Charles P. Kindleberger, an MIT professor, was the intellectual architect of European reconstruction. Though he wrote 30 books, Kindleberger is largely remembered for his hegemonic stability theory. The theory argues that stability in the international monetary system can only be ensured through a single hegemonic power that maintains order through the provision of global public goods— open markets for trade, stable money or freedom of the seas. 

Kindleberger based his theory on the interwar period. As Britain’s power waned, the US reluctance to take on the role of a hegemonic power led to the political and economic turmoil of the 1930s. By 1944, however, the stage was set for Pax Americana as the US finally committed to providing global public goods at Bretton Woods through fostering a global consensus on a new economic order. 

Later scholars built on Kindleberger’s ideas. Joseph S. Nye, who passed away last month, formalized the “Kindleberger Trap,” signifying a period of intense political and economic turbulence as hegemonic control moves from one established power to another.

Recently, the US was observed pulling away from some of its global responsibilities that had underpinned the modern economic order giving rise to speculations that the US might eventually pull away from the IMF and the World Bank.

Moreover, Trump administration officials argued that the US dollar’s status as international reserve currency had made it structurally overvalued leading to a loss of competitiveness. In a report read widely, Stephen Miran proposed an accord for depreciating the US dollar. 

Such talk has prompted some investors to contemplate reducing their positions in US dollar assets. At the same time, the US dollar’s declining value against the euro and the yen also raises doubts about its future as the world’s dominant currency. 

As the world moves helplessly toward a classic Kindleberger Trap, not least as the number of geopolitical conflicts are increasing at an alarming rate, it appears that the US is unwillingly ceding the world order to China.

However, the last chapter of this great power competition hasn’t yet been written. Nations should not be in a rush in reaching any conclusions. At the same time, policymakers would be well advised to not read too much into what various officials say, especially during the fog of war when mistakes can be deadly dangerous. 

In the recent flare-up in South Asia, Indian policymakers appeared taken by the idea that the US was not going to diplomatically intervene. The Indian side may have been led on by the initial statements from US officials, particularly Vice President Vance, who claimed that a war between India and Pakistan will be “none of our business.” 

As the conflict suddenly escalated, world powers like Saudi Arabia rapidly engaged with both India and Pakistan with Adel Al-Jubeir, Minister of State for Foreign Affairs, visiting both New Delhi and Islamabad in order to defuse tensions. The US Vice President and the US Secretary of State also sprang to action, speaking to Indian and Pakistani leadership to calm things down and move toward de-escalation and eventual ceasefire. 

It appears that the recent South Asian conflict has forced a major policy rethink in Washington. The US isn’t ready to cede the world order to China and will fight hard to maintain its hegemonic status. The US will remain engaged not only in South Asia, but all around the world, including the Middle East and elsewhere.

This policy rethink should also put paid to speculations that the US is going to withdraw from the IMF and the World Bank. The US has long exerted influence over both institutions, steering their policies and leadership. Any move to potentially withdraw from these institutions would immensely hurt the US itself, undermining its ability to shape the rules of the global financial system.

Additionally, the US dollar’s domination in the international financial system isn’t going anywhere. The dollar may be under pressure, but there is simply no alternative. According to the IMF, the US accounted for 26 percent of global nominal GDP in 2024, up slightly from 25 percent in 1980— a notable achievement given China’s economic ascent during that period. 

The US-backed ceasefire in the recent South Asian conflict demonstrates that recent events have shaken up the US policy establishment. The US may be reluctant to police the world, but it is not going to give up its hegemonic status so easily. In other words, the world may be sliding toward a Kindleberger Trap, but the US isn’t going to give up without a fight.