Although the claim that America can discreetly ignore the problems of the rest of the world is not new, it has recently gained more traction. It was difficult to miss the change last spring when I stood in the lobby of a downtown Houston office tower and watched oil executives walk by with the casual confidence of people who know their commodity is wanted everywhere. Ten years ago, every OPEC headline had caused anxiety in the same building. The atmosphere has changed now. Crude is exported by the United States. As much as it absorbs prices, it sets them. Washington’s perspective on global risk has been significantly altered by that one change.
The fundamental question in the decoupling debate is how much of this insulation is genuine and how much is just wishful thinking. Policymakers and investors alike believe that the United States has enough reserves to weather the next downturn better than Europe or most of Asia. The most obvious is energy independence. Then there is the reshoring movement, with battery plants expanding throughout Georgia and Tennessee and semiconductor factories growing outside of Phoenix thanks to tax credits that would have been politically unimaginable fifteen years ago. Lastly, there is the technological advantage, which is based on artificial intelligence and a capital market that continues to draw more savings than any other.
However, most serious economists are aware that complete insulation is unachievable. This spring, the Financial Times stated unequivocally that the United States has somewhat detached itself from the world’s gloom. Container prices rise for everyone, including Walmart, when shipping in the Red Sea is disrupted by Houthi attacks. A poor harvest or a strike in Chile can cause wheat or copper prices to spike, and within months, those expenses find their way into American kitchens and building sites. Decoupling is not an on/off switch; rather, it is a matter of degree.
The speed at which the political lexicon has changed is fascinating. Once connected to French dirigisme and a certain kind of European nostalgia, terms like “friendshoring” and “industrial strategy” are now used in U.S. Treasury speeches without anyone noticing. Both sides appear to concur that the previous model of globalization—the one about which Tom Friedman wrote best-selling books in the early 2000s—is no longer relevant. They disagree about what should take its place, frequently loudly. However, the direction of travel seems obvious.
It’s difficult to ignore the staging when watching factory groundbreakings on the news over the past two years. hard hats. American flags. Cabinet secretaries grinning. A portion of it is theatrical. A portion of it is true. The Arizona project for TSMC is constantly running behind schedule, costing more than anticipated, and having trouble finding enough skilled technicians. There has also been a delay at Intel’s Ohio facility. It takes more time and effort to build physical industry than it does to pass laws pertaining to its construction. Some parts of Washington are quietly concerned that before the concrete dries, the political will might wane.
Everything is overshadowed by the China dimension. A few years ago, Nobel laureate Michael Spence referred to this as “destructive decoupling” and cautioned that both sides had adopted separation as a tactic without fully considering the costs. He might end up being correct. Cheap Chinese products benefit American consumers in ways that are easily forgotten until they vanish. In a campaign speech, tariffs sound good. In a Midwestern retailer’s quarterly earnings call, they appear more disorganized. Whether the political alliance for long-term decoupling can withstand a significant inflationary episode is still up in the air.
The question of who pays for all of this is another. Deep domestic capital markets and a strong dollar, both of which are global entities, are becoming more and more essential to American resilience. Treasury bonds worth trillions are held by foreign central banks. The cost of borrowing for American businesses and homeowners increases if they gradually reduce those holdings, as some seem to be doing covertly. In other words, the gates of the fortress still swing both ways.
As of right now, Washington and New York seem to agree that America has bought itself some time. Not immunity, precisely. Just room. There is room to weather another oil shock without the nation experiencing it as it did in the 1970s, to absorb a slowdown in China, and to weather a recession in Europe. The question that no one can truly answer is whether that area is large enough for whatever comes next. There are buffers. The cracks are also present. Like most economic stories, this one will be shaped by what transpires rather than what has been promised.