Mr. Biden revives industry to compete with China, but this intervention could put the US economy and its allies at risk, according to WSJ.
Jake Sullivan, President Joe Biden’s national security adviser, is often preoccupied with foreign threats, such as the conflict in Ukraine. But in April, in a speech at the Brookings Institution, he addressed the threat from within, the view that has long dominated Washington elites: “markets always allocate capital efficiently and productively.”
Some in policy circles call this view neoliberalism, a preference for free trade that has enjoyed bipartisan acceptance for decades. But Sullivan argues that the doctrine has hollowed out America’s industrial base, weakened the middle class, and left the country more vulnerable to climate change, Covid-19, and the weaponization of supply chains by hostile nations.
To solve this problem, he believes that the US needs a new approach, a "modern industrial strategy" in which the government supports stronger investment in industry and trade to strengthen the middle class and national security.
Since the 2020 election, Biden has been trying to articulate a unifying theory for his economic policies. And Sullivan’s recent comments on the White House’s domestic and foreign goals toward China have provided a clearer picture of what might be called “Bidenomics,” with three pillars. Along with that, there are some blind spots and contradictions in this economic policy, according to the WSJ .
US President Joe Biden with National Security Advisor Jake Sullivan on a train to Kyiv, Ukraine from Przemsyl, Poland. Photo: White House
First, the quality of economic growth matters more than the quantity. The old view is that “all growth is good growth.” Bidenomics is not just about higher GDP growth, but also whether that growth leads to higher average incomes, less inequality, and more domestic investment in areas critical to national security or the environment.
Second, laissez-faire is gone, replaced by industrial policy. Markets allocate capital to achieve the highest returns for private investors. But Bidenomics argues that it fails to account for issues like climate change, fragile supply chains, or geopolitical vulnerabilities. That is why Germany has become dangerously dependent on Russian gas and China dominates the supply of many key minerals and pharmaceutical ingredients.
To fix this, Bidenomics aims to direct private capital into priority sectors through regulations, subsidies, and other interventions. “Advocating for industrial policy, once considered shameful, should now be seen as almost self-evident,” Sullivan and Jennifer Harris wrote in a 2020 essay in Foreign Policy.
Third, trade policy should prioritize American workers, not consumers. Neoliberalism assumes that increasing access to global markets for American companies will spur competition, lower costs for consumers, and provide better jobs for workers. But Sullivan argues that it benefits companies more than workers.
By contrast, under Bidenomics, US foreign policy is about protecting a range of economic interests, from workers’ rights to climate policy to tax compliance. Consumers and competition are not the primary concerns.
Jake Sullivan, 46, has a long history in Democratic policy circles. He advised both Secretary of State Hillary Clinton and Vice President Biden in the Obama administration. He has spent years trying to understand how Democrats have fallen out of step with the working class. He wrote in 2018 in Democracy that the 2007-2009 recession showed that the government “failed to protect citizens” from excessive free trade.
He was a fierce critic of free trade, arguing that it had been embraced by both parties without regard for China’s working class or its rule-breaking. In his mind, the obvious economic model for competing with China was the one America used to confront the Soviet Union.
After World War II, investments in infrastructure like interstate highways and semiconductor and satellite technology helped the United States spur economic growth, widespread innovation, and a competitive edge over the Soviet Union. Sullivan recognizes that this approach is not foolproof, but that competing with China “will require the kind of domestic mobilization that the United States pursued in the 1950s and 1960s.”
Sullivan’s view of economics is similar to Biden’s. He and colleagues like Brian Deese, who previously headed the White House National Economic Council, see Biden’s recent accomplishments—a $1 trillion infrastructure package, a $1 trillion electric vehicle and renewable energy package, and a $53 billion semiconductor package—as part of a modern industrial strategy.
Bidenomics has its flaws, though. According to economics, capital and labor are finite. So they need to be allocated in ways that maximize productivity and growth. Experience has shown that governments are much worse at this than markets. Of course, autonomous markets have their weaknesses when it comes to pollution or military security, but those are exceptions.
Bidenomics accepts the value of free markets but sees market failures everywhere, from regional, racial, and gender inequality to the lack of high-speed internet in rural areas and affordable child care. Market failures defined that way are too broad to address.
Biden and Democrats’ preferential treatment of certain products and industries has caused discontent. Rep. Ro Khanna, a Silicon Valley Democrat, wants the subsidies currently given to semiconductors to also be given to aluminum, steel, paper, microelectronics, auto parts and climate technology. “America needs to be able to make the basics here. I’m going to go from one factory town to another and see what we can do to revive them,” he said .
Semiconductors are vital to both civilian and defense industries, and many neoliberals even favor subsidies to reduce America's dependence on China, Taiwan, and South Korea.
But to fit Bidenomics—that is, addressing the social failures of the free economy—the Commerce Department says companies receiving subsidies must meet a series of governance conditions, including providing child care, paying unionized wages, hiring unionized workers, not buying back stock or investing in China, and sharing profits with the federal government. These restrictive requirements undermine the policy’s effectiveness.
Bidenomics is also at odds with the WSJ at home and abroad. While seeking support from allies, the Biden administration’s policies discriminate against those partners. Biden has credited the “Deflator Act” with helping to fuel a boom in battery and electric vehicle production in the US. But other countries have complained that the law’s most generous subsidies are only available to vehicles assembled in North America. “The US is our partner in shared values, but at the same time has a very protectionist economic policy,” German Finance Minister Christian Lindner once said.
Complaints have subsided recently as the Biden administration opens talks with allies on common standards for critical minerals used in batteries and interprets the law to subsidize more foreign electric vehicles. But another move has irked some Democrats in Congress.
Unlike Donald Trump, Biden is not looking to tear up existing free trade agreements or raise tariffs. But he is also not interested in new trade agreements or lowering tariffs. His “Indo-Pacific Economic Framework” seeks cooperation with regional allies on labor conditions, climate policy, tax compliance and corruption, but does not offer greater market access for the US like the TPP.
For foreign trading partners, it’s an unimpressive proposition. Instead of “carrots and sticks,” one Indonesian official remarked, it’s “sticks and sticks.” So what’s the alternative to Bidenomics?
The promise of greater access to the US market will not persuade more Asian countries to side with the US against China. But like the Cold War, superpower competition is a long-term game.
Without a proactive trade strategy for the region, the absence of the US will create a vacuum that will allow China to take the lead and the US to gradually lose influence, according to Doug Irwin, a trade policy historian at Dartmouth College. When the US abandoned the TPP, Singapore Prime Minister Lee Hsien Loong commented to the WSJ that "you have left this door open and now someone else will knock."
Even if the US stays out of the TPP, there are other ways to strengthen trade ties. Rahm Emanuel, the US ambassador to Japan, has recommended increasing Alaskan gas exports to Japan, even though that would run counter to Biden’s long-term climate goals. Asian countries still “want US military, diplomatic, and economic leadership,” Emanuel said.
Until very recently, American presidents have argued that binding other nations on trade and investment helped maintain the international order under their leadership. “The preservation of our Western political unity depends to a large extent on the extent of our Western economic unity,” President John F. Kennedy said in 1962, asking Congress to expand its authority to negotiate trade agreements.
This approach has failed with China but worked spectacularly with Western Europe, Japan, and South Korea. It explains why, despite their dissatisfaction with aspects of Bidenomics, these countries have increasingly joined Biden’s coalition.
Phien An ( according to WSJ )
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