ideological and military confrontation that underlay it is gone, but the geopolitical rivalry that it entailed has returned to the fore.”24
Russian irritation was at first expressed in words, but—as its economy stabilized—in deeds as well. A war with Georgia in 2008 sent a clear signal to the United States that Russia would not contemplate any further NATO expansion. When that message was not heeded, Russia annexed Crimea in 2014 and started a proxy war in eastern Ukraine. And since the United States has no intention to back down on NATO enlargement, it is unlikely to be the last example of Russian aggression.25
The survival of NATO is therefore a mixed blessing for the United States. On the one hand, it demonstrates continued US leadership of the so-called free world while, on the other, it has pushed the United States into commitments that are financially costly and geopolitically risky. Its allies refuse to share the burden while Russia can choose the time and place for future confrontations. In the absence of a Russian collapse, an eventual American retreat seems inevitable. Indeed, this was the message that Donald Trump conveyed on the campaign trail in 2016 even if, as president, he had to soften his position.
The relationship between NSAs and the state was explored in Chapter 6. Among the most important NSAs are American multinational enterprises (MNEs), who continue to work closely with government through extensive lobbying efforts and by participation in detailed trade negotiations. These MNEs also remain the most important funders for political parties and candidates of almost all persuasions.
This close relationship has not ended, but it has started to fray in a number of ways. As beneficiaries of the policies pursued by the US government throughout the years of the semiglobal empire, many of these companies are now truly global and, in many respects, operate on a more global basis than the state itself. Although headquartered in the United States, they need to plan and operate on a world scale—a strategy that can put them at odds with US administrations.
Corporate taxation provides an illuminating example.26 The US marginal tax rate (35 percent) is the highest among OECD countries and one of the highest in the world.27 The US government is also one of only six OECD countries to tax companies on the basis of their worldwide profits. However, numerous loopholes—skillfully preserved and enlarged by corporate lobbyists—make a mockery of the principle of worldwide taxation and have led to a decline in the effective tax rate to around 20 percent.
The most important loophole has been the privilege awarded to MNEs to defer additional US taxes on foreign affiliates’ profits until they are repatriated. Since these companies can operate in almost any country, the temptation to establish operations in “tax havens” and use transfer pricing to shift profits to these places has been overwhelming. As a result, between $2 and $3 trillion was estimated to be held by American MNEs outside the United States by the end of 2016.28
Efforts by US governments to increase the effective corporate tax rate have therefore been thwarted by the operations of MNEs, and the situation has been made worse by the practice of “tax inversion.” This involves a US MNE buying a foreign firm and adopting its tax domicile, allowing it not only to pay lower taxes in perpetuity but also to pay out accumulated profits without incurring additional tax.
In its last year in office, stung by a threatened tax inversion by a pharmaceutical company (Pfizer), the Obama administration felt compelled to act against this corporate practice.29 By then, however, much damage had been done to the close relationship between the state and MNEs.30 In the words of the Economist magazine, normally a strong supporter of US capitalism, “The spat makes everyone look bad. It reveals an administration that is capricious and a Republican Party establishment so out of touch that it thinks it should be the mouthpiece for firms that renounce their citizenship. It shows great companies, such as Pfizer, reduced to shifty deal-junkies that are obsessed with financial fixes. It exposes a tax system that is 30 years out of date and obsolete in an age of globalisation. And it highlights a hyper-partisan political system that is incapable of reform.”31
The global nature of these companies has also caused friction with the US state in relation to China. Almost all of them now have a presence in the country, a position that was at first given strong official encouragement. US administrations calculated that China would not only prove to be highly profitable for American firms but that the presence of US companies would also accelerate reform and push China toward the kind of free market capitalism, and perhaps even representative democracy, favored by the United States.
The calculations proved to be very far off the mark. Slowly but surely, US policy on China has shifted toward something that more closely resembles containment (see Chapter 12) coupled with the threat of sanctions in response to cyberattacks and the blocking of certain Chinese investments in the United States on security grounds. This, however, runs counter to the interests of all those US companies for whom a Chinese presence is an essential part of their global strategies.
The conflict between the US state and a number of American technology companies over their links with China has been aggravated by revelations of the close ties some of these firms enjoy with the Chinese military. IBM in particular was singled out in a report commissioned by the Department of Defense in 2015: “IBM is endangering the national and economic security of the United States, risking the cybersecurity of their customers globally, and undermining decades of U.S. nonproliferation policies regarding high-performance computing.”32 Yet, despite these close ties, US companies operating in China are now more vulnerable than before. Acquisitions of major Chinese firms leading to control by US companies are increasingly rare, while Chinese companies are using the country’s vast foreign exchange reserves to buy stakes in US companies already in China. American companies increasingly complain of being less welcome in China, as they have been subject to aggressive investigations involving health and safety as well as antibribery and antitrust accusations. Then, after the same companies sell part of their assets to Chinese partners, many of these investigations cease.
American technology companies are particularly at risk from the more aggressive stance taken by China. New cybersecurity laws, introduced after the revelations by Edward Snowden on the use of US tech firms by the National Security Agency to engage in spying around the world, require these companies to store their data in China and submit to security checks. Companies are also “encouraged” to deepen their ties with local partners and transfer sensitive intellectual property.
Despite this, very few US companies have given up on China, and most have decided to stay the course because of the long-run profitability of the market even if this means becoming a minority partner in a Chinese-controlled firm.33 This means going along with Chinese state policy, but it also creates frictions with the US government for precisely that reason.
BOX 11.2
APPLE, CHINA, AND THE UNITED STATES
With annual revenue of nearly $250 billion and a market capitalization above $500 billion in 2016, Apple is a high-technology behemoth with sales in almost all countries. It has long outgrown its home market in America and considers itself strong enough to resist pressure from the US government. It has also vigorously defended itself against the European Commission’s efforts to force it to pay more tax.
When Apple was named by Edward Snowden as one of the companies cooperating with the National Security Agency in the secret PRISM program, the company issued a flat denial, saying, “We have never heard of PRISM.” And when the administration of President Barack Obama (2009–17) demanded Apple release the source codes to hack into an iPhone implicated in a terrorist attack, it refused to do so (the FBI found a way to hack it independently).
Apple may have been willing to confront the US executive, but it has shown much less willingness to do so in the case of the Chinese government. Court rulings against the company, clearly influenced by the Chinese authorities, are accepted meekly. When the Chinese government calls for new investments by Apple in the country, the company responds, even putting the interests of other US MNEs at risk in the process (its investment of $1 billion in the Chinese app-based independent taxi service Didi Chuxing was the final straw that led Uber to abandon its own operations in China—see note 33).
So when China says “Jump,” Apple asks “How high?” And when the US demands compliance, Apple resists. Yet this corporate strategy is perfectly logical and is an inevitable consequence of the discounted cash flow expected from the world’s largest market over the next decades.
Apple’s activities in China even became an electoral issue in 2016 when Donald Trump made much of the “export” of manufacturing jobs from the United States to China to produce high-tech products. This proved very appealing to many voters, but reversing it during the Trump administration will be very difficult without draconian controls on capital flows.
The damage to the reputation of US tech firms from Snowden’s revelations affected the profitability of their businesses in many countries, not just in China, as a result of the erosion of trust. One study concluded, “The NSA programs, and public awareness of them, have had an immediate and detrimental impact on the U.S. economy. They have cost U.S. companies billions of dollars in lost sales, even as companies have seen their market shares decline. American multinational corporations have had to develop new products and programs to offset the revelations and to build consumer confidence. At the same time, foreign entities have seen revenues increase.”34 This caused further tensions between some US technology companies and the state, encouraging at least one (Apple) to resist when asked publicly to cooperate in sharing source codes and private keys after a terrorist attack.35 It is safe to assume that there have been many other cases where the US government has unsuccessfully demanded access to secret codes controlled by high-tech companies since there is now an inherent conflict between the state’s pursuit of national security and the firms’ need to rebuild the public’s trust.
The overwhelming support given by the media to the imperial policy of US administrations during the Cold War and the start of the unipolar moment has been well documented. Indeed, this support seemed set to continue after the terrorist attacks on 9/11, when the US media threw its collective weight behind the invasions of Afghanistan and Iraq.
Today the situation is very different. The media has become increasingly fragmented as a result of the rise of digital outlets, and this has contributed to the polarization of views in America. What should have been a welcome increase in competition among media outlets is now seen increasingly as a threat not just to social cohesion but also to any hope of a shared view of the outside world. As one journalist has noted,
In the era of “big broadcast,” prior to the Internet, scholars were concerned about the lack of media diversity and the fact that citizens were a “captive audience” potentially subject to mass manipulation. Thus, many hoped that the democratization of news media, particularly online, could have a positive impact on political participation, civic engagement and the production of information. However, in a digital era featuring media abundance, scholars now worry about what they call “selective exposure.” A more fragmented media environment may prompt citizens to seek out more like-minded news sources, contributing to the reinforcement of prior beliefs and opinions and exacerbating polarization.36
This effect is sometimes known as the echo chamber and used to be associated with media outlets such as Fox News (on the right) and MSNBC (on the left). Today, however, these outlets seem positively sober compared with some of the other increasingly popular channels, the most extreme of which can all be found on the right of US politics and which have attracted large audiences.37
One of these outlets is Breitbart News, to which a large number of conservatives have been turning and which strongly supported Donald Trump’s presidential campaign in 2016.38 Yet Breitbart does not carry any of its own news, simply reposting articles published elsewhere that are consistent with its editorial policy. This reinforces the links between media fragmentation and political polarization, making it very difficult for any US administration to forge a consensus on foreign policy. In the words of one despairing journalist,
Almost all of our news outlets now can be easily identified as having a particular, and often very narrow, political bent and they act like nothing more than TV sit-coms desperately searching for a sellable demographic which will keep them afloat. . . . This means that most “news” organizations are only interested in stories and truths that their audience will want to hear. Quite simply, nothing could be more antithetical to both the pursuit of truth (which is quite often very UN-popular) as well as the maintenance of a country which has enough “knowledge” in common so as to be able to function as a remotely unified society.39
There are still many NSAs that have a close and symbiotic relationship with the imperial project. The main philanthropic foundations remain broadly supportive, while the Gates Foundation in particular has become almost an arm of the state itself. And a new organization, the Clinton Foundation (established at the end of the Clinton presidency), functioned in much the same way during the Obama administration.
The same, it might be assumed, could be said about the leading think tanks. However, in a surprising twist President Obama revealed in an interview in 2016 his frustrations with much of the think tank establishment, where his views were summarized as follows: “By 2013, Obama’s resentments were well developed. . . . He resented the foreign-policy think-tank complex. A widely held sentiment inside the White House is that many of the most prominent foreign-policy think tanks in Washington are doing the bidding of their Arab and pro-Israel funders. I’ve heard one administration official refer to Massachusetts Avenue, the home of many of these think tanks, as ‘Arab-occupied territory.’ ” 40 This may simply reflect the frustrations of a president at the failure of others to grasp the significance of what he has tried to achieve. However, it may point to something more substantial and possibly more enduring: an attempt by the administration to define what kind of country the United States needs to be in a postimperial age at a time when the leading NSAs still adhere to a belief in the semiglobal empire.
This potential conflict between where the United States is heading and where many of the leading NSAs would like it to go has also expressed itself in relation to some of those religious organizations that worked closely with the US state during the Cold War and its immediate aftermath.
US administrations, both Democrat and Republican, now adopt social policies that can broadly be described as “progressive,” at least up to the end of the Obama presidency, and promote these same policies in other countries.41 Many religious organizations, especially the evangelical churches, find this abhorrent. These same churches also work closely with their counterparts abroad, where they can find themselves campaigning against the policies favored by the US government. This has led to many conflicts.
The Founding Fathers were all too aware of the dangers of an unbridled executive conducting foreign policy in such a way as to endanger the security of the nation or bankrupt the state through costly foreign wars. Conscious therefore of the need for checks and balances on the executive, they allocated a special role to Congress in the conduct of foreign affairs. This role is defined—not always clearly—in the Constitution, and responsibility is allocated between the two houses, with both having significant powers. As one expert explains, “Congress shares significant authority with the executive branch to shape and make foreign and defense policy. The Constitution’s framers established the president’s explicit authorities in this realm as serving as commander in chief of the armed forces, negotiating treaties, and appointing ambassadors and senior officials. They gave Congress the powers to declare war, appropriate funds, raise and support armies, provide and maintain a navy, and regulate foreign commerce. To the Senate alone the framers bestowed the responsibility of providing advice and consent on treaties and presidential nominees.” 42
The Constitution therefore placed considerable responsibilities on Congress in the conduct of foreign affairs, and these have not been amended significantly by law in the last 250 years. However, Congress is made up of individuals who serve geographic rather than national constituencies. This can make it difficult for Congress to see the bigger picture where foreign affairs are concerned. As a result, the executive has always looked for ways to circumvent congressional involvement in foreign policy, creating considerable ambiguity now over who is responsible, for example, for declaring war and approving international agreements.
Despite this, Congress—at least until the end of the Cold War—only occasionally blocked the executive in its conduct of foreign affairs (the best known example is the failure of the Senate to approve the Versailles Treaty in 1920, which meant the United States was unable to participate in the League of Nations). As a result, relations between the executive and the legislature in the fields of foreign affairs and national security were generally productive without necessarily being harmonious.
There have been several reasons for this. First, the executive has the advantage of the “bully pulpit,” allowing it to appeal to the broader population over the heads of Congress as well as engage in crude horse-trading to secure the necessary votes. Second, the executive has become ever more skilled in exploiting loopholes in the Constitution to work around Congress on controversial issues. Third, Congress has normally been very supportive of the presidency where the nation faced a perceived existential threat.
The final such perceived threat ended with the fall of the Berlin Wall in 1989. Efforts to replace the alleged existential challenge from the Soviet Union with that from international terrorism at first had some success, especially after the trauma of 9/11, and Americans regularly place it at the top of their perceived threats (along with the possibility of Iran acquiring nuclear weapons). However, al-Qaeda and its successors, although willing to use the most brutal tactics against US targets abroad, never posed a serious challenge to American homeland security after 2001 and terrorism was downgraded by the nation’s defense establishment in its list of threats to national security.43
As a result, Congress has not been under any real pressure from perceived existential threats since the 1980s. This, however, is also the period when political partisanship has reached previously unknown levels as an unintended consequence of the redrawing of electoral boundaries. This has left most seats in the House of Representatives uncompetitive except during the primary contests, where the voice of moderates is easily drowned out. And the same lack of competition is now a feature of many seats in the Senate.
Congress is therefore increasingly made up of members whose greatest challenge is to keep their support during the primary season, and this makes them reluctant to support the kind of pragmatic compromises that worked in the past. It has also contributed to the decline in foreign policy expertise among congressional members, as foreign affairs (in the way usually defined) are not normally the issues that excite the primary voters.44 This trend has been noted by many students of Congress:
The nation’s political landscape has been realigning since the 1970s, ushering in deep partisanship, severe polarization, a combative 24/7 media, and diminished civility. Over time, this environment has given lawmakers greater incentive to advance personal and partisan agendas by any means, including the manipulation of congressional rules and procedures. It has politicized the national security arena that, while never immune to partisanship, more often than not used to bring out the “country first” instincts in lawmakers. . . . Congress has struggled for years to play a consistent and constructive role as a partner to as well as a check and balance on the executive branch on international issues.45
Under the Constitution, the Senate has a special role in providing “advice and consent” on international treaties. In the two centuries after the Declaration of Independence, the Senate ratified fifteen hundred treaties and rejected only twenty-one, which suggests that the Senate generally played a very responsible role in the formulation of foreign policy. Apart from the Treaty of Versailles (rejected twice by the Senate), the only major blow in these years to American aspirations to be a global leader was the rejection of the Law of the Sea Convention in 1960 (Box 11.3).
In this long period, from 1776 to 1976, there were also four hundred treaties submitted by the executive that were not put to a vote (these are described by constitutional lawyers as “unperfected”).46 Such a large number (an average of two per year) suggests that the relationship between the Senate and the presidency over international agreements may not have been so harmonious after all. In some respects that is correct, but many of these unperfected treaties were later withdrawn by the executive, and very few of them affected American global leadership, where the Senate remained broadly supportive.
The situation since the bicentenary has been quite different. Many treaties that would have helped to secure American global leadership have been rejected. Even more have been left “unperfected.” And some treaties, essential to the international reputation of the United States, were passed only after decades of congressional scrutiny (the best known example is the Convention on the Prevention and Punishment of the Crime of Genocide, which the United States signed in 1948 and the Senate did not ratify until 1989).47
The treaties of relevance to American aspirations to global leadership that the Senate has either rejected or not ratified fall into three categories. The first is international human rights; the second is the global environment; and the third is international security. In each case, the Senate has placed the executive in a difficult position, raising allegations by other countries of hypocrisy or worse.
BOX 11.3
UNCLOS, THE SENATE, AND CHINA
The first United Nations Law of the Sea Convention was presented to the Senate on May 26, 1960, and passed with a vote of 77–4. The same day a motion to reconsider was filed and the treaty was rejected 49–30. It then remained on the calendar of the Committee on Foreign Relations until 2000, when it was returned to the president.
By this time a different treaty, the United Nations Convention on the Law of the Sea (UNCLOS), had entered into force although it has never been ratified by the US Senate. Yet for the administration of President George W. Bush (2001–9) UNCLOS was a high priority, with Secretary of State Condoleezza Rice claiming, “Joining the [Law of the Sea] Convention will advance the interests of the U.S. military. As the world’s leading maritime power, the United States benefits more than any other nation from the navigation provisions of the Convention.”
The Senate was unmoved, and the treaty remains “unperfected” to this day. Meanwhile, the US government was becoming increasingly concerned by the aggressive actions of the Chinese government in the South China Sea but was unable to use UNCLOS—not being a member—to protest.
It was therefore left to the government of the Republic of the Philippines to use the arbitration provisions of UNCLOS to take its case to the Permanent Court of Arbitration (PCA) in the Hague. In 2016 the PCA ruled that China’s position on the South China Sea was inconsistent with UNCLOS, of which China is a member, and that its actions were inconsistent with international law. The ruling hugely embarrassed China and demonstrated the importance of international treaties.
Ironically, there was a change of government in the Philippines just before the ruling and the new administration of President Rodrigo Duterte (2016–) soon made clear its desire to end the American protectorate over the archipelago and establish close relations with China. Thus, it will be much more difficult for future US administrations to use the Philippines as a proxy in its battle against Chinese expansion in the South China Sea.
In its campaign in 2016 to win a seat on the UN Human Rights Council, the US government made the following pledge: “The deep commitment of the United States to championing the human rights enshrined in the Universal Declaration of Human Rights is driven by the founding values of our nation and the conviction that international peace, security, and prosperity are strengthened when human rights and fundamental freedoms are respected and protected. As the United States seeks to advance human rights and fundamental freedoms around the world, we do so cognizant of our own commitment to address challenges and to live up to our ideals at home and to meet our international human rights obligations.” 48
This pledge is difficult to reconcile with US practice by both the executive and Congress. In the field of international human rights, there are a number of treaties or conventions that the US executive itself has not signed.49 The Senate, of course, cannot be blamed for the failure to ratify in these cases, although part of the reason why the treaties have not received presidential signature may have been the fear that the Senate would not give its approval. However, there are four human rights treaties that have been signed and sent to the Senate but have never been ratified:
• American Convention on Human Rights (ACHR). Signed in 1977.
• Convention on the Elimination of All Forms
of Discrimination against Women (CEDAW). Signed in 1980.
• Convention on the Rights of the Child (CRC). Signed in 1995.
• Convention on the Rights of Persons with Disabilities (CRPD). Signed in 2009.
The ACHR has already been discussed (Box 5.1), and the failure to ratify has placed the US government in a difficult position in its own hemisphere. Similarly, the failure of the Senate to ratify CEDAW places the United States in the company of Iran, Somalia, South Sudan, and Sudan.50 Its failure to do so is a reflection of domestic US disputes on abortion and other matters, but the rest of the world sees it as showing a lack of leadership. And the failure of the Senate to pass the CRC is even more embarrassing as the United States (following the ratification by Somalia in 2015) is now the only country in the world not to have done so.
US governments since the Second World War have all aspired to global leadership in human rights. That was not true in the case of combating man-made climate change, where the skepticism of the public was for many years matched by that of both Congress and the executive.
This began to change in 1992 when President George H. W. Bush (1989–93) signed and ratified the UN Framework Convention on Climate Change (UNFCCC).51 When President Clinton the next year signed the Convention on Biological Diversity, however, its unambiguous treaty status obliged him to submit it to the Senate for ratification, where it was promptly rejected.52 The Clinton administration, recognizing both the global nature of the climate change problem and the desirability of American leadership, then signed the Kyoto Protocol in 1997. This committed developed countries to reduce their carbon emissions substantially below their 1990 levels.
The US Senate had other ideas, and so the Kyoto Protocol was never submitted for ratification, but it went ahead in 2005 when a sufficiently large number of countries had approved it.53 The Senate’s failure to ratify therefore severely weakened the US claim to leadership, but the American government was at least able to participate in the UNFCCC.
That slender thread was nearly severed during the George W. Bush administration (2001–9), when combating climate change was not only viewed skeptically by Congress but also by the executive. The lead US negotiator cut a lonely figure in those years, a position that President Obama was determined to reverse by placing the United States “back in the game.” This he succeeded in doing, although the Paris Agreement on climate change in December 2015 was the result of collective rather than American leadership involving principally the United States, China, and the European Union.
The Paris Agreement commits participating countries to reduce their emissions by means of Nationally Determined Contributions (NDCs).54 Although the United States signed the agreement on the first day possible (April 22, 2016), it still needed to be ratified and the Senate made clear its unwillingness to do so. President Obama therefore ratified it by executive order, despite its clear status as a treaty, leaving the agreement vulnerable to subsequent rejection.55 Thus, US leadership was once again called into question as a result of congressional (in)action.56
International security is the third area where the Senate’s role is undermining American global leadership. While the Cold War was in effect, the executive could normally count on Senate support. This was especially true in the case of arms control agreements.57 And this support continued after the end of the Cold War with the ratification of START I, START II, SORT, and New START.58
As soon as the Cold War ended, however, the Senate failed to ratify the UN Convention on the Law of the Sea (UNCLOS) that had been specifically amended in 1994 to meet the concerns of the George H. W. Bush and Clinton administrations.59 As a result, the US government was not in a strong position twenty years later to confront Chinese aggression in the South China Sea (Box 11.3). The Senate also rejected (51–48) the Comprehensive Nuclear Test Ban Treaty in 1999.
The Clinton administration in 1998 signed the Rome Statute of the International Criminal Court (ICC). This was an important initiative to address a major gap in international security designed to ensure that political leaders would in the future be held responsible for genocide, crimes against humanity, and war crimes. However, it was never submitted to the Senate, despite being amended in various ways to meet US concerns, as it would never have passed.60 The ICC was nonetheless established in 2002, leaving the United States unable to play any leadership role in this crucial global area.61
While the Senate has constrained the executive by rejecting or failing to pass international treaties, the House of Representatives has used the power of the purse strings for the same purpose. Even before the end of the Cold War, for example, Congress had damaged the attempt of President Jimmy Carter (1977–81) to reach out to the Sandinistas in Nicaragua by attaching humiliating conditions to an appropriations bill in 1979 providing the new government with a loan from USAID.
This practice was rare before the bicentenary but has become much more common—especially when the House of Representatives is controlled by a different party from the executive. When President Obama, for example, attempted by executive order to close the prison at Guantánamo Bay in Cuba (a pledge on which he had campaigned in 2008), the House attached a clause to a spending bill that banned the use of federal dollars for the transfer of inmates.62 The prison therefore remained in operation at the end of Obama’s presidency.
Even more worrying for the conduct of US foreign policy and the claim to global leadership has been the decline in interest in foreign affairs in Congress. The key committees in both houses (armed services and foreign affairs) are now usually chaired by individuals who lack the stature of their predecessors. The chair of the Senate Foreign Relations Committee, for example, had almost no experience with international relations before being elected to this key post.63
The one exception is Senator John McCain, elected to the chair of the Senate Armed Services Committee in 2015.64 Although he had a distinguished congressional record and armed forces career, he often appeared hopelessly out of touch with an America whose empire is in retreat. He therefore reflects a more general problem with Congress, which is that of inertia.65 On a whole range of issues (e.g., climate change, human rights, security, Cuba, and Iran), Congress has a built-in preference to defend long-established positions. This is a luxury that the executive cannot afford.
Global leadership requires a leader, and that is the self-appointed role adopted by the US executive during the semiglobal empire, albeit with the acquiescence of many other countries. Congress, the judiciary, NSAs, and public opinion all play a part, but it is the presidency where policy is formulated and which has responsibility for implementing it.
It is therefore the executive that must be the first to respond to changes in the world and America’s place in it. And this is no easy task. Reflecting on the unipolar moment after leaving office in 2001, President Clinton drew attention to the responsibilities as well as privileges that go with global leadership:
If you believe that maintaining power and control and absolute freedom of movement and sovereignty is important to your country’s future, there’s nothing inconsistent in that. We’re the biggest most powerful country in the world now we’ve got the juice and we’re going to use it. . . . But if you believe that we should be trying to create a world with rules and partnerships and habits of behavior that we would like to live in when we’re no longer the military political economic superpower in the world, then you wouldn’t do that.66
Clinton, from the safety of retirement, was drawing attention to an important, if unpalatable, truth: the need to create an international framework that would place the same rights and duties on the United States as on other countries. That can only be done through executive action, but this can be heavily circumscribed. Thus, current and future presidents in an age of imperial retreat need to find ways to resolve this dilemma.
Presidents have always looked for ways to circumvent the restrictions placed by others on the executive’s freedom of action in foreign policy. The answer at first seemed to be executive orders where the signature of the president is sufficient to achieve an international agreement without the need for a two-thirds majority of the Senate. From 1939 to 1989, for example, the United States entered into 11,698 executive agreements and only 702 treaties as defined by the Constitution.67 And the proportions have remained roughly the same since the end of the Cold War.
The rest of the world considers executive agreements with a presidential signature to be the same as international treaties. However, under the US Constitution this is a gray area. When the Senate in 1999, for example, rejected the Comprehensive Nuclear Test Ban Treaty, President Clinton declared, “I signed that treaty, it still binds us unless I go, in effect, and erase our name—unless the President does that and takes our name off, we are bound by it.” 68 However, that is not how it was interpreted by Congress, and presidential signatures have been frequently challenged in the courts. As a result, there are now much stricter limits on what American presidents can achieve through what are called “sole executive agreements.” 69
One example is provided by the power to engage in military action. The Constitution gave Congress the sole power to “declare war,” but it has used that power sparingly and never since 1942. Instead, Congress has authorized the use of force in other ways, such as the Gulf of Tonkin Resolution in 1964 that was used by President Lyndon Johnson (1963–69) to commit US troops to Vietnam.70 Anxious to avoid the disaster of Vietnam in the future, Congress then passed in 1973 the War Powers Act designed to curtail sharply the ability of the executive to wage war without congressional consent.71
Most US military interventions since 1973 have been consistent with the War Powers Act, but not all, and the act has restricted executive action in many ways. In early 1999, for example, President Clinton planned a NATO bombing campaign against Serbia designed to protect Kosovo. Without a UNSC resolution it was clearly illegal under international law, but not necessarily under the US Constitution. Clinton therefore wrote to the Senate leadership on March 23 asking for “legislative support as we address the crisis in Kosovo . . . without regard to our differing views on the Constitution about the use of force.”72
Clinton received the support of the Senate immediately and began the bombing campaign the next day. However, one month later the House invoked the War Powers Act and in a tied vote (213–213) failed to grant authorization for air strikes. The war was now illegal not just under international law but under domestic law as well. The campaign did not stop immediately, and Congress never cut off funding, but the Clinton administration was restricted in what it could do.
The executive would later claim that it secured what it wanted in the Kosovo campaign despite congressional opposition. That is debatable since President Slobodan Milosevic of Serbia did not resign until October 2000. However, a much more serious test came nearly fifteen years later, when President Obama judged that a “red line” had been crossed in Syria where the regime of Bashar al-Assad was deemed to have used chemical weapons. This justified in the executive’s eyes the use of force and an opportunity to show global leadership, but government opinion was divided over whether it needed congressional support.
BOX 11.4
JCPOA, THE EXECUTIVE, AND CONGRESS
In 2015, after two years of intense negotiations, the five permanent members of the UNSC plus Germany (P5+1) reached a historic agreement with Iran on its nuclear program. Known as the Joint Comprehensive Plan of Action (JCPOA), it set strict limits for Iran to continue enriching uranium for civilian purposes, a huge reduction in Iran’s existing stockpile, and a tough inspections regime. In return, Iran was promised the lifting of those sanctions related to its nuclear program and an end to all enrichment restrictions for civilian purposes after a maximum of fifteen years.
The US government played the leading role in P5+1, several of whose members had failed to reach agreement with Iran on numerous previous occasions. Without US leadership, the agreement would never have happened. Indeed, the JPCOA is in many ways a model for the kind of global leadership the United States claims it can deliver in an age of imperial retreat.
Despite this, the JPCOA was nearly derailed by a hostile Congress that adopted almost unanimously the Iran Nuclear Agreement Review Act in July 2015. This gave Congress sixty days to review whatever deal the executive achieved with Iran, at the end of which there would be a vote to approve or disapprove the JPCOA.
As the deadline approached, the House of Representatives, as expected, failed to approve the agreement. In the Senate, however, a Democratic filibuster could not be blocked as Republicans fell two votes short of the sixty needed. The JPCOA therefore survived and a presidential veto was not needed, but it failed to receive a single Republican vote in favor and even some Democrats voted against it.
President Trump (2017–) campaigned against JCPOA during the presidential campaign in 2016 and promised to “tear it up” if elected. As president, however, he faced considerable resistance even among Republicans. Even if the United States withdrew, it is very unlikely that the other members of the P5+1 would follow suit. Thus, JPCOA will probably survive regardless of what the United States does.
Many in the administration believed that there was no need to go to Congress, but the president thought differently.73 Conscious that he would never secure a UNSC resolution authorizing the use of force, he was anxious to ensure that military action was at least legal under domestic law. The legislature was therefore asked to give approval. It soon became clear, however, that Congress was going to do no such thing.74 Military action therefore never took place, and the president was only rescued from humiliation by an offer from Russia to force President Assad to give up his chemical weapons. The chance for America to show global leadership disappeared.75
International trade is another area where executive efforts to demonstrate global leadership are increasingly restrained by the behavior of other domestic actors (let alone foreign ones). The United States took the lead in the deepening of globalization in the 1970s and accepted the argument of its partners that reaching international agreements would be hampered if Congress could unpick trade deals after negotiations were complete. The result was Trade Promotion Authority (TPA), which was first passed by Congress in 1974.76
TPA gave the executive the authority to negotiate trade deals subject to a straight up-or-down vote at the end. It was extended at regular intervals and used to ratify not only the first preferential trade agreements (PTAs) by the United States but also the multilateral Uruguay Round. However, it was not renewed after 1994 as a result of partisan congressional politics.77 It was only the election of a Republican to the presidency in 2000 that made it possible for Republicans in Congress to drop their opposition. TPA was then renewed in 2002.78
The new authority expired in 2007 but could still be used after that date for agreements signed beforehand. Thus, both President George W. Bush and President Obama were able to secure approval for a swath of bilateral PTAs, but by the end of 2011 there were none left outstanding.79 Without a new TPA, the executive was powerless to conclude new trade deals.
Even before his second term, President Obama had pinned American leadership on securing a Trans-Pacific Partnership (TPP) agreement that would lay down new rules for trade and investment with eleven countries in the Asia-Pacific region while isolating China; a hugely ambitious agreement with the European Union called the Transatlantic Trade and Investment Partnership (TTIP); and a global Trade in Services Agreement (TISA).
If all came to fruition, the United States could justifiably claim still to be the world leader in trade and foreign investment, both arenas of central importance to the semiglobal empire. The executive had strong support from US MNEs from the beginning, but other domestic actors were increasingly disillusioned with globalization. It therefore took the executive three years to persuade a skeptical, and highly partisan, Congress before TPA was finally passed in 2015.
By this time, trade agreements had become so toxic for much of the American public that many of the presidential candidates had turned against new deals.80 As a result, Congress was unable to pass the TPP before the Obama administration ended and President Trump withdrew it immediately after his inauguration (the same fate will surely await TTIP and TISA if they ever reach that far). Meanwhile, China was busy concluding its own version of the TPP in the Asia-Pacific region without US participation.81 American efforts to lead the world in an area crucial to the semiglobal empire had been thwarted.
Where the United States did lead after the Second World War was on promoting the free movement of capital, a key component of globalization and perhaps even more important for American capitalism than free movement of goods and services. As capital flowed round the world in ever greater quantities, two questions arose: Who would receive it, and where would tax be paid?
Federal governments from President John F. Kennedy (1961–63) onward, facing balance of payments deficits, had pushed through measures to ensure that a large share of international capital flows ended up in the United States, while state governments (especially Delaware, Nevada, Wyoming and, more recently, South Dakota) were equally proactive in providing tax incentives and promises of secrecy that enticed capital into their jurisdictions. As a result, the United States acquired a well-earned reputation as a tax haven for offshore funds.82
Most of these funds were owned by foreigners. Since the US government operated a worldwide tax on American citizens, it could afford to ignore tax avoidance/evasion by nonresidents despite protestations by foreign governments. However, the financial crash that began in late 2007 changed everything. This crisis had “made in America” stamped all over it, but the free movement of capital caused it to spread very quickly to other countries. A new approach was needed if the United States was to retain leadership of global economic governance.
The US government turned first to those institutions such as the IMF that it controlled, but these were soon deemed insufficient. As a result, the G20—hitherto a largely toothless body designed to soothe the vanities of large economies underrepresented in the established organizations—was upgraded in 2009. The G20, although not under US control, was then given a crucial role in managing the financial crisis and coming up with proposals for reform.
The most important proposal to come out of the G20 has been its plan to ensure that MNEs pay their fair share of tax in all jurisdictions in which they operate. Its base erosion and profit shifting (BEPS) project was endorsed by G20 leaders in 2015 and supported by all OECD members.83 It requires those states joining the project (eighty-five by mid-2016) to specify how they plan to legislate domestically to bring their tax laws in line with BEPS.
This was a chance for the US executive to show global leadership. However, many of the MNEs engaged in tax avoidance are American companies that have donated generously to political parties and candidates. Furthermore, their global tax avoidance strategies do not eliminate their obligation to pay US corporate tax if/when the profits are repatriated. Thus, payment of additional tax to foreign jurisdictions by these companies reduces potential future US tax revenues.
The United States has, therefore, not shown leadership on this issue, preferring to argue that its domestic laws are fully in line with BEPS and therefore no changes are required. In responding to the various actions needed, as specified by the G20, the US government stonewalled and argued in the case of each “action” that no new legislation was required. Even in the case of actions on transfer pricing, which MNEs frequently use to reduce profits, the Treasury Department claimed that the consistency of existing domestic transfer pricing principles with Actions 8–10 meant that harmonizing the two does not require “substantial” changes to the US transfer pricing regulations.84
In theory, it is possible that the US tax treatment of MNEs is so perfect that no changes are needed. A more likely explanation, however, is that a Republican-controlled Senate made it impossible for the executive to bring in new tax rules for MNEs under a Democratic president.85 And the same has been true of efforts by the executive to shake off the “tax haven” label.
President Obama chose his first State of the Union address in 2009 to focus on the need to crack down on tax havens. The following year the Foreign Account Tax Compliance Act (FATCA) was passed, forcing US persons to report their non-US financial accounts to the Financial Crimes Enforcement Network (FINCEN). It also obliged foreign financial institutions (FFIs) to report all assets of US persons to the Treasury Department.
The lead taken by the US government was soon followed by other governments following the adoption of the OECD Common Reporting Standard (CRS). This, of course, requires the United States to report on non-US persons’ financial assets in exactly the same way as FATCA does for US persons. Yet reciprocity has proven to be difficult for the executive to provide. Many states value their tax haven status, the Senate has refused to ratify the bilateral tax treaties that would allow the relevant information to be handed over to foreign governments, and financial institutions complain about the workload. As FINCEN itself reported, “Financial institutions noted that a requirement to ‘look back’ to obtain beneficial ownership information from existing customers would be a substantial burden. FINCEN proposes that the beneficial ownership requirement will apply only with respect to legal entity customers that open new accounts going forward from the date of implementation.”86 Once again, domestic constraints have made it difficult, if not impossible, for the executive to show global leadership even when it wants to do so. The “checks and balances” for which the US system is so famous have become more about checks and less about balances. As a result, the semiglobal empire that America created after the Second World War has become increasingly difficult to sustain.