Will Neoliberalism Ignite World War III?

Peter Yang, The China Academy, April 27, 2026 —

From the collapse of the Soviet Union to the rise of China, the neoliberal era promised peace, prosperity, and the “end of history.” Instead, it delivered hidden collapse, imperial hubris, and a hollowed-out order now unraveling. This is the story of how the post–Cold War peace sowed the seeds of its own destruction.

Contemporary commentary likes to pin today’s populist revolt on the anger of the “white working class.” This diagnosis is completely blind. Long before grievances erupted in the West, another “white working class” went through a collapse far more severe than anything described in JD Vance’s book Hillbilly Elegy. In the 1990s, across Russia, Ukraine, and much of Eastern Europe, the shift to neoliberal capitalism produced a peacetime social breakdown: life expectancy dropped sharply, household savings wiped out, crime and drug use surged. There is something almost poetic about what followed. Three decades after the Soviet Union collapsed, the first shots that unraveled the world order were fired right where it started. When Vladimir Putin announced the “special military operation” in Ukraine on February 24, 2022, it wasn’t just the end of an era. It was the moment neoliberalism ran into it’s own reckoning.

For all of that, the last three decades were also the most peaceful period in human history. Since 1991, there has been no large-scale military conflict between major powers. Even regional wars on the scale of Vietnam or Korea have been absent. By 2016, global battle deaths per capita had fallen to roughly two per 100,000 people—more than a 95 percent decline from the 1950s. As wars became rarer and less destructive, states redirected resources toward growth. Global military spending fell by nearly half between 1990 and 2008, around thirty countries abolished conscription. The result was a “peace dividend” that helped to push global GDP growth above 3.5 percent throughout the 1990s and 2000s.

Two neoliberal-era trends underwrite this “long peace.” The first was economic interdependence, built on a deceptive premise: economic rationality would crowd out political conflict. The groundwork was laid in the 1980s. Most advanced economies had reduced the debts they carried from World War II while a global youth bulge, driven largely by postwar baby boomers in emerging markets, poured into the labor force. That combination set the stage for what the Italian sociologist Giovanni Arrighi called a “global capital cycle,” where the physical assets built in the three postwar decades became increasingly financialized.

What followed was a period of prosperity broad enough to neutralize even serious discontent. Class tensions between labor and capital in Europe and North America were defused in two ways: offshore production to emerging markets, deindustrialize societies and pivot toward a “smart economy” dominated by finance and professional services. Across the Global South, the pull of capital inflows from advanced economies was so strong that even governments born out of anti-colonial revolution adjusted their policies to become “business-friendly.”

Globalization then reinforced the whole structure. Multinational corporations diversified supply chains and created dense interdependence among states in the world economy. By 2008, international trade reached almost 60 percent of global GDP. Under these arrangements, war wasn’t just undesirable, but impractical. Since the heavy industries needed for prolonged warfare were dispersed across borders, states lost the concentrated material base to fight large-scale wars.

The second stabilizing trend was democratization. Beginning in the 1970s, the world saw a cascade toward Western-style democracy—known as the “Third Wave,” following earlier expansions in the nineteenth and early twentieth centuries. Between 1970 and 2000, the share of countries meeting Freedom House criteria for democracy rose from 25 percent to 63 percent. By the end of the Cold War, electoral democracy looked like it had beaten every other alternative. That triumphalism peaked with Francis Fukuyama’s declaration of the “end of history in 1989.

But democratization also came with a deeper shift governance. Collapse of the Eastern bloc was widely seen as proof that political legitimacy comes from material prosperity, not ideological faith. A powerful conclusion followed from that: the main job of the state is to deliver economic growth. Yet to keep democracy aligned with that job, democracy itself had to be redesigned. It gained a qualifying adjective called “liberal democracy.”

In theory, that meant a Lockean vision of limited government, constrained by institutions to prevent the “tyranny of the majority.” In practice, it increasingly meant the dominance of capital. The state was treated as a “necessary evil,” to only enforce contracts and fix market failures.

Objectively, this capital-led political economy did create strong incentives for peace. Industrial capital in the twentieth century fed on physical resources and needed ever-expanding territorial markets. Financial capital in the twenty-first century could earn returns detached from production. Profit depend less on conquest than on the circulation of assets—values extracted by brokering transactions. In that world, twentieth-century style war, where finance is fully mobilized for national struggle, becomes deeply unattractive. The resulting aversion to war produced a statistical illusion that seemed to confirm democratic peace theory—the idea that democratic nations don’t fight one another.

With transnational commitments to growth and relative peace, the early twenty-first century looked like the “end of history” had arrived. No rupture seemed imminent. But the cracks were visible from the beginning. In 1996, Samuel Huntington published The Clash of Civilizations. He argued that the end of ideological conflict wouldn’t produce harmony; it would expose older sources of violence—culture, religion, ethnicity, and modern institutions would struggle to contain these forces. He also warned that the West, despite winning the Cold War, was entering a phase of strategic exhaustion. Over time, Confucian, Orthodox, and Islamic civilizations would challenge Western dominance as the system drift back toward multipolarity.

Underneath Huntington’s civilizational language was a realist argument about power. He put it bluntly: the West won not through the superiority of its values or religion, but through superiority in organized violence. The stability produced by interdependence and liberal democracy obscured a structural fact that the United States stood unchallenged in the world.

No one understood that better than American policymakers themselves. Brzezinski, national security adviser for Jimmy Carter, called the United States the first—and possibly the last—global superpower. Brzezinski argued for restraint and careful use of “smart power,” but others were less disciplined. Karl Rove captured the prevailing mood when he said, “We’re an empire now, and when we act, we create our own reality.”

That hubris came with anxiety. In 1990, Charles Krauthammer coined “the unipolar moment” to stress that American primacy would be temporary. The implication was this: exploit the window, lock in advantages before rivals emerge. Under that logic, unilateral action becomes justified and international law becomes optional—regardless of the consequences.

Three episodes illustrates this approach

First was the humiliation of Russia. In 1990, during the negotiations over German reunification, Gorbachev accepted a unified Germany inside NATO on the basis that NATO would not expand eastward. Moscow expected that the end of the Cold War would dissolve military blocs in Europe and leave a neutral security space. These expectations quickly faded away. NATO expanded eastward in 1999 and again in 2004, pulling in former Warsaw Pact members and former Soviet states. In 1999, a U.S.-led NATO coalition bombed Serbia—Russia’s last major ally in Europe—without authorization from the UN Security Council. It ended with Kosovo’s secession.

Through these moves, the United States weakened Europe’s post–Cold War security architecture long before Russiaan intervention in Ukraine in 2014. George Kennan, the original architect of containment strategy, warned that NATO expansion would kill Russia’s democratic experiment and trigger a new Cold War. Both warnings proved prescient. Russia, marginalized and strategically trampled, concluded it had little to gain from the neoliberal international order and shifted toward a revisionist agenda.

The second episode was the robbery of Asia. With Russia weakened and China still rising, Japan was the most formidable challenger to the United States in the 1990s. By that decade, Japan’s economy reached nearly 75 percent of U.S. GDP and 20 percent of global GDP. Washington could not outcompete Japan’s industrial model on its own terms. The fear was both strategic and economic: a strong Japan might demand real autonomy and build a rival economic order. Worse than that, Japan’s success rested on a political economy that resisted neoliberal doctrines. So Japan had to be broken.

During the Asian financial crisis of 1997–98, speculative attacks ripped through Asian currencies. IMF rescue packages imposed sweeping liberalization on affected economies, triggering massive devaluations and asset collapses. When the crisis reached Japan, IMF pushed the closure of distressed banks and imposed losses on domestic stakeholders. The result was prolonged stagnation. For American finance, the crisis was a windfall. Distressed Asian assets were snapped up by Western investors, producing a major redistribution of ownership.

China learned the lesson. Watching the United States dismantle the economy of a strategic ally produced a hard clarity in Beijing: the interdependence promised by neoliberal globalization was conditional and asymmetric. A system centered on American financial power gave Washington extraordinary leverage. International finance could be weaponized against rivals when needed.

So China began building countervailing dependencies. Since joining the WTO in 2001, it has moved up the value chain while preserving full-spectrum industrial supply chains. By 2025, China controls nearly one third of global industrial output and dominates more than 40 percent of the industrial product categories, including steel and aluminum. Today, the United States and the West depend on China for nearly 90 percent of rare earth materials, along with other critical goods such as medicines and solar panels. That mutual dependence means the United States can’t bring China to its knees the way it did to Japan.

The most disastrous episode was the “freedom agenda” in the Middle East. After September 11, 2001, the United States launched a global war on terror. George W. Bush insisted the perpetrators “hated America’s freedom,” as if terrorism were simply the product of too little democracy. From that premise came a clear solution: regime change by force, then the construction of model democracies that would trigger a domino effect, an echo of Eastern Europe in 1989.

The result was catastrophic. In Iraq and Afghanistan, the collapse of existing authority didn’t clear the way for democratic consolidation; it unleashed sectarian conflict and infused religious extremism. The United States wasted vast resources into nation-building projects. In 2014—only three years after the U.S. withdrew from Iraq—ISIS surged and threw Iraq and the wider region back into war. And the final irony arrived in 2021: after twenty years of war, the longest in American history, Taliban returned to power in Kabul.

The Afghan fiasco triggered a moment of global reckoning. Many treated it as the “return of history,” proof of the limits on American power. Francis Fukuyama rejected that reading and argued that the episode revealed a growing polarization of commitment inside the West. But that defense exposes a deeper question: why did Western societies—Americans in particular—grow so exhausted by policies that much of the world still view as the privileges of hegemony?

The answer lies in the distributional consequences of neoliberalism. The same economic system that underwrote American primacy also created strong incentives for Washington to weaken the rules and institutions that made such primacy sustainable.

Neoliberalism produced a stratified global economy. At the core was the United States, specializing in finance, professional services, and frontier technologies, extracting rents through capital markets, intellectual property rights, and the global reserve currency. Around that core sat a first periphery—Western Europe and Japan—focused on advanced manufacturing, but operating inside U.S.-dominated financial and security architectures. Beyond that lay a second periphery—China and much of the Global South—supplying cheap labor, raw materials, and standardized industrial output.

This arrangement consolidated U.S. hegemony and delivered extraordinary profits to American elites, especially in finance and technology, while hollowing out the American middle class through deindustrialization. As social mobility narrowed, military service became one of the few remaining ladders. A paradox followed: the wider U.S. hegemony spread abroad, the more stratification deepened at home, producing more soldiers to sustain that hegemony.

But over time, this became politically unsustainable. Veterans became a voting bloc, and society could no longer ignore their costs. Support for the US led international order eroded as the burdens grew concentrated while the benefits became uneven and opaque. That erosion now shows up as widespread American skepticism toward the very international norms the United States once championed.

And it wasn’t only popular disaffection. Neoliberalism also produced institutional resistance inside the United States to binding international constraints. The neoliberal revolution of the 1980s, inaugurated under Reagan, reshaped the U.S. economy. By the early 1990s, the United States had shifted from the world’s largest net creditor to a structural debtor for the first time in its history. Chronic budget deficits and trade imbalances became permanent, and liabilities accumulated on a scale large enough that national debt rose beyond 100 percent of GDP.

That shift permanently altered America’s relationship to the international order. A debtor hegemon lacks both the political capacity and the incentive to honor obligations in real terms. As the rules-based order weakened, so did the norms governing economic statecraft, giving Washington more room to deploy tools it once condemned—especially monetary expansion and inflation—to manage liabilities. And looking forward, a more perverse incentive comes into view: the temptation to wreck the system it built in order to escape the debt obligations embedded in it.

Today, the normative architecture of the post–Cold War order has been largely hollowed out. The cumulative effect of U.S. behavior has made one point hard to deny: international law has increasingly functioned less as an objective constraint than as an instrument of power. And the irony is that this unwillingness to bind itself to its own rules helped create the conditions for the rise of its principal challenger—China.

Since the 1990s, many American statesmen, including Bill Clinton, argued that lasting U.S. leadership depended on self-restraint. The logic was strategic, not moral. If Washington embedded its power inside institutions that constrained its own freedom of action, it could set precedents strong enough to discipline future hegemons once American primacy inevitably declined. But the United States moved in the opposite direction. And in doing so, it eroded the legitimacy it would later need to demand compliance from others.

Nothing captures this more cleanly than the 2016 South China Sea arbitration. Washington insisted that China comply with UNCLOS. Beijing dismissed the ruling as an “irrelevant piece of paper” and refused to participate. Its defense was disarmingly simple: the United States itself is not a party to the treaty.

As the world enters multipolarity, the lack of a shared normative foundation becomes dangerous. Multipolarity, by definition, means several great powers competing within one system. That makes it inherently unstable. Historically, multipolar systems endure only when major powers restrain themselves and agree—explicitly or implicitly—on rules of conduct and legitimacy. The Concert of Europe after the Napoleonic Wars held for nearly a century because the great powers converged on what was acceptable. After World War I, the League of Nations failed to reconcile competing interests, and the multipolar order collapsed quickly, giving way to bipolar confrontation in the Cold War.

That’s why the need for a new framework of great-power coordination is growing more urgent. The two pillars of post–Cold War peace have both proven inadequate. Economic interdependence was supposed to deter war, but it breaks under acute insecurity. Russia’s war on Ukraine shows that once leaders perceive core interests at stake, economic cost becomes acceptable. Democratic peace theory fares no better. The history of conflict between democratic India and Pakistan—most recently in 2025—shows how elections can intensify nationalism rather than moderate it, especially when domestic incentives reward confrontation.

So nuclear deterrence remains the only effective constraint on great-power war. Yet its effectiveness carries a poison pill: it encourages proliferation. A new nuclear arms race is no longer a distant abstraction. It’s a visible horizon. And even if nuclear fear prevents direct war among great powers, the expansion of multipolarity has already produced concrete flashpoints.

The Middle East is the most likely arena for an early major war. For decades, U.S. engagement was justified by dependence on Middle Eastern energy and the need to secure global trade routes. That rationale has weakened sharply with American energy independence. The United States now has less incentive to play stabilizing hegemon. But withdrawal doesn’t mean neutrality. Washington’s priority has shifted toward denying influence to rivals, especially China and Russia. The result is a destabilizing posture: the United States is no longer willing to guarantee order, yet remains willing to disrupt arrangements that threaten its residual dominance.

This shift reshapes incentives for regional actors. Israel, in particular, faces a narrowing window of maximal U.S. backing. If Israeli leaders anticipate a future where American protection is less reliable, the logic pushes toward preemption—neutralize perceived threats while U.S. support is still strong. In that context, the prospect of a full-scale war with Iran looms larger. And now, March 2026, we’ve seen what’s been coming.

Europe is the second fault line. The United States remains formally committed to NATO, but the substance has been fading. Washington has shown a growing willingness to treat Europe as a proxy battleground—most clearly in Ukraine—where the strategic aim has been to degrade Russian power, not to rebuild a stable European security architecture. That posture accelerates fragmentation inside NATO, as European states move toward self-reliance. And if Russia comes out of prolonged confrontation with the West emboldened, with an outcome in Ukraine it can plausibly frame as favorable, then a wider European war in the 2030s stops looking far-fetched. It starts looking likely.

East Asia is the most consequential theater. Unlike Europe or the Middle East, the United States remains deeply committed to its formal allies—Japan, South Korea, Australia, and the Philippines. China, for its part, has shown little interest in initiating direct conflict with these states. Washington, however, has increasingly looked to non-allied partners like India and Vietnam, trying to create Afghanistan-style strategic quagmires. Beijing has little appetite for that kind of entanglement. And there’s a paradox here: China’s deep integration into the global economy has reduced its incentive to start wars that don’t touch its core interests.

That core interest is Taiwan

Taiwan’s leadership has strong incentives to internationalize its security dilemma—binding itself as tightly as possible to U.S. allies like Japan, so that the United States is pulled into a potential war by alliance logic and political commitment. China, conversely, aims to deter outside involvement by making the costs explicit—demonstrating that any conflict would impose unacceptable damage on the United States itself. This contest—entanglement versus deterrence—is exactly why Taiwan is the most plausible trigger for direct great-power confrontation in the coming decades.

Even if none of these conflicts materialize, the erosion of neoliberal globalization will still impose large costs. The late twentieth century’s free flow of goods, capital, and labor is unlikely to return as states prioritize self-reliance and strategic autonomy. Yet losing those arrangements may also create the conditions for renewal. Neoliberalism raised efficiency, but it also drained societies of collective purpose. It hid political trade-offs behind technocratic management and suppressed strategic argument about the future. The “peace” it produced came with a hollow politics—hyper-competitive, yet substantively empty, unable to mobilize societies for anything beyond consumption.

In that sense, the return of great-power competition re-politicizes international relations in a necessary way. States are forced back into fundamental questions of long-term survival. What follows will be painful, but unavoidable: arguments over naked national interest versus the abstract universalism that defined the neoliberal era. This restores political agency by making populations confront the consequences of collective choices. It also opens space for institutional innovation and intellectual reinvention, because societies will have to invest in new forms of political organization and ideology capable of sustaining competition in a changed environment. The return of history, then, may not only be unavoidable. It may be necessary.

When the post–Cold War era is finally written as history, the central indictment may be that neoliberalism functioned as the funeral procession of the American empire. Arrighi’s argument in The Long Twentieth Century is useful here: capitalism moves in cycles of accumulation. It starts with expansion in trade and production; as profit rates fall, it retreats into finance. Financialization is not vitality. It is exhaustion. Neoliberalism, as the ideological superstructure of financial capital, should be read less as the culmination of American ascendancy than as a symptom of imperial decline.

From the start, neoliberalism was ideologically incoherent. It claimed to depoliticize economic life through markets and technocratic governance, yet in practice it entrenched oligarchic control and eroded social cohesion. That façade couldn’t suppress the discontent it generated. It only displaced it—first into identity politics, where distributive conflict was reframed as culture war, and later into increasingly abstract fanaticisms detached from material reform. When those mechanisms stopped working, war and geopolitical confrontation became the final outlet for contradictions that had never been resolved. The real historical choice was never between war and peace. It was between collective self-restraint and collective destruction.

In that context, multipolarity is not merely an outcome. It is also a corrective. The lesson of the neoliberal era is not that order is impossible, but that order cannot be entrusted to capital alone. With the return of the state and the reassertion of popular political agency, the breakdown of the old order may still become the foundation for something more resilient and more sustainable.