Wake up, America: The world just isn’t that into you

Republicans, including many old friends, are outraged that the Biden administration gave up on sanctions against the Nord Stream 2 gas pipeline that will pump Russian gas to Germany.

Senator Ted Cruz (R-TX)—on whose foreign policy team I served during the 2016 campaign—declared that he would block Senate confirmation of all of Biden’s ambassadorial appointments until the sanctions are reinstated. Daniel Kochis of the Heritage Foundation titled his piece today, “The US will regret this shameful appeasement of Russia.”

Calm down, everyone. After Donald Trump imposed sanctions on firms laying the Nord Stream 2 pipe across the Baltic Sea, the Russians sent their own ship, and the work is finished. The Germans will go ahead regardless, so the least humiliating thing that Biden could do was to acknowledge reality and stand down.

No one in Europe really cares what Washington thinks about Nord Steam 2 (and a lot of other issues). Once upon a time, about five years ago, America was going to be the new Saudi Arabia, providing Europe with liquefied natural gas to replace Vladimir Putin’s product—at a higher price, to be sure, but wrapped in the blessings of liberty. Trump demanded that Europe eschew Russian gas and buy American LNG instead.

When Trump took office, the energy companies in the S&P 500 were devoting US$70 to $80 billion a year in capital expenditures. This year it will be about $20 billion, barely a quarter as much as the last peak, and analysts polled by Bloomberg put next year’s total at less than $30 billion, despite the strong recovery in energy prices. Natural gas production is down by about 10% from the 2019 peak, and oil production is down by 20%.

The people with big jobs in Washington came of age in the 1980s and 1990s, when America was the technological marvel of the world, and American inventions created the digital age. We haven’t done a lot lately except code some complicated software.

China has installed about 80% of the world’s 5G mobile broadband capacity, the carrier for the Fourth Industrial Revolution as much as railroads were for the First Industrial Revolution, and is moving much faster towards smart cities, automated ports, autonomous vehicles, self-programming robots and a wealth of other 5G applications.

American supply chains can’t keep up with the $5 trillion in demand that the US Treasury dumped onto consumers, so America is running a $1 trillion a year balance of payments deficit. The pull of demand has spiked the inflation rate above 5%.

The Federal Reserve and the White House say this is transitory, but US industries aren’t investing in new equipment. In fact, capital expenditures for US industrial companies this year will be 35% lower than in 2019, and not much better next year.

The US isn’t investing in energy, or much else. It doesn’t boast a single company to compete with Huawei, Ericsson, or Nokia in 5G broadband. China, with its robust supply chains and abundance and diversity of skilled workers and engineers, is likely to get a jump on the United States in the new technologies that will transform economic life.

That includes hydrogen fuel cells: China’s chemical industry produces 30% of the world’s hydrogen as a by-product.

At the same time, America’s allies don’t have a lot of confidence in Washington’s will to defend them—surely not after the humiliating spectacle of another Vietnam-style run from a country where American forces fought a 20-year war, namely in Afghanistan.

Europeans view with distaste the American version of Mao’s Cultural Revolution, where the “woke” equivalent of Red Guards hold self-criticism sessions at corporations and universities to extract confessions of racism, homophobia, transphobia and so forth.

The last thing that German Chancellor Angela Merkel or French President Emmanuel Macron want is to tangle with Russia.

According to the German business daily Handelsblatt, Germans support the completion of Nord Stream 2 by a margin of 75 to 17. Even members of the opposition Green Party who abhor anything to do with fossil fuels back the pipeline by a margin of 69 to 21.

It’s pointless to complain when America’s allies ask in so many words, “What have you done for us lately?” To the rest of the world, America looks like a declining power, because it is a declining power.

If America wants to get the world’s attention, it should try doing the things that captured the world’s imagination a few decades ago. America needs the moral equivalent of a moonshot, a rededication to manufacturing leadership, a revived meritocracy that produces business and scientific leadership.

Instead of complaining about how the Germans jilted them, American politicians should take a hard look at where America is going, and do something about it.