Market Power Is Overwhelming Governments

When President Trump emerged from the recent US-China summit declaring the arrival of a “G-2 world”—a globe dominated by two rivalrous but cooperating hegemons—he was articulating something most of the international system already suspects: that the United States and China are in a category of power unto themselves. By any quantifiable measure, they are. Yet a closer examination of what that power actually buys shows the summit’s triumphalism to ring hollow. Moreover, the world’s preoccupation with this supposed G-2 duopoly may itself be merely a distraction that obscures something more consequential: the degree to which the rest of the world quietly and effectively constrains both of them, defining a new superpower-less world dominated by market forces driven by advanced technology, influential non-state actors, and soft power. And that’s mainly to the good.

The United States has a $31 trillion economy. China’s reaches $18 trillion—larger still when measured by purchasing power parity. The next largest economies, Germany and Japan, have GDPs of about $5.4 and $4.6 trillion. In military spending, the disparity is even starker: the United States spends approximately $950 billion annually on defense—more than the next nine largest defense budgets combined. China follows at $336 billion, Russia at $126 billion, Germany at $114 billion. President Trump has now requested a roughly 44 percent increase in Pentagon spending for fiscal year 2026, a figure that would dwarf all historical precedents.

These numbers seem to render the word “limits” almost absurd. But not so fast.

Xi Jinping cites the so-called Thucydides Trap—the thesis, drawn from the Peloponnesian War, that a rising power and an established hegemon are structurally predisposed to conflict. The analogy is understandable, but the framing is incomplete.

Consider military force. Nuclear deterrence has, mercifully, eliminated direct great-power war as a practical instrument of policy. But the deeper question is what superpowers can accomplish militarily against even small, technologically modest adversaries. Here the record is humbling.

The United States has failed to achieve its strategic objectives against Vietnam, Afghanistan, Iraq, and probably soon, Iran.  China, despite its massive and growing military, has not fought a war since losing to Vietnam in 1979. Russia spent four years failing to subdue Ukraine—a country it expected to fold in days.

China, watching all of this, has declined to invade Taiwan—despite commanding an economy eighteen times as large and spending nearly nine times as much on defense. Not just uncertainty about American intervention, but also something structural, is restraining Beijing. That restraint is not weakness. It is the rational recognition that military power consistently fails to deliver its objectives.

Economic hard power operates through different mechanisms but hits the same wall: a wall being actively constructed by the rest of the world. The United States controls the world’s reserve currency and sits at the center of the global financial system.  Combined with its European allies, the United States has imposed escalating sanctions on Russia since the 2014 invasion of Crimea. Twelve years on, Russia’s offensive military posture has not shifted one degree. Similarly, Iran has withstood decades of pressure. Cuba has outlasted sixty-four years of the U.S. embargo without changing its political system. Similarly, North Korea, Pakistan, Sudan, Libya, Venezuela, Haiti, Iraq, and nearly 30 other countries have not shifted noticeably in response to US sanctions.

What is insufficiently appreciated is the speed and sophistication with which the global marketplace has blunted these tools. Russia’s use of shadow tanker fleets to move sanctioned oil is well documented. Transshipment networks have proliferated through Central Asia and the Caucasus. Bilateral trade arrangements denominated in rubles, yuan, and rupees have expanded rapidly. China has advanced its own cross-border payment infrastructure as a partial alternative to SWIFT. The Gulf states have declined to enforce Western sanctions regimes, preferring commercial relationships to geopolitical solidarity. Taken together, these are not acts of mere resilience—they constitute pervasive, organized market-driven circumventions of the primary instruments of superpower economic coercion.

Consider the Trump administration’s sweeping tariff campaign. Even those broadly applied levies on imports from nearly every trading partner simultaneously did not destroy the global trading system. Washington had turned arsonist in the house it built. But few returned fire. The nations conducting the remaining 75 percent of world trade reacted with measured restraint, built defensive diversification structures, and began opening new trade corridors with one another—deliberately routing around both the United States and China where possible. The architect of the rules-based trading order abandoned its own rules. The rest of the world, for the most part, did not.

This is the marketplace doing what markets always do: find workarounds. Profit-driven market ingenuity is a profound constraint on hegemony. The more aggressively Washington or Beijing deploy economic leverage as a coercive instrument, the more they accelerate the construction of the very infrastructure that erodes their leverage.

Here is the irony that the Thucydides framing obscures: while strategists in Washington and Beijing game out their bilateral rivalry—trade wars, technology decoupling, military posturing across the Taiwan Strait—the majority of the world has quietly rearranged the furniture around them. The European Union has deepened trade ties with Southeast Asia and Latin America. ASEAN states have refined the art of strategic ambiguity, accepting security assurances from Washington while expanding commercial relationships with Beijing and refusing to be conscripted into either camp. India has purchased Russian oil at discount prices while simultaneously hosting American defense partnerships. The Gulf states have leveraged their position as indispensable energy suppliers to extract concessions from both superpowers without committing to either.

The power of the market has undercut the power of two giant governments.