Reports of America’s decline greatly exaggerated: Kotkin

Reports of America’s decline as a geopolitical and economic power are exaggerated, and the noise investors should learn to ignore is the presidency itself, Stephen Kotkin told the Top1000funds.com Fiduciary Investors Symposium at Harvard.

“America is not the presidency,” Kotkin said. There are 340 million Americans and one of them is the president. Roughly 20 per cent are MAGA, a share Kotkin said was about the same as 50 years ago, but now they can each broadcast on their own channels.

The hard left is around 12 or 13 per cent, which leaves about two-thirds of the population who are “not represented in the media space, in the political space” but “are represented in the economy, and they’re represented in society”.

America has accounted for about 25 per cent of global GDP since 1880, a share it held when there were tariffs and when there were none, before there was a central bank and after, before there was an income tax and after. It held steady through the Great Depression. Over those 150 years, the economy has grown at 2 per cent a year compounded, a record Kotkin said had no equal in history.

The decline is happening in other places. Europe was 30 per cent of global GDP in 1992, is 17 per cent now and is on track to be just 10 per cent under current trends. Japan was 18 per cent in the early 1990s and is 4 per cent today. Both still have a high standard of living, but their growth trends are bad, “and without growth, you know what happens internally to politics and everything else”.

Kotkin said that beneath the change in political style, much of the substantive policy has been continuous. He pointed to claims by officials in the previous administration that President Donald Trump’s AI executive order “is pretty much plagiarised from” an earlier version issued by President Joe Biden, and that a prospective Iran deal “is going to resemble” the Joint Comprehensive Plan of Action struck by President Barack Obama.

The rebalancing of America’s position in the world had to happen, Kotkin said, but it did not necessarily follow that its influence on the global stage would be substantively diminished.

The US assumed responsibility for world affairs between 1945 and 1960, when it accounted for 40 per cent of global GDP and 50 per cent of global manufacturing. But now, at 25 per cent of GDP and 5 per cent of global population, it can no longer uphold every commitment.

“We cannot afford to be responsible for everything that makes others free riders, lazy, dependent, and it makes us incompetent and stupid in so many ways, because we have too many balls that we’re juggling in the air,” Kotkin said.

Trump has done it “nastily and symbolically”, but the rebalancing itself was overdue.

“He’s galvanising your whole country to do what it should have done anyway, which is get its act together and get more resilient and figure out economic opportunity and growth in your home and your neighbourhood,” Kotkin said.

“So Trump is a disgusting, corrupt gift to the whole world that he’s galvanising, and it’s fabulous.”

Session chair Niall Quinn, global co-head of sales for Pictet Asset Management, said people outside the US think of it as a place built on principles and the rule of law, and what they now see is a weakening of that, embodied by the president.

“As investors, a fundamental thing is property rights, the rule of law,” Quinn said. “Can I get my capital back out of the country? These are basic things.”

The institutions upholding those rights were more resilient than media coverage might suggest, Kotkin said, and American federalism, a foundation of a competitive economy, is not going anywhere.

“Texas can compete against California, and Florida can compete against you-name-it, and Massachusetts has got to compete in that space, and that’s really important, and that’s not going anywhere, and we have an imperfect system everywhere, but we have a competitive imperfect system,” Kotkin said.

“So, California is the fourth largest economy in the world, and it’s haemorrhaging taxpayers, it’s haemorrhaging population and taxpayers. I don’t know if that can continue forever, and California can keep its current position, because there’s other places for these people to choose to go to, potentially.

“And foreign direct investment is now coming into the Midwest. Anduril is investing in Ohio; Mercedes plants are in the South; Alabama is a gigantic manufacturing state now, one of the biggest manufacturing states in the country, ‘poor’ Alabama. Europeans don’t care very much about the American federal system, but it is a strength that’s not going away.”

The judiciary, including judges appointed by Trump, had been ruling consistently on the law. The weakness was not an “imperial presidency” that gave the president “incredible war powers that he doesn’t have from the Constitution”, but rather, a compliant Congress, which Kotkin said could reassert the powers the Constitution gives it under Article One, if it chose to.

“The courts would side with them if they did that,” he said.

Perhaps greater damage had been done to US soft power and trust, Kotkin said. Trump’s belligerence over Greenland, for example, destroyed European trust in America as a reliable partner.

“It was nasty and it was gratuitous, and it’s had these consequences,” he said.

Kotkin said he was unmoved by predictions of the decline of the US dollar. Some 70 per cent of Chinese transactions still clear in dollars even after 20 years of Chinese effort to escape it.

“If they could have done this, they would have done this already,” he said.

“Something always beats nothing. You can’t abandon the dollar, you can only go to something else.”

The dynamism of American society was matched only by China’s, and it drew on a talent pool no rival could touch, Kotkin said.

He recounted a story about former Singapore prime minister Lee Kuan Yew correcting Xi Jinping, who had said China would beat the US on the strength of its 1.3 billion people.

But the US draws on 8 billion people, Lee told him, because of demand for legal immigration, which Kotkin said has enjoyed support from a majority of the US population for decades, and still does.

“Two things are always true about an American embassy abroad,” he said.

“Gigantic anti-American demonstration, and the longest queue for visas you’ve ever seen. And sometimes it’s the same people.”