When Atlas Shrugged—End of Pax Americana

Russ Cooper
Aug 13
7 min read

Editor's note: To many who were born and grew up after World War II, the peace and prosperity of the post-war era seemed like the normal state of affairs. But Barry Sheehy’s article reminds us that it was in fact an historical anomaly. This anomaly was made possible by the “Pax Americana,” in which US military might allowed other Western countries to increase their spending in other areas, including on social programs. Canada’s geographical location gave it automatic protection even as its spending on defence dwindled. It also had a leg up in selling its products to the US markets. But all this has changed with President Trump’s “America First” policies, and his determination to make America’s allies pay their fair share in the common defence of the West and to reset trading relationships. With “America First” replacing “Pax Americana,” the old order is coming to an end. To avoid having its prosperity fall by the wayside, Canada will need to reboot itself with more productivity and less regulation. Can it do this, or will it be impeded by its recent decision to embrace globalist and socialist values in a newly minted "post-national" Canada? Inevitably, as Capt. Sheehy assures us, we are in for a bumpy ride.

What happens next is anyone’s guess, but no one should assume we are in for anything but a bumpy ride

By Capt. Barry Sheehy CD

One of the most important books to emerge from the post war period was Ayn Rand’s Atlas Shrugged. Written as a novel, the book is a philosophical tour de force about the eternal struggle between wealth creators, risk takers, innovators and the power of those who seek to control and redistribute wealth. This redistribution apparatus takes the form of bureaucracy both corporately and politically.

Book is de rigueur reading for anyone who considers themselves a conservative or libertarian

The book raises the question of what happens when the wealth creators, always a minority, quit, leave or just stop. The book is de rigueur reading for anyone who considers themselves a conservative or libertarian. The plot revolves around a strike by wealth generators and what follows. It is not as far-fetched a scenario as it may seem. In many countries today government consumes so much of the GDP that they need to tax relentlessly and overregulate the productive sectors of society. This certainly explains why so many modern economies are mired in slow growth and declining productivity. This happens when the wealth creators cannot produce sufficiently to maintain an overburdened welfare state.

The symbolism of Atlas Shrugging and refusing to carry the burden any longer is one way of viewing the global realignment we are witnessing as America looks to protect its interests and force wealthy allies to pay for their own defense. The narrowing of access to America’s markets and changes in defense spending by NATO members reflect an unraveling of the post war Pax Americana which has endured for three quarters of a century. This represents a tectonic shift in global finance, trade and defense. And it has all happened so quickly no one is sure how the vacuum can be filled? Everyone is scrambling to cope.

US Pulls Back from Defending the World

The magnitude of the coming shift is reflected in Germany’s decision to spend up to 5% of GDP on defense. Germany and many NATO members have freeloaded on massive US defense expenditures throughout the post war period, and yes, this includes Canada. Eighty years after the end of the Second World War the United States still maintains 40 military bases and facilities in Europe, largely paid for by American taxpayers. This enormous investment of US resources has allowed Europe to support rich social programs and up-to-date infrastructure. The post Cold War “peace dividend” paid for not just superb roads and bridges but also extravagant social welfare programs. Germany’s wonderful autobahns and civic works are a testament to where some of this money has been spent. But Europe’s post war success led to inevitable hubris. The capacity of the state to sustain an enormous social support system led to the illusion that rich countries can afford any social expense no matter how disruptive or costly. Thus, Germany assumed it could absorb historic flows of refugees from Africa and the Middle East that, in retrospect, were unsustainable and destabilizing.

This social spending was made possible in part by massive US expenditures in Defense spending reaching 5-8% of GDP. But this spending has not come without a cost for the United States. Today, nearly 40% of US roads and bridges need repair and airports are not far behind.

With the world in ruins after the war, the United States found itself accounting for much of the world’s manufacturing and economic output. American share of global manufacturing exceeded 50% which was an historic anomaly that could not last as the world recovered. In one of the great acts of enlightened self interest, the US funded the rebuilding of former allies and enemies alike with programs like the Marshall Plan. At the historic Bretton Woods Conference, the US laid the groundwork for the global financial and trading system, giving birth to institutions like the World Bank and International Monetary Fund. At the same time, the US established the dollar as the world’s reserve currency. In this unique economic environment, the US opened its immense economy to foreign goods to help fund economic recovery in Europe and Japan. The US tolerated excessive protective tariffs for weak and recovering industries abroad. The US maintained some protective tariffs, particularly in agriculture, but by and large the US industrial market was open to the world. This proved a farsighted policy. By the 1980s, Japan and Europe reemerged as economic powerhouses. Even as these economies recovered, the lopsided market access of the postwar era remained largely in place, relics of an era long past its usefulness. If the aim was to reestablish Japan and Europe as economic powers, the job was done. If the Cold War goal was the defeat of Communist Soviet Union that too was accomplished.

End of an Era

President Trump, for all his bluster and brashness, is simply bringing the postwar trading era and the legacy of Bretton Woods Pax Americana to an inevitable close. The US percentage of global GDP is today 25% rather than 50 % in 1945. The world has changed and economic relationships, including tariff structures, must adapt accordingly. The era of so-called free trade was anchored largely in free access to America’s market and that is over.

The impact of this shift is being felt particularly in Canada and China. The former has always had an enormous trading relationship with the United States, largely determined by geography in sharing a nearly 9000-kilometer border with the world’s largest economy. North-south trade has underpinned Canada’s economy since Confederation. Today, 75% of Canada’s trade is with the United States. Just as with Defense spending, Canada had come to expect access to US markets as a given, like some fixed law of nature.

Opportunity to diversify Canadian markets abroad depended largely on exploiting Canada’s abundant national resources, especially oil, gas, minerals, and agricultural output. Unfortunately, development of these resources was not a priority for Canada’s government. In the case of oil and gas, government policies were not just indifferent but often hostile.

The EU came to Canada to buy oil and gas in 2022 to lessen its dependence on Russia, and Canada turned down the offer claiming there was “no business case.” Today’s news is dominated by stories of the US/EU trade deal that includes $650 billion in energy involving oil and gas. It appears there was a business case to be made after all.

China represents its own unique example of economic folly based on flawed thinking

Hostility to natural resource development chased investment capital out of the country including Canadian capital. Canada Pension Fund investment in Canada dropped in just four years (2019-2024) from 16% to 12%. This represented a loss of more than $28 billion in Canadian investment capital in just four years. The flight of investment capital from Canada represents one of the clearest manifestations of the Atlas Shrugged phenomenon. As investment capital dried up so did productivity (the two are directly linked) and was followed by a drop in per capita earnings. Canada was becoming measurably poorer even as government spending and employment exploded.

China represents its own unique example of economic folly based on flawed thinking. Allowing China into the World Trade Organization and giving it unfettered access to US and global markets and technology, was based on an erroneous theory. It was supposed that economic integration would moderate Chinese behavior on the world stage and lead to democratization at home. It did not.

Access to global markets and rising prosperity has not moderated CCP behavior but reinforced their hold on society. World Trade Organization rules were ignored as poaching technology from the west was honed to a fine art. China simply did not believe the WTO rules applied to them.

The west should have gotten the message when China abrogated the “One Country Two Systems” agreement with Hong Kong and Great Britain. Signed with such fanfare in 1997, the agreement was guaranteed until 2047. But only 23 years into the agreement China imposed a new “National Security Law” which effectively ended the “Two System” guarantee. This should have been a wake-up call to the west.

Making China prosperous did not moderate CCP behavior; it simply allowed more investment in military and related spending. Trump’s trade and tariff policy toward China reflects this new cold reality.

European Rearmament—Be Careful What You Wish For?

Nature abhors a vacuum and that is precisely what we have as the US adopts more protectionist tariffs and forces allies to pay for their own defense. A certain amount of chaos is to be expected in such an historic transition. Germany for example has plans to build the most powerful military in Europe, spending 5% of GDP. Poland has emerged as a military power in its own right; armed not with German equipment but with technology largely from South Korea. A rearmed Germany on one side and a bellicose Russia on the other provides little comfort to the Poles given their history. Other eastern European and Baltic countries are following similar independent military strategies.

Part of the postwar Pax Americana involved creation of a European Common Market which ultimately evolved into today’s European Union

One of the reasons for creating a Common Market was to disincentivize war as a policy option. Today, as European countries rearm and the EU weakens, will old, ugly patterns reemerge? When Yugoslavia collapsed creating a vacuum in the Balkans the void was filled with conflict. War, ethnic cleansing and even genocide were soon in the headlines.

Europeans have been killing one another in conflicts for centuries, reaching an apex in the 20^th century with two world wars. The present period of relative peace in Europe since the end of World War II stands out as an historic anomaly.

What happens next is anyone’s guess, but no one should assume we are in for anything but a bumpy ride.

This article was originally published on the Canada Free Press website and can be accessed here.