What’s good for America is good for the world. That’s the message the US was trying to sell at the G7 meeting in Hiroshima. The Biden administration has recently been accused by both allies and adversaries of putting America first, if not alone, in some of its economic policies. But in Japan, the US team tried to connect the dots between their people and place-based domestic economic strategies and their new approach to foreign policy.
Joe Biden’s national security adviser Jake Sullivan recently gave a speech saying that gross domestic product growth for its own sake isn’t good enough — it must be sustainable and equitable. This is the challenge of the next few decades and a clear move away from the traditional Washington consensus model, which focused on unfettered growth via deregulation and trade liberalisation.
Having succeeded in getting the Europeans, Canadians and Japanese on board with shared clean energy supply chain efforts before the G7, the administration used its time in Japan to push forward the details of what a US-led industrial policy around climate might look like — particularly in the global south. This too, is new — the Washington consensus was all about handing a single playbook of growth to the world. Today’s world is far more multipolar, a reality that the US must acknowledge and adjust to as it attempts to bring a greater coalition of nations into a new economic order — albeit one that does not yet have an entirely unified theory.
Some principles, however, are starting to take shape, notably that global markets must be incentivised in new ways to prioritise not just the planet, but its people — or, specifically, its workers. One of the core problems with the old system of globalisation was that it consistently prioritised capital over labour. That can result in strong growth, although not always. But it certainly results in more financialisation and financial fragility (as measured by the increasing number of financial crises).
It also leads to rising inequality as wealth becomes concentrated in a handful of places. One of Biden’s main goals at home has been to fight this. In a 2021 speech, he laid out a new approach to domestic competition policy, designed to prioritise workers. That approach was in evidence, too, at the G7, in the promise to fight “economic coercion”, whether it comes from companies or from states.
The immediate targets on that front are Russia’s weaponisation of commodities and Chinese mercantilism. But the end goal is to avoid economic chokepoints wherever they occur. This builds on the push for resilience over “efficiency”, which is less about “decoupling” with China than in “de-risking” across many markets. By framing a new trade and foreign policy not around US-China conflict but in terms of limiting dangerous concentrations of power in any nation or company, the administration hopes to address multiple problems at once — unfair state subsidies, monopoly issues at home and abroad, and national security concerns — without sparking a new war.
That means building more redundancy in supply chains that have the potential to be weaponised. It also means working with new partners in the global south to create more robust supplies of commodities such as rare earth minerals. This was also up for discussion at the summit as the US attempted to show that “friend-shoring” wasn’t something that had to be done with the EU, Japan, Canada and Australia alone.
De-risking is a message that G7 nations, and indeed many others, are responsive to. Nobody wants to live in a world where European grain or gas supplies can be turned on and off by an autocrat, or the global supply of high-end semiconductors can be ringfenced by blockading a single island. Hence efforts to work with Europe, Japan, Korea, Taiwan and India to co-ordinate new semiconductor incentives, subsidising more chips everywhere.
But coming up with the metrics and institutions for this new world, and figuring out how to better incentivise sustainable and equitable growth, will be a long and challenging process. While the US is open to putting issues such as World Bank reform on the table, it hasn’t spent nearly as much time on the bigger hot-button issue of how to reform the World Trade Organization. And tensions remain. The G7 communiqué made clear the desire to take on any “non-market policies and practices”, which, for the US, includes those in China that adversely affect workers or the environment, and limit access to technologies that compromise national security.
Still, Biden did finally give the world a clearer argument about why signature domestic economic programmes such as the Inflation Reduction Act, the Chips Act, and the earmarking of more money for infrastructure linked to high labour and environmental standards, are not about nationalism but a new approach to growth both domestically and globally. “The president believes that a bottom-up, middle-out approach, focused on resiliency, sustainability and empowering workers is the best thing for the US, but for the world,” says deputy national security adviser Mike Pyle.
Whether you call it a foreign policy for the middle class, or a new global industrial policy, it is certainly very different to the “market knows best” strategy the US has taken at home and abroad for the past several decades.
rana.foroohar@ft.com
Source: Economy - ft.com
