The Exorbitant Privilege and the Broken Contract

The transatlantic order that emerged after 1945 has fundamentally rested on an unspoken yet mutually beneficial contract: Europe outsourced large parts of its military security to the United States, kept its defence spending low, purchased American weapons systems on a massive scale, and invested vast sums in US Treasury bonds. This arrangement has indirectly subsidised America’s chronic budget and current account deficits, as the rest of the world – Europe included – has financed American consumption, global military presence, and low interest rates on a growing national debt which, in January 2026, exceeds USD 38.6 trillion, equivalent to more than 124 per cent of GDP.

From Obama to Trump

One contributing factor to the US budget deficit – and thus to the expansion of public debt – has been federal welfare spending, particularly through the Affordable Care Act (“Obamacare”) of 2010. The programme has generated enormous costs, exceeding USD 1.5 trillion between 2014 and 2024 for Medicaid expansion and subsidies. Ironically, this was introduced during the presidency of Barack Obama, a lawyer specialising in international law, who strongly prioritised the rules-based international order and America’s role as its guarantor. Obama sought to reform and legitimise American leadership through multilateralism and principle-based diplomacy (such as the Paris Climate Agreement and the Iran nuclear deal), yet his domestic welfare initiatives increased public debt even as global commitments continued – a financial equation that now motivates, or even compels, a re-prioritisation and retrenchment in US foreign policy.

As the Trump administration now intensifies its demand that Europe assume far greater responsibility for its own security, many in Europe can reasonably perceive this as a unilateral breach of the long-standing contract. Europe, led by Germany, underestimated the threat posed by Russia for years – despite repeated warnings from the United States – while neglecting its own defence. Yet it can still be argued that Europe fulfilled its side of the bargain: by keeping defence budgets low, resources were freed for welfare, consumption, and investment in American assets, while the purchase of F-35 aircraft, Patriot systems and other equipment channelled billions of dollars back into US industry. President Donald Trump and Vice President J.D. Vance, however, often portray the relationship as little more than unilateral charity on the part of American taxpayers – a narrative that overlooks how US hegemony and the dominance of the dollar were built precisely on this asymmetry.

The Exorbitant Privilege under Pressure

In the 1960s, the French finance minister (and later president) Valéry Giscard d’Estaing coined the term “the exorbitant privilege” (le privilège exorbitant) to describe the enormous advantage enjoyed by the United States as a result of its hegemony and the dollar’s status as the world’s reserve currency. Over the past year, this concept has been widely invoked in criticism of Donald Trump’s policies. Trump appears unwilling – or unable – to acknowledge the benefits accruing to the United States from acting as the world’s policeman: a role that not only entails costs but also generates strategic influence, cheap financing, and global stability. Criticism comes not least from within the United States itself, where economists fear that Trump’s policies will lead to higher borrowing costs as global confidence in the US and the dollar erodes. Trust, in this context, is no abstraction – it is the decisive asset that enables the United States to finance enormous deficits at historically low interest rates. When that trust is depleted through unreliable signals, threats, and unilateral renegotiations, borrowing costs rise, the dollar weakens over time, and America’s “exorbitant privilege” is eroded – at a cost borne not only by allies, but above all by the United States itself.

At the same time, American frustration with a system that should, in principle, benefit the United States is far from new. For several decades, critics have argued that America bears a disproportionate share of the burden of the “rules-based international order” while its influence within the United Nations, the World Health Organization, and other multilateral institutions has diminished in step with China’s rise.

Weakened Leadership

The structural drivers are relentless. Exploding public debt, the chronic overvaluation of the dollar that undermines export competitiveness, and the increasingly acute competition with China – particularly in high technology and critical raw materials – all give the United States strong incentives to reprioritise. A weakening of American leadership does not harm the United States alone; it damages the entire West, Europe included. A less credible and less committed America leaves a vacuum that China and Russia are eager to fill, threatening the liberal order, Western values such as democracy, the rule of law and free trade, as well as the collective capacity to address shared challenges.

Concrete signs of already-eroded trust are evident. The Trump administration’s repeated claims regarding Greenland have been perceived as a direct threat to the sovereignty of a NATO ally (Denmark), undermining the alliance’s credibility and creating fissures in transatlantic unity. Similarly, the US stance on the war in Ukraine – calls for rapid settlements, territorial concessions, and reduced support – has been widely viewed as unreliable and detrimental to European security. These actions signal that long-standing commitments may be renegotiated or abandoned according to domestic political winds, eroding allies’ willingness to invest in shared structures.

The Shared Interest

At the same time, transatlantic cooperation remains critically important. The threat from Russia is acute – particularly in the Baltic region and the Arctic. Over the longer term, China’s growing geopolitical pressure, through economic coercion, technological dominance, and influence in multilateral fora, poses an existential challenge to Western interests. The shared interest is especially clear in the Arctic: both the United States and Europe require closer cooperation to counter Russian militarisation and Chinese presence, and to protect sea lanes and critical minerals. Fragmenting this front serves only the interests of rivals.

For Europe, this creates a dual challenge: on the one hand, a broken contract that necessitates rapid rearmament and greater strategic autonomy; on the other, a realistic recognition that some degree of American retrenchment is inevitable – yet that a complete disengagement would be catastrophic. The old Pax Americana is not being replaced by isolationism, but by a more transactional, neo-mercantilist great power demanding clearer quid pro quos for protection.

Responding to this new era requires from Europe (and Finland) not merely condemnation, but strategic adaptation: strengthening national defence, diversifying dependencies, negotiating firmly over security guarantees, and at the same time preserving the role of the dollar and transatlantic ties for as long as they serve global stability and Western values. The United States is not disappearing – but its role has shifted from liberal hegemon to a power that places “America First” at the centre of alliance politics as well. Realism becomes the key to survival in the multipolar world now taking shape.

Depleted Trust as Punishment

There is no international court capable of imposing sanctions for what many in Europe perceive as an American breach of contract. No penalties will be levied against the United States for redefining its security commitments or making them more conditional. The international system lacks an overarching authority in this respect. Yet the absence of formal sanctions does not imply an absence of consequences.

The punishment that follows is potentially far more profound: depleted trust. When the United States signals that long-term commitments can be renegotiated, relativised, or abandoned in response to domestic political currents, the willingness of allies and partners to invest politically, economically, and militarily in long-term cooperation with Washington diminishes. Trust is a cumulative asset in international politics – and once eroded, it can take decades to rebuild.

This highlights a crucial distinction between short-term power projection and long-term hegemony. Pax Americana rested not primarily on military strength, but on predictability. Allies were able to plan their security, industry, and foreign policy on the assumption that American commitments would endure beyond individual electoral cycles.

Trump the Dealmaker

Here, Donald Trump’s personal approach to politics becomes decisive. Trump operates largely as a dealmaker in the commercial sense: he negotiates aggressively, threatens to walk away, and treats every agreement as provisional and open to renegotiation. This may be effective in bilateral, short-term transactions. It is deeply problematic in an international system built on institutional continuity.

Trump does not appear to see himself as the custodian of an institution, but rather as an autonomous actor with a personal mandate. He does not feel bound by commitments made by previous presidents, by agreements ratified by Congress, or by international norms that the United States itself helped to establish. In Trump’s logic, every agreement is merely a reflection of the counterparty’s relative strength or weakness at a given moment – not a binding commitment over time.

The consequence is that it is not only US foreign policy that is perceived as unreliable, but the American presidency as an institution. If each new president can discard previous commitments, the United States ceases to be a credible partner for long-term strategic projects – whether in defence integration, industrial investment, or joint technological development.

This may be the most underestimated cost of Trump’s politics. By maximising short-term negotiating leverage, he undermines the structural power that has made the United States uniquely influential. Allies increasingly hedge against American unpredictability by diversifying their security partnerships, building their own military capabilities, and reducing dependence on US technologies and financial instruments.

The End of Pax Americana

Ironically, this advances precisely what Trump claims to oppose: diminished American influence and increased strategic autonomy for other powers. A weakened and unreliable United States harms not only itself, but the entire West, Europe included, by undermining the liberal order, Western values, and the collective capacity to confront threats from Russia and China.

“America First” represents not only a departure from liberal hegemony, but also from the idea of the state as a continuous actor over time. When the American president ceases to be an institution around which allies can plan, and instead becomes a figure against whom they must hedge, the entire calculus for US allies changes.

It can therefore be argued that Pax Americana did not collapse because the United States was too weak to sustain its hegemony, but because it became politically unwilling to bear the institutional costs that genuine leadership requires.