Washington’s position, although still stable, is being gradually weakened by a combination of geopolitical commitments and growing fiscal pressures. As geopolitics and geoeconomics evolve rapidly, the United States could find itself constrained by debt accumulated not only during the recent conflict with Iran, but through decades of deficit spending dating back to the end of the Cold War. Successive administrations have often preferred borrowing in the present while shifting the costs onto future generations.
The Cost of War
The recent conflict with Iran is estimated to have cost the United States billions of dollars per day, a figure not easily ignored. Maintaining global hegemony requires enormous military expenditure, which has become increasingly expensive since the end of the Cold War. US defence spending remains the largest in the world, standing at $961.6 billion for 2026, while the wars in Afghanistan and Iraq alone cost the US Treasury trillions of dollars over two decades.
In addition to direct military operations, the United States bears the cost of maintaining hundreds of military facilities and deployments across the globe. Unlike earlier conflicts such as the Korean War, where higher taxation played a major role in financing military expenditure, post-9/11 wars have been financed largely through borrowing.
The principle of paying for wars through taxation, supported by leaders such as President Truman during the early Cold War, has gradually been abandoned as the United States has adopted a comparatively low-tax fiscal model. Financing wars through taxation requires broad public support because the costs are immediately felt by voters. Debt-financed warfare, by contrast, allows governments to shift a substantial portion of those costs onto future generations, reducing the short-term political consequences of military intervention.
Debt, Deficits, and Fiscal Constraints
One of the most significant domestic challenges facing the United States is its growing national debt. The country’s debt-to-GDP ratio reached approximately 122.6 per cent in late 2025, levels previously seen only at the end of the Second World War and during the Covid-19 pandemic.
As public debt rises, so do interest payments. Servicing existing debt consumes a growing share of federal expenditure, limiting the resources available for infrastructure, research, defence, and social programmes. The US government has run annual budget deficits continuously since 2002, with 2001 remaining the last year in which Washington recorded a budget surplus. This trend has persisted under both Republican and Democratic administrations.
Political polarisation has further complicated the situation. Since the mid-2010s, partisan divisions have made meaningful fiscal reform increasingly difficult. The result is a pattern of structural deficits that reduce government flexibility during economic downturns, military emergencies, or financial crises. Over time, high debt levels may also crowd out productive investment and increase economic vulnerability.
China and the Return of Great-Power Competition
While the United States has always faced strategic competitors, the Cold War was characterised by a relatively clear division between two rival blocs. China’s rise presents a different challenge. Unlike the Soviet Union, China competes with the United States not only militarily, but also economically, technologically, and financially.
China has experienced decades of rapid economic growth while significantly expanding its military capabilities. Today it represents a serious competitor in areas ranging from advanced manufacturing and artificial intelligence to global trade and infrastructure investment. Increasingly, strategic competition is being fought through supply chains, technology, financial systems, and access to critical resources rather than solely through conventional military force.
Earlier this year, Chinese President Xi Jinping referred to Graham Allison’s concept of the Thucydides trap , which suggests that conflict often emerges when a rising power challenges an established one. Whether or not such a conflict is inevitable, the theory highlights the strategic pressures facing both Washington and Beijing.
The United States now finds itself attempting to support allies in Europe, maintain influence in the Middle East, and contain Chinese influence in the Indo-Pacific simultaneously. Each of these commitments carries substantial financial costs at a time when America’s fiscal position is becoming increasingly constrained.
The Dollar Advantage
Predictions of imminent American financial collapse often overlook an important reality: the United States possesses advantages unavailable to most countries. The US dollar remains the world’s dominant reserve currency, and US Treasury bonds continue to be regarded as among the safest assets in global finance.
This status gives Washington greater freedom to borrow than almost any other government. Global demand for dollar-denominated assets helps keep borrowing costs lower than they otherwise would be and provides a level of financial resilience that heavily indebted countries rarely enjoy.
However, reserve-currency status does not eliminate fiscal constraints altogether. While it allows the United States to sustain higher debt levels than most states, it does not guarantee that borrowing can increase indefinitely without consequences. Even for the world’s largest economy, rising interest payments eventually limit strategic and political flexibility.
On the Brink of Crisis?
Is the United States on the brink of crisis? Not immediately. The country’s economic fundamentals remain strong, the dollar continues to dominate global finance, and US Treasury bonds remain among the world’s most trusted assets. However, Washington’s growing reliance on debt to finance both domestic spending and foreign policy commitments is steadily narrowing its room for manoeuvre, particularly in the event of a major economic or geopolitical shock.
The challenge facing the United States is not the prospect of sudden collapse, but of gradual strategic overstretch. In an era of renewed great-power competition, particularly with China, fiscal strength is becoming as important as military strength.
If current trends continue, the United States may discover that one of the greatest threats to its global position is not simply an external rival, but the cumulative consequences of decades of borrowing. The question is therefore not whether America can afford today’s conflicts, but whether it can continue financing its global ambitions indefinitely without undermining the foundations of its own power.
