[EAI·JoongAng Ilbo Joint Project] The 21st Century Kindleberger Trap: Neither the US nor China Can Solve It Alone

American unemployed seeking jobs on the street during the Great Depression in the 1930s. [JoongAng Photo]

In May 1931, Austria's largest bank, Creditanstalt, collapsed. The financial instability that began in Vienna soon spread to the German banking sector, and two months later, it escalated into an attack on the British pound. The world needed a lender of last resort to break this chain. However, Britain no longer had the strength to fulfill this role, and the United States was unwilling to take on the responsibility. This vacuum led to the deepening and prolonged Great Depression, forming the economic background for the collapse of the interwar international order.

The experience of the interwar period, from the Great Depression to World War II, urges reflection on the role of a hegemonic power in providing order within an anarchic international system of sovereign states. In his book "The World in Depression 1929-1939," MIT economist Charles Kindleberger summarized the tragedy stemming from the absence of hegemony in one sentence: "Britain was unable, and the United States was unwilling." The mission of a hegemonic power is not mere domination by a great power. It involves opening up import markets during crises to absorb demand, supplying long-term funds during economic downturns, and acting as a lender of last resort during financial panics. However, the United States closed its markets with the Smoot-Hawley Tariff Act, cut off funding to Europe, and led to competitive devaluations and protectionism as countries scrambled to protect their gold and liquidity. According to Kindleberger, when all nations turned inward to protect their private interests, the global public interest collapsed, and consequently, the private interests of each nation also disintegrated. The Great Depression thus evolved from an economic crisis into the collapse of the entire interwar international order.

The 'Thucydides Trap' of Hegemonic Conflict and its Opposite

In 2017, Joseph Nye coined the term 'Kindleberger Trap' for this insight. The fear commonly associated with the United States is the 'Thucydides Trap,' where a rising China clashes with the existing hegemonic power, the US. However, Nye also pointed to an opposite danger: one that arises not because China is too strong, but precisely because it is not yet a sufficiently responsible great power. If China enjoys the benefits of the international order while failing to contribute adequately to global public goods such as financial stability, climate change response, and freedom of the seas, the world may be destabilized not by a clash of hegemons, but by a vacuum of hegemony.

US President Donald Trump holds up a chart of reciprocal tariffs aimed at the world at the White House on April 2, last year. [JoongAng Photo]

Nine years later, China is not the only factor fueling the Kindleberger Trap. Paradoxically, the United States itself, the existing hegemonic power, is becoming another source of this trap. The second Trump administration, through its withdrawal from the Paris Agreement, withdrawal from the World Health Organization (WHO), pressure on NATO allies for defense cost-sharing, and trade wars, is narrowing the scope and conditions of the international public goods that the US has provided for the past 80 years. It is a misjudgment to interpret this solely as the result of a leader's temperament or whims. Beneath it lie two structural changes that are pressuring American hegemony.

The first is the change of relative decline of the United States. Immediately after the end of the Cold War, the US accounted for about a quarter of global GDP and underpinned free trade, financial stability, maritime order, and alliance security based on its overwhelming military power and dollar hegemony. However, the rise of China, the growth of the Global South, and the weakening of the US domestic industrial base have disrupted the balance between the costs borne by the US and the benefits it receives. The perception that the free trade order designed by the US enabled China's rise has transformed into anger and betrayal within US domestic politics. The provider of international public goods has begun to feel like a victim of that order.

The second is the surge in demand for international public goods. The international public goods analyzed by Kindleberger in the 1930s were primarily focused on monetary stability, open markets, and liquidity provision during crises. Today, however, the public goods required by the international order have expanded to include climate change, pandemics, artificial intelligence governance, cybersecurity, nuclear non-proliferation, supply chain stability, energy transition, maritime security, and space order. These issues cannot be resolved by military power alone. Climate change cannot be stopped by missiles, pandemics do not halt with border closures, and artificial intelligence and cyber threats cannot be controlled by aircraft carriers.

Amidst the changing times that weigh down the shoulders of hegemony, Trump's choice is not an abdication of the duty to provide public goods, but a conditional redefinition of those goods. The dollar payment system is weaponized, alliances are redefined under the condition of cost-sharing, and technology standards and supply chains are selectively opened only to trusted nations. This is 'coercive club governance,' an attempt to provide public goods while unilaterally controlling access and benefits. On the surface, it appears to maintain hegemonic order, but in reality, it is a process of conditionalizing public goods.

The problem is that while this strategy may appear to enhance negotiating power in the short term, it erodes the very structural power upon which the US has relied in the long term. American power stems not merely from military strength or economic size, but from its centrality in a global network combining dollars, technology, alliances, institutions, and standards. However, as the dollar payment system becomes weaponized, countries seek alternatives; as alliances operate transactionally, trust weakens; and as technology standards become tools of exclusion, the global economy becomes fragmented into blocs. Structural power gains legitimacy when it functions as a public good, but it becomes a target of resistance the moment it is transformed into private property for coercion.

Ultimately, today's crisis should not be viewed as a simple repetition of the interwar period. Back then, the capacity and willingness of the hegemonic power weakened, protectionism spread, and nations prioritized their own defense over collective security. The Kindleberger Trap of the interwar period was fundamentally an absence of a provider. The list of public goods—open markets, a stable monetary order, and liquidity provision during crises—was also relatively clear.

Today's trap is different. The current problem is not one that can be solved by the US stepping back and China stepping in. Today's international public goods are too broad, complex, and interconnected. Pandemics lead to supply chain crises, supply chain crises lead to inflation and technological security issues, and technological security, in turn, leads to alliance politics and military strategy. Even if US resolve is restored, or China becomes more proactive, no single nation can singly manage the complex public goods of the 21st century. It is not simply because the US has weakened; the very nature of what a hegemonic power must do now exceeds the capabilities of any single hegemon.

The way out of the 21st-century Kindleberger trap is neither the revival of the United States nor the replacement by China. What is needed is 'collective hegemony' or 'shared leadership.' Problems can only be resolved by building layers of governance beyond nation-states through the era of globalization. The European Union is the most advanced experiment in ceding some sovereignty to common institutions, and neither the climate convention nor the nuclear non-proliferation regime can function solely on the logic of full sovereignty. This is an order where multiple actors with sufficient capabilities and interests share responsibilities on a case-by-case basis, rather than a single hegemonic power supplying all public goods. Major emitting countries would form a coalition for climate, nuclear-armed states and non-nuclear states would reach an institutional agreement for nuclear non-proliferation, major economies and international financial institutions would manage financial stability, and leading technology nations and major corporations would jointly handle artificial intelligence (AI) governance. None of these are perfect, but when partial coalitions overlap, the overall supply of public goods can be maintained.

This transformation will not happen easily. It is likely to gain momentum only after the limitations of Trump-style coercive club governance become apparent. As the weaponization of the dollar accelerates de-dollarization movements, and the transactional nature of alliances weakens trust, and regional nuclear proliferation and climate commons problems approach critical points, the world will demand new institutional arrangements. If the current liberal order was designed by the US, the next agreement should be a multi-layered global governance involving the US, EU, China, India, Japan, South Korea, the Global South, international organizations, and private technology firms.

South Korea Must Become a Key Participant in Supplying Public Goods

South Korea is in a position to participate in that design. In the past, South Korea was a beneficiary of the security and free trade order provided by the US, but it has now become a nation capable of undertaking a portion of the production of international public goods in areas such as semiconductor supply chains, nuclear non-proliferation, AI safety regulations, and development cooperation. This is a path from being a consumer of the order to becoming a designer of the order. The task is to determine in which areas, which public goods, and with whom to supply them.

Nye's warning, borrowing from Kindleberger, remains valid. However, the shape of the trap has changed. The 21st-century Kindleberger Trap stems not only from the absence of hegemony but also from the failure of hegemonic methods. In the interwar period, Britain was unable, and the US was unwilling. In 2025, the US is willing but employing the wrong methods, and the world is already too large for any single entity to handle alone. The solution lies not in restoring a single hegemony but in institutionalizing the supply of collective public goods. South Korea must move from the periphery of this design to become a key participant in all possible areas.

Thucydides TrapA structural tension where war becomes inevitable when an established hegemonic power perceives the rise of a new power as a threat. Originates from the analysis of the Spartan-Athenian conflict by the ancient Greek historian Thucydides.

Kindleberger TrapA phenomenon where global disorder arises when a hegemonic power abandons or loses the capacity to provide international public goods (security, financial stability, free trade order). Derived from the research of economist Kindleberger, who analyzed the Great Depression of the 1930s. It warns of the risk of a vacuum that could arise from a decline in US leadership.

Club GoodsGoods with intermediate characteristics between public and private goods, conceptualized by Buchanan in 1965. They possess both excludability (consumption by those who do not pay can be prevented) and non-rivalry (one member's consumption does not diminish another member's consumption). Examples include NATO collective security and pay-per-view satellite broadcasting.

Jeon Jae-sung, Director of the East Asia Institute (EAI) and Professor at Seoul National University's Department of Political Science and International Relations. He is the Director of the East Asia Institute and a professor at Seoul National University. A graduate of Seoul National University's Department of Diplomacy and holds a Ph.D. in Political Science from Northwestern University, his research areas include international political theory, international relations history, East Asian security studies, and South Korean foreign policy. He is the author of "Future World Political Order and Regional Theories" and "Sovereignty and International Politics."

[Source: JoongAng Ilbo] https://www.joongang.co.kr/article/25434317