By Greg Ip 

The western world has seen plenty of division and conflict before. But in the past the U.S. was the stabilizer, seeking to align its interests and those of its partners. Today, it is the destabilizer, driven by a belief that its interests and the world's are at odds.

The relatively buoyant stock market and economy might suggest this doesn't matter. Tariffs announced to date are tiny relative to gross domestic product and quantitatively matter much less than tax cuts. Even the most committed free traders admit protectionism does its damage slowly.

But global discord and American prosperity can co-exist for only so long. Economies are accident-prone: Natural disasters, wars and financial crises come out of nowhere, and global cooperation has often served to contain their damage. Strains are already apparent, in the European Union, on the Mexico-U.S. border, and in emerging markets. Solving these or any other crises gets harder the more mistrust grows between the U.S. and the rest of the world.

President Donald Trump's antagonism toward U.S. allies and trading partners reflects a belief that they are free riders on the U.S. military and economy. And it is true that since World War II the U.S. has done more than any other country to sustain military alliances and free trade.

But to suggest other countries sacrifice nothing to help the U.S. ignores plenty of military and economic history. After al Qaeda attacked the U.S. in 2001, Britain, Canada, Germany, France, Italy, Spain and the Netherlands each sent thousands of troops to Afghanistan. More than 800 died. Britain's contribution to the U.S.-led invasion of Iraq in 2003 almost cost Prime Minister Tony Blair his job.

It was the U.S. that, starting in the 1990s, prodded other countries to adopt safeguards against money laundering. After 9/11, that infrastructure proved invaluable in the fight against terrorism financing, said Daniel Drezner, a political scientist at Tufts University. The sanctions that Barack Obama, prodded by a Republican Congress, pushed the world to adopt forced Iran to accept curbs on its nuclear program (whether Mr. Obama used that leverage effectively is another question). Germany has suffered much more, economically, than the U.S. for the sanctions imposed on Russia for its annexation of Crimea.

On economics, too, other countries have often bent to U.S. priorities. In 1978 West Germany agreed to stimulate its economy with deficit spending to help the U.S. narrow its trade deficit. In 1985 the Group of Seven advanced economies jointly intervened to bring down the dollar to narrow the U.S. trade deficit. Japan paid a steep price: It countered the strong yen with low interest rates that produced the bubble economy and its collapse. During the global financial crisis of 2008, other countries heeded U.S. entreaties to stimulate their economies and thus prop up demand, while the Federal Reserve teamed up with other central banks to pump dollars into foreign banks and prevent fire sales of mortgage-linked securities.

While nothing comparable looks likely now, there are plenty of scenarios in which bad blood between the U.S. and others could aggravate a crisis. Arguably, the southern border offers one example. Mexico could stem the tide of Central American migrants reaching the U.S. border by requiring a visa before they enter Mexico or requiring them to seek asylum once they do enter. While the Mexican government would pay a political price and upset its southern neighbors, it might do so for the sake of good relations with the U.S., as it has done in allowing U.S. drug agents to operate in Mexico. But at present such a sacrifice would be political suicide given the acrimony Mr. Trump has stirred up over trade and immigration.

Similarly, the U.S. may never have needed tariffs to curb Chinese trade abuses had it first allied with other advanced economies -- as in 2014 when the U.S., Japan and European Union forced China to resume exports of industry-critical rare earths. Instead, Japan, wary of U.S. protectionism, is now nurturing warmer trade relations with Beijing.

Then there is the risk that U.S. policies actually trigger a new crisis. Tariffs and non-tariff barriers, such as invasive customs inspections, could disrupt the delicate supply chains that link the U.S., Chinese and world economies, a man-made version of the Icelandic volcano in 2010 or Thai floods in 2011 that disrupted global travel and manufacturing.

Meanwhile the U.S. tax cut and the borrowing that finances it are pushing up growth, interest rates and the dollar, sucking capital out of emerging economies from Brazil to Turkey. Capital may also flee China on expectations the yuan will be devalued to counter U.S. tariffs. Commodity and oil prices are already softening as a result, which could ricochet into U.S. shale oil investment.

That this hasn't hurt much yet is in great part because the Federal Reserve has been so restrained in raising interest rates. Indeed central banks world-wide remain bastions of technocratic competence and global cooperation.

But central banks can only do so much. Military and economic crises typically require many countries to act together in their collective interest as a way of advancing their individual interests. The U.S. used to lead such efforts. In the future, that isn't so sure.

Write to Greg Ip at greg.ip@wsj.com

(END) Dow Jones Newswires

June 20, 2018 10:52 ET (14:52 GMT)

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