by Patrick Fearon-Hernandez, CFA
Here at Confluence, we write a lot about the rise and fall of hegemonic states – those great nations that develop enough power and influence to dominate the global economy, or at least some region of it. These superpowers use their extraordinary military might and other levers to impose order on their sphere of influence, providing the security necessary for international trade. They also provide the reserve currency that acts as a common medium of exchange for that trade. These hegemons therefore provide the foundation on which a global or regional economy can function.
During the Cold War, the United States accepted leadership of the Free World and acted as hegemon for the non-communist bloc. After the disintegration of the Soviet Union and the demise of Soviet-style communism in 1991, the United States became a global hegemon. What is now less appreciated is that the burdens of hegemony and the demise of Soviet communism have eroded the willingness of U.S. citizens to maintain their country’s leading role in the world. At the same time, the removal of the Soviet threat has encouraged other nations to once again assert their own interests and the freedom of action they sacrificed to come under U.S. protection during the Cold War. This week’s report looks at one of the best examples of that dynamic, the recent discord between Turkey and the United States, which has culminated in Turkey’s defiant purchase of a Russian air-defense system. We will review Turkey’s political dynamics and why its president, Recep Erdogan, has implemented a more assertive foreign policy that is putting the country at odds with the United States and the West, in general. As always, we conclude with a discussion of the resulting market implications.