While the Biden administration’s economic agenda represents a welcome change from previous Democratic presidencies, its latest moves against China have raised concerns about protectionism. But recent developments suggest that the US can address its national security concerns without undermining the global economy.
CAMBRIDGE – Currently, two competing agendas are competing to shape US domestic and foreign economic policies. An agenda looks inward and focuses on building an inclusive, resilient, prosperous, and sustainable American economy. The other focuses on geopolitics and maintaining US primacy over China. The future of the world economy depends on the outcome of this conflict and on whether these conflicting priorities can coexist.
The administration of US President Joe Biden represents a sea change from previous Democratic administrations, pursuing ambitious industrial policies to revive domestic manufacturing and ease the green transition. He has also taken a tougher stance on China than any previous administration, including that of former President Donald Trump, treating the Chinese regime as an adversary and imposing export and investment controls on critical technologies.
However, until recently, the Biden administration has not articulated a coherent vision that combines these various elements and reassures other countries, including China, that its economic strategy is not focused on confrontation, unilateralism and protectionism. But recent comments from US Treasury Secretary Janet Yellen and National Security Adviser Jake Sullivan indicate that the administration is now taking steps to address this issue, which could signal the emergence of a new Washington Consensus. .
The administration’s approach to the global economy reflects a broader intellectual shift. Top US lawmakers now believe that the post-1990 model of globalization, which prioritized free trade and free markets over national security, climate change, and the economic security of the middle class, has undermined the socioeconomic foundations of healthy democracies. .
In his remarks, Sullivan outlined the five pillars of the administration’s international economic agenda, which he called “a foreign policy for the middle class.” The first pillar is a “modern American industrial strategy” that aims to catalyze private investment in sectors considered critical to the prosperity and security of the United States. The second involves working with other developed democracies and developing countries to ensure that US allies adopt similar policies to enhance “capacity, resilience and inclusiveness.”
Third, the US will move away from traditional trade agreements that focus on market access and embrace “new international economic partnerships” that address global challenges such as climate change, digital security, job creation and corporate tax competition. . And the United States will seek to generate trillions of dollars in investment into emerging economies and provide aid to countries facing debt problems.
While each of these areas presents unique challenges, some are particularly contentious because other countries view some policies, such as the administration’s “Buy American” requirements, as protectionist. But Sullivan’s fifth pillar, which focuses on “protecting our critical technologies,” could have the biggest impact on the future of the global economy.
The Biden administration’s sweeping export controls, designed to prevent China from accessing advanced semiconductors, are the most explicit manifestation of this pillar. And the administration is reportedly planning additional restrictions on US investments in Chinese tech companies, particularly in strategically important sectors like microchips.
Chinese officials, including President Xi Jinping, have accused the United States of imposing a “technological lockdown” on the country. Financial Times columnist Edward Luce agrees: By isolating China’s tech sector, the US is engaging in “full-blown economic warfare.”
But Sullivan offered a different perspective. Likening the policy to “a small yard and a high fence,” he described the administration’s measures as “carefully crafted restrictions” motivated by national security concerns and targeting “a narrow slice” of advanced technologies.
Yellen’s speech, delivered at the Johns Hopkins School of Advanced International Studies in late April, anticipated Sullivan’s message a week later. Export controls, he argued, are meant to address national security concerns and will remain “limited in scope and objective.” The United States, he stressed, is not trying to undermine China’s economic growth and technological upgrading.
The clarifications offered by Sullivan and Yellen indicate that the administration understands the risks of imposing overly broad trade and investment restrictions in the name of national security. Such measures will harm the global economy and are likely to backfire by provoking China to retaliate.
A stable world order is based on norms and practices that recognize the right of each country to protect its national interests. It also requires transit rules to guarantee that the defense of these interests is well calibrated and does not harm other countries. Accomplishing this can be challenging, but it is not impossible.
When governments pursue national security objectives through unilateral policies that negatively affect other countries, policymakers must clearly articulate their goals, maintain open lines of communication, and propose specific remedies aimed at mitigating the adverse effects of those policies.
Policies should not be pursued for the express purpose of punishing or weakening the other party in the long term, and failure to reach an acceptable compromise in one area should not become a pretext for retaliation in an unrelated domain. As Stephen Walt and I have argued, such self-imposed limits on acceptable policies could help prevent escalation and even provoke grudging acceptance from the other side.
Recent statements by Yellen and Sullivan suggest that the Biden administration’s foreign economic policies will align with these principles. But some important questions remain unanswered. For example, were export controls on advanced chips well calibrated or did they go too far in sabotaging Chinese technological capability without sufficiently benefiting US national security?
And, with the restrictions being extended to other critical sectors, such as artificial intelligence and nuclear fusion, can we continue to describe them as targeting only a “narrow slice” of the technology?
Furthermore, it is unclear whether the so-called “simple” national security concerns cited by Sullivan and Yellen are genuine or simply a pretext for unilateral action. Is the United States ready to accept a multipolar world order in which China has the power to shape regional and global rulemaking? Or is the administration still committed to maintaining America’s primacy, as Biden’s national security strategy seems to suggest?
Actions speak louder than words and will reveal the answers to these questions. But Yellen and Sullivan’s comments reassure those who believe the US can address its legitimate national security concerns without undermining the world economy.
The author
Professor of International Political Economy at the Harvard Kennedy School, he is President of the International Economic Association and author of Straight Talk on Trade: Ideas for a Sane World Economy (Princeton University Press, 2017).
Copyright: Project Syndicate, 1995 – 2022
