The Era of American Exceptionalism has ended.

At least the original version that emerged in the decades following WWII.

Through military superiority and economic might, America viewed itself as the guarantor of democracy and capitalism.

And let’s be honest, we enforced these values whether a country wanted it or not.

It wasn’t always pretty. But during this time, hot wars were limited in scope – they didn’t go global – and it worked out pretty well for most, all things considered.

In 1950, 1.81 billion people, over 70% of the global population, lived in extreme poverty. By 2015, the absolute number of extremely impoverished people dropped by 61% to 0.7 billion – less than 10% of the 7.35 billion people on the planet at the time.

Source: Frazer Institute

I call that a win for American Exceptionalism.

Heck, the pull of free-market prosperity was so strong that even die-hard commie China could not resist.

Tell Me You’re Losing Without Telling Me Your Losing

For China, the tug began in 1978 under Deng Xiaopin’s 改革开放, which translates to “Reform and Opening Up” policies (if ChatGPT is to be trusted, though it could read “soup”).

But the real turning point for China came in 1993 when the CCP adopted the “Socialist Market Economy,” which translates to “I’m tired of losing.”

The red arrow marks that point. The graph is in log scale so don’t bust a sprocket. Log scale keeps the magnitude of change consistent, so the higher trajectory after that point means a markedly higher growth rate.

In 1993, GDP per capita, or the total value of goods sold in the Chinese economy divided by the population, was $377. Over the next 3 decades, it exploded 32 times to $12,618.

That’s prosperity. And free markets created the incentive for China to abandon the guaranteed poverty of communism.

 Now, at this point, as an aside, I’d like to make two observations.

First, Americans directly subsidized China’s growth beginning in earnest in the early 2000s. We paid China to crush our manufacturing base. You can blame the incentive of ultra-low rates imposed by the Federal Reserve, but that’s a topic for another day.

Second, note that GDP flatlined as Xi pivoted back to full Commie mode in 2023. For that and many other reasons, the Chinese economy is toast, but that’s also a topic for another day.

Anywho…as I mentioned yesterday, eventually, “the price Americans paid to enforce global peace and prosperity rose far higher than the benefits received.”

The global institutions established to level the playing field with a common set of competitive rules began redistributing the rewards of competition to those who couldn’t compete.

Losing the Plot

The problem with global institutions like the WTO and the UN is that they stopped being referees and started playing favorites.

Instead of enforcing fair competition, they prioritized “equity,” which, in practice, meant propping up inefficient economies at America’s expense.

The WTO allowed China to cheat for decades—currency manipulation, state-sponsored IP theft, forced technology transfers—while U.S. policymakers ignored them in the name of “engagement.”

The U.N. morphed into a bloated bureaucracy more interested in wealth redistribution than global security.

These institutions, originally designed to maintain order, devolved into mechanisms for extracting American prosperity and handing it to nations that couldn’t compete on their own merits.

Meanwhile, American leadership lost the plot.

Instead of doubling down on its competitive advantages—innovation, resource independence, and military deterrence—it embraced self-imposed decline.

Trade policies gutted domestic manufacturing. The Fed printed trillions, fueling asset bubbles instead of real economic growth. And Washington’s obsession with “soft power” led to foreign policy blunders that weakened its standing.

Rivals like China, India, and even Europe gamed the system to their advantage while America shouldered the costs.

The result? A world where the U.S. pays the bills but gets little in return. 

Enter Trump, stage right.

Through unilaterally-imposed tariffs he is changing the terms of trade.

By withdrawing from the WTO and parts of the U.N. (who knows, he could pull us out completely), we retain the gains of our competitive edge.

Bringing troops home and forcing N.A.T.O. countries to foot the bill translates to “You sort out your problems. You can’t touch us militarily. Let us know when you want to trade.”

American Exceptionalism v2.0. will win.

Only this time, Americans will reap the rewards.

Think Free. Be Free.

Don Yocham, CFA

Managing Editor of The Capital List