America is feeling buyer’s remorse over the world it built

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When America talks, the world listens. After all, it is the most influential power in the world. This is not only because of its size and wealth, but also because of its ability to forge alliances and its central role in creating the institutions and principles of today’s system. It played a decisive role in the creation of the Bretton Woods Institutions, the General Agreement on Tariffs and Trade, and the World Trade Organization. it was promoted Eight consecutive rounds of multilateral trade talks, It won the Cold War against the Soviet Union. and since the early 1980s, it welcomed a deeper and wider opening of the world economy, emphasizing China joined WTO in 2001, Whether we like it or not, we all live in the world that America has created.

Now troubled by buyer’s remorse, he has decided to remake it. US Treasury Secretary Janet Yellen outlined the economic aspects of the new US approach in a speech delivered on 20 April. Seven days later, Jake Sullivan, Joe Biden’s national security adviser, gave an even more comprehensive, though complementary, speech. Renewing American Economic Leadership”. It represents a rejection of the previous policy. This can be seen as a return to the interventionism of Alexander Hamilton. Yet, this time the agenda is not for an emerging country, but for a major world power.

What was Sullivan saying? And what could it mean for America and the world?

The starting point is domestic. Thus, “the changing global economy left many working Americans and their communities behind. The financial crisis shook the middle class. A pandemic exposed the fragility of our supply chains. The changing climate threatened lives and livelihoods.” Russia’s invasion of Ukraine underscored the risks of over-reliance. More precisely, the administration sees itself facing four major challenges: a hollowing out industrial base; a geopolitical and security competitor; rise; the looming climate crisis; and the impact of rising inequality on democracy.

In a key phrase, the response is “a foreign policy for the middle class”. What, then, is to be made of this?

First, a “modern American industrial strategy,” supporting sectors deemed “fundamental to economic growth” and “strategic from a national security perspective.” Second, “collaborating with our partners to ensure they are also building capacity, resilience and inclusiveness”. Third, “moving beyond traditional trade deals to innovative new international economic partnerships focused on the core challenges of our time”. These include creating diverse and resilient supply chains, mobilizing public and private investment for a “clean energy transition”, “ensuring trust, security and openness in our digital infrastructure”, preventing race to the bottom in corporate taxation, protecting labor increase is included. and the environment and tackling corruption.

Fourth, “mobilizing trillions of investments in emerging economies”. Fifth, a plan to protect “core technologies with small yards and tall fences.” Thus: “We have implemented carefully crafted restrictions on most advanced semiconductor technology exports to China. Those restrictions are based on direct national security concerns. Key allies and partners have followed suit.” It also includes “increasing screening of foreign investment in critical sectors related to national security”. Sullivan says these are “conforming measures”, not a “technology blockade”.

This is indeed a fundamental change in the goals and means of US economic policy. But both the depth and permanence of these changes depend on how far they reflect the new American consensus. Where it is nationalistic and protectionist, it certainly already is. While it undermines business priorities and the role of markets, it may also prove sustainable. Donald Trump’s populist Republicans can certainly take that for granted.

Are the new objectives worthwhile? In some basic cases, yes. just published a book called crisis of democratic capitalismI agree that the anger and despair of what Americans call the “middle class” is a dangerous reality. I also agree that climate is an important priority, that supply chains need to be resilient, and that national security is a legitimate concern in trade policy. Russia certainly taught us this.

Yet will it really serve to make Americans and the rest of us better and safer? One doubt is related to the scale. For example, Sullivan says that “it is estimated that the total public capital and private investment from President Biden’s agenda will be approximately $3.5 trillion over the next decade”. This amounts to a maximum of 1.4 per cent of GDP over that period, which is too small to be transformative. Second, industrial policy is difficult to implement, especially for economies in the technology sector. The second concern is how disruptive this new approach will be to economic and political relations with the rest of the world, especially (but not only) with China, especially on trade.

In particular, it will be difficult to completely separate business technologies from security implications. As global reactions to Russia’s invasion of Ukraine show, it’s going to be even harder to separate American friends from foes. At the very least, it will be difficult to convince China that this is not the start of an economic war against it. Yet China already has several cards in such a fight, as noted by Harvard’s Graham Ellison in the case of solar panels. Rare earths are another such case.

Above all, the new approach will only work if it leads to a more prosperous, peaceful and stable world. If it leads to a fragmented world, environmental failure, or outright conflict, it will fail in its own terms. Its authors need to be careful in the implementation of their new strategy. This can have very bad consequences.

martin.wolf@ft.com

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