Two competing agendas are currently vying to shape the United States’ domestic and foreign economic policies. One agenda is inward-looking, focusing on the creation of an inclusive, resilient, prosperous, and sustainable American economy. The other focuses on geopolitics and on maintaining US primacy over China. The future of the world economy depends on the outcome of this conflict and whether these opposing priorities can coexist.
US President Joe Biden’s administration represents a radical departure from previous Democratic administrations, pursuing ambitious industrial policies to revive domestic manufacturing and facilitate the green transition. It has also adopted a tougher stance on China than any previous administration, including former President Donald Trump’s, treating the Chinese regime as an adversary and imposing export and investment controls on critical technologies.
Until recently, however, the Biden administration did not articulate a coherent vision that combines these various elements and reassures other countries, including China, that its economic strategy is not centred on confrontation, unilateralism, and protectionism. But recent remarks by US Treasury Secretary Janet Yellen and National Security Adviser Jake Sullivan indicate that the administration is now taking steps to address this issue, potentially signalling the emergence of a new Washington Consensus.
The administration’s approach to the world economy reflects a broader intellectual shift. Senior US policymakers now believe that the post-1990 model of globalisation, which prioritised 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 laid out 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 catalyse private investment in sectors deemed critical to US prosperity and security. The second involves working with other developed democracies and developing countries to ensure that US allies adopt similar policies to improve “capacity, resilience, and inclusiveness.” Third, the US will move away from traditional trade deals 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 US will seek to generate trillions of dollars in investments in emerging economies and provide aid to countries facing debt distress. 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 foundational technologies,” could have the greatest 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 firms, particularly in strategically important sectors like microchips.
Chinese officials, including President Xi Jinping, have accused the US of imposing a “technological blockade” on the country. Financial Times columnist Edward Luce concurs: by isolating China’s tech sector, the US is engaging in a “full-blown economic war.”
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 tailored restrictions” motivated by national-security concerns and aimed at “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. The export controls, she argued, are meant to address national-security concerns and will remain “narrowly scoped and targeted.”
©Project Syndicate, 2023
Dani Rodrik
The writer is Professor of International Political Economy at Harvard Kennedy School
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