America squandering its power through foreign policy abuses

Last week we watched an unusual spectacle. The foreign minister of Germany, one of the United States' closest allies, went to Tehran and announced that a European payment system, designed as an alternative to the dollar-based one, would soon be ready. This visit was made in coordination with Britain and France, both of which helped create the new payment mechanism, called INSTEX.

INSTEX will probably fail or prove to be wholly inadequate in the short term. The dollar's dominance in global transactions - which has been a huge benefit for America - will be hard to displace, but INSTEX is a warning sign, the canary in the coal mine. America's closest allies are working hard to chip away at a crucial underpinning of U.S. global power.

Why? It's simple: the Trump administration's abuse of this power. The United States sits atop the world for now, but there are forces eroding that lofty status. Some of these are deep structural shifts, like the rise of China. But as The Economist points out, others are reactions to a pattern of hegemonic abuse.

Consider the trigger for this search for an alternative to the dollar. Britain, France and Germany are all signatories to the 2015 Iran nuclear deal. When the Trump administration unilaterally reneged on the pact last year - even though Iran had abided by it - the U.S. reimposed sanctions, using its dollar power to prevent other countries from doing business with Iran (since most international transactions use the dollar for convenience). Furious at this misuse of authority, the Europeans have set about trying to create a new payment system.

They are not the only ones. The Chinese, Russian and Indians have also been trying to create mechanisms that would allow them to escape the hegemony of the dollar. So far, these efforts have been largely ineffective. But if so many major trading nations, including key European ones, set out to subvert the dollar, they will eventually have some impact. Once upon a time, the British pound was the dominant international currency, but it was supplanted by the dollar. There is no iron law that says the dollar will be king forever.

Or look at the way the Trump administration has been wielding the threat of tariffs. In many cases, the administration has invoked a "national security" concerns. The law that allows the president to levy such tariffs was passed during the Cold War to enable the country to preserve critical industries that might be needed to sustain the geopolitical contest with the Soviet Union. Canadian aluminum and Japanese-made SUVs don't fit the bill, even if Trump thinks otherwise. As Jennifer Hillman, the former general counsel to the Office of the U.S. Trade Representative, wrote recently in The New York Times: "If the United States can justify tariffs on cars as a threat to national security, then every country in the world can most likely justify restrictions on almost any product under a similar claim."

The United States has legitimate complaints about China's trade practices. Beijing will often follow the letter of the law but find clever ways to undermine its spirit through loopholes and exceptions. But that is precisely what the Trump administration is itself doing. By misusing the national security exemption, it is weakening the very trade rules and international laws that it is asking China to follow. If I were a Chinese negotiator, I would simply explain that I would follow trade rules just as much as Donald Trump does.

Or consider Trump's efforts to crush Chinese tech behemoth Huawei. So far, very few countries have followed America's ban, but almost all are surely noting that if they remain reliant on crucial American technologies, Washington could suddenly cripple them on a whim. The result will be a greater desire for technological self-reliance and a shift away from American companies.

America still occupies a unique position in the world. But it is clear that we are moving into an era in which more players will have more power. Twenty years ago, China accounted for 3% of global GDP; today its share is 15% and rising. In such a period, it is all the more important that Washington act with restraint, use international institutions and try to establish consensus. As I write in the current issue of Foreign Affairs, "The rule for extending liberal hegemony seems simple: be more liberal and less hegemonic." Trump appears intent on doing the opposite.

The administration is acting to achieve some short-term gains in limited transactions with other countries. But by abusing its power to do so, it is putting at risk the structure of the international system in which American power is so deeply embedded. It is a bad trade and one for which all Americans will pay the price in decades to come.

Fareed Zakaria's email address is comments@fareedzakaria.com.

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