There is much to admire in the international economic policy of President Joe Biden’s administration. It has emphasised multilateralism, in contrast with its predecessor’s bellicose bilateralism. The administration rightly underscores that the US must protect national security, of which economic welfare is a key component, and that US openness and globalisation have had beneficial, but also adverse, impacts. It appreciates that strong international economic policy begins at home.
Recognising that private markets may not supply public goods well, the administration commendably pushed through legislation to begin tackling the US’s crumbling infrastructure and deficient climate policies. Whether one agrees, it has transparently said what it thinks about more worker-centrist approaches.
Recent speeches by Jake Sullivan, national security adviser, and Katherine Tai, US trade representative, merit attention. Treasury Secretary Janet Yellen spoke articulately about the US/China economic relationship.
But despite the commendable thoughtfulness, a more balanced and less fragmented vision is needed.
The focus on foreign developments as economic disrupter is overdone
That technological change and competition – domestically or from abroad – cause difficult adjustments and produce winners and losers is a staple of economic history. The advanced economy shift from manufacturing to services has occurred for decades and manufacturing now counts for less than 10% of US employment.
The US economy is relatively closed. Significantly pinning distributional woes, such as inequality or stagnant middle-class wages, on trade – especially after the 2008 financial crisis and pandemic – is mistaken, even if it is easier to blame foreigners rather than take responsibility. There’s little evidence that more inward-orientated policies will improve US economic fortunes.
Lofty rhetoric is too loosely employed to articulate seemingly appealing concepts
Rhetorical flourishes being bandied about include: a small yard, high fence; friend-shoring; de-risking, not decoupling; putting the US back into US trade representative. But what do they mean practically? How will they be implemented?
Not sharing technology that would compromise national security is obvious and legitimate. But the lines between military and commercial technological applications are already blurred. And if the question is about export controls to protect national security, why maintain harmful tariffs on low-tech Chinese products? Who’s a friend and who is not? Is there a neither friend nor foe category? De-risking and resilience sound better than decoupling, but how is that distinction made in practice?
‘Industrial strategy’ has a nice ring to it, but ‘industrial policy’ does not. Yet the differences aren’t clear. Government research and development has spawned useful innovation. Government investment is needed for public goods and can jumpstart the private sector. But history suggests governments are poor at picking winners and losers – both sectors and firms. Caution is in order. The jury will be out for years on the efficacy of US semiconductor industry support.
The administration takes an overly negative view of trade
Trade policy is seen as having been about promoting neoliberalism, reducing already low tariffs, ignoring often unfair practices abroad and provoking a race to the bottom. Yet the evidence is abundant that liberal trade has supported decades of global prosperity.
Trade policy is about far more than tariff reductions. The Trans-Pacific Partnership, foolishly shot down by Donald Trump’s administration in one of the greatest US strategic blunders of recent times, included chapters on technical barriers to trade, cross-border services, financial services, telecommunications and electronic commerce. Even if trade disrupts some workers, consumers hugely benefit from increased product choice and price competition. Millions of American workers are employed by foreign firms.
Foreign views of international economic policies will not enhance the US’s global standing
Buy American’ and green subsidy provisions are viewed abroad as protectionist. Many Asian countries don’t want to be in the position of choosing between the US and China. Seeking expanded market access opportunities, they are putting their eggs in the basket of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or the Regional Comprehensive Economic Partnership, which includes China, while harbouring doubts about the US-promoted Indo-Pacific Economic Framework for Prosperity. Europe wishes to maintain a healthy economic relationship with China.
China’s rise understandably underlies much of the administration’s concern. China poses geopolitical and military threats to the US. Economically, it has engaged in unfair competitive practices, including massive subsidisation of state-owned enterprises, forced technology transfers and theft. These need to be tackled.
Yellen commendably called for a constructive economic relationship with China, not containment. But the overall US narrative is perceived as conveying the opposite impression. It also suggests that the Chinese economy is a juggernaut. In reality, China’s economy faces massive challenges, including demographic decline, low productivity, excessive debt and financial stress in the real estate sector.
The Biden administration merits praise for raising legitimate and hard questions about the global economy’s functioning and unfair practices. But notwithstanding distributional issues at home, its vision does not pay sufficient regard to US economic strengths and the benefits of globalisation. Its views on trade are overly restrictive and its message may be perceived as protectionist, alienating allies and non-aligned countries at the very time the administration seeks to strengthen economic ties around the world. A more balanced vision is needed.
Mark Sobel is US Chair of OMFIF.
*Thanks to Gerard DiPippo, Senior Fellow at Center for Strategic and International Studies, for helpful comments.
Image source: The White House