early and often

The Biden Administration Just Declared the Death of Neoliberalism

Photo: Peter Zay/Anadolu Agency via Getty Images

Last week, the Biden administration announced the death of global economic governance as we’ve known it.

The president has long evinced an interest in shifting the foundational assumptions of American economic policy a few feet to the left. In between singing paeans to “the soul of America” and promising a return to normalcy, Biden spent his first two years agitating for the largest expansion of social welfare and public investment in generations.

In his first address to Congress, the president reminded the country that “public investment and infrastructure has literally transformed America,” bringing us railroads, highways, schools, colleges, vaccines, the internet, and “so much more.” This defense of state intervention in markets crescendoed with the declaration that, in our democracy, the government is “you and I” and not “some powerful force that we have no control over. It’s us.”

Nevertheless, while the president and his more progressive economic advisers had routinely conveyed their antipathy for the ideological legacies of Reaganism, they’d never articulated a comprehensive alternative. And this was especially true with regard to the international dimensions of economic governance.

But Jake Sullivan changed that last Thursday. In a speech at the Brookings Institution, Biden’s national security adviser detailed the tenets of a “new Washington consensus” in global economic policy, one that would encourage state direction of development instead of punishing it, strengthen labor standards instead of eroding them, sustain the climate instead of despoiling it, and reduce economic interdependence between rival powers instead of increasing it.

Sullivan’s rhetoric, and the policies undergirding it, represent a triumph for a certain contingent of progressive-policy intellectuals. Ideas that were once the exclusive property of iconoclastic academics and think-tank staffers are now official U.S. policy. (Anyone familiar with the ascendant economic thinking in the progressive nonprofit world, or with the NSC’s recent personnel, will see the fingerprints of the Roosevelt Institute and Hewlett Foundation all over Sullivan’s speech.)

The promise of Global Bidenism is considerable. It aims to humanize the global economy while simultaneously increasing its growth potential. And contrary to the fears of U.S. allies, America’s gains under this new paradigm need not come at the rest of the world’s expense.

But the project faces a pair of related hazards. One is that there is no actual consensus about the “new Washington consensus,” which cannot be fully realized without bipartisan congressional support and remains vulnerable to rollback under a future Republican administration. The other hazard is that Bidenism’s hostility toward China could theoretically increase the risks of geopolitical conflict. This is especially worrying when one considers that the White House has set a new baseline for what constitutes toughness toward America’s chief rival, a threshold which any future Republican administration may feel duty-bound to exceed.

The Biden administration’s critique of the past four decades of American economic policy.

Sullivan defined his new model of global economic governance in opposition to its predecessor. Although he did not use the term, the object of the national security adviser’s critique was neoliberalism — the market-oriented economic orthodoxy that emerged out of the collapse of Bretton Woods and the stagflation crisis of the 1970s.

In Sullivan’s telling, that orthodoxy was premised on three flawed assumptions. One was that “markets always allocate capital productively and efficiently.” Another was that “all growth was good growth.” A third was ​​that “economic integration would make nations more responsible and open” and “the global order would be more peaceful and cooperative.”

In reality, the whims of markets and the imperatives of shared prosperity do not tightly align. Investors are reluctant to assume the risks necessary for midwifing nascent technologies. And they also fail to price the environmental impacts of commerce or the geopolitical risks of transnational supply chains.

All forms of growth, meanwhile, are not created equal. Gains in national income that derive from the expansion of a bloated financial sector and concentrate among the wealthy are not as valuable as those that arise from investment in the production of critical technologies spread equitably across the population.

Finally, integrating China into the global economic order did not liberalize its politics or temper its martial ambitions. To the contrary, the Chinese Communist Party has grown more authoritarian and geopolitically ambitious as its nation has grown wealthier and more economically integrated with the west.

Thus, in the Biden administration’s account, neoliberalism left the United States an unenviable inheritance: an atrophied industrial base that undermines America’s capacity to innovate and prosper from cutting-edge technologies; a perilous economic dependence on an emboldened geopolitical rival; a steadily worsening climate crisis; and a democracy stricken by the related ailments of stark inequality and low social trust.

Bidenism posits industrial policy as the core answer to all of these problems. Through subsidies and direct public investment, the U.S. government can channel capital toward forms of production that render U.S. growth more sustainable and resilient to geopolitical shocks. By promoting domestic semiconductor production, the CHIPS Act mitigates America’s perilous reliance on Taiwan for those key inputs. The Inflation Reduction Act, meanwhile, encourages critical mineral mining in both the United States and allied countries; currently, China processes more than 80 percent of the world’s critical minerals. And, of course, by subsidizing the innovation and deployment of green technologies, the IRA also encourages decarbonization.

At the same time, these industrial policies can mitigate income inequality by tying eligibility for certain subsidies to wage standards and reduce geographic inequality by incentivizing investment in left-behind regions. This in turn, theoretically, fortifies democracy by demonstrating the government’s responsiveness to the working class’s economic needs.

Critically, Bidenism does not prescribe industrial policy for the United States but conventional free-trade norms for everyone else (norms that generally forbid or constrain the subsidization of domestic production). Instead, as Sullivan declared, “We will unapologetically pursue our industrial strategy at home — but we are unambiguously committed to not leaving our friends behind. We want them to join us.”

Why Europe should not fear Global Bidenism.

America’s allies have not all applauded this paradigm shift. Indeed, widespread skepticism of the “new Washington consensus” was one impetus for Sullivan’s address. To some European observers, Global Bidenism looks like a scheme for enriching America at the rest of the world’s expense.

From this perspective, a world in which every country is allowed to lure capital by subsidizing domestic production is one in which factories and jobs will concentrate in the United States. After all, as the world’s largest economy and printer of the global reserve currency, the U.S. can more easily afford to pay out hundreds of billions in subsidies than a fractious European Union, let alone developing countries. Thus, economists such as the Peterson Institute’s Adam Posen have argued that Bidenism will undermine the growth prospects of nations in the Global South, which will struggle to compete in a world where immense fiscal capacity is a precondition for attracting capital.

But these concerns are likely overblown. And Sullivan’s speech illustrated the considerable benefits that Global Bidenism offers to developing countries.

For one thing, a majority of the funding in the IRA has no domestic-content requirements, and only a small minority of its appropriations consist of direct subsidies to U.S. manufacturers. Further, as the Roosevelt Institute’s Jennifer Harris notes, the IRA’s clean-energy investments “add up to just half of Europe’s clean-energy subsidies,” while Biden’s efforts to require the federal government to purchase American-made inputs still leaves “the portion of U.S. procurement open to trading partners” vastly higher than “that of our closest trading partners.”

What’s more, the notion that the U.S. and E.U. competing to see who can stimulate more investment in green technology constitutes a zero-sum “race to the bottom” seems fundamentally misguided. Everyone has an interest in the development and deployment of renewable energy and low-carbon alternatives to internal-combustion vehicles and fossil-powered industrial processes. The more that the United States invests in the production of such technologies, the faster cost-lowering efficiencies will be discovered and novel tech developed. The benefits of cheaper solar panels, batteries, and EVs will not be exclusively captured by whichever nation catalyzes the most progress on those fronts. It is possible that overcapacity will eventually become an issue, but we are a long ways away from saturating global demand for chips, renewable energy, and electric vehicles.

Meanwhile, Sullivan’s vision of global economic governance included many ideas that should benefit ordinary workers in the Global North and South alike. He called for a progressive reorientation of American trade policy: Rather than prioritizing further reductions to historically low tariffs, or the invidious agendas of American multinationals, Sullivan argued that new economic agreements should seek the elimination of corporate tax havens and the strengthening of labor and environmental standards.

The old Washington consensus punished developing nations that sought to promote their export industries through state subsidization. The new one not only officially encourages such public investment, but also seeks to facilitate it by “mobilizing trillions in investment into emerging economies.”

Specifically, Sullivan called on the World Bank and other multilateral development banks to “stretch their balance sheets to address climate change, pandemics, and fragility” and “expand access to concessional, high-quality finance for low-income and for middle-income countries.” In recent weeks, the Treasury Department has pushed for the IMF to advance debt restructuring for low-income nations.

Sullivan also touted the Partnership for Global Infrastructure and Investment, which aims to direct hundreds of billions in investment toward “energy, physical, digital infrastructure” in developing countries.

Taken together, Washington’s new outlook seems more favorable to equitable growth in the Global South than the neoliberal one it seeks to displace.

There is no consensus about the “new Washington consensus.”

Alas, the Biden administration’s bid to forge a post-neoliberal consensus faces a fundamental problem: There is nothing close to a bipartisan consensus in favor of progressive industrial policy in the United States.

The Inflation Reduction Act has funneled a disproportionate share of new jobs and investment to red states. Although this might render the GOP more supportive of decarbonization in the fullness of time, at present, Republicans remain profoundly hostile to Biden’s green jobs program. Indeed, the House GOP is currently threatening to engineer a global financial crisis unless Biden agrees to defund his signature climate bill.

Republican support for using international diplomacy to raise global corporate tax rates, strengthen environmental and labor standards, or increase investment in poor nations is also far from assured. To its credit, the Trump administration actually did strengthen the labor provisions of America’s trade agreement with Mexico, and Sullivan cited this as a model to duplicate in future treaties. But betting on the GOP’s concern for labor rights is a risky endeavor.

Thus, there is a significant chance that wide swathes of Biden’s vision would be rolled back or nipped in the bud upon a Republican presidential victory in 2024. And even before then, the administration cannot realize many of its international aims without House Republicans’ cooperation. The Biden administration reached an agreement with 136 other countries on a global minimum tax in 2021. But giving that agreement the force of law will require congressional approval. And many of the administration’s other progressive ambitions, including promoting infrastructure development in the Global South, will be difficult to realize without further congressional appropriations.

Strip Global Bidenism down to the provisions for which there is a genuine “Washington consensus,” and you’re left with proposals for reducing U.S. economic dependence on China and constraining that nation’s economic development. Whatever its merits, this adds up to a decidedly less liberatory revision of global governance. And it is one that also entails significant risks.

In his most aggressive attempt to redress neoliberalism’s geopolitical consequences, Biden has sought to choke off China’s access to the world’s most advanced semiconductors, or the inputs necessary to manufacture them itself, no matter where in the world either are produced. The ostensible aim of this policy is to prevent the Chinese military from growing more powerful on the back of technologies produced or designed by the U.S. and its allies. But the administration’s export controls are not limited to firms with proven ties to the Chinese military. Rather, all Chinese businesses are barred from accessing the most advanced chips. In effect, this means that it is official U.S. policy to prevent China from achieving its economic development goals. Without access to the world’s most advanced semiconductors, Chinese firms will struggle to compete at the cutting edge of e-commerce, robotics, medical imaging, pharmaceutical research, self-driving vehicles, and myriad other markets.

It is conceivable that these restrictions will improve the prospects for world peace by deterring China from launching an invasion of Taiwan or other military offensive — although it is difficult to see advanced microchips having much bearing on a war in the Taiwan Strait.

On the other hand, it seems plausible that making it impossible for China to achieve its economic goals under the existing global order might render the CCP more inclined to challenge it martially or otherwise.

In his speech, Sullivan emphasized that America’s restrictions on U.S.-China commerce are narrowly tailored and that bilateral trade between the two countries actually hit a record high last year. But given the GOP’s perennial commitment to attacking Democratic foreign policy as excessively friendly to America’s adversaries, there’s reason to fear that the next Republican president will feel compelled to broaden Biden’s export controls, further poisoning the U.S.-China relationship.

Neoliberalism’s loosening grip over American political and intellectual life has created an opening for a progressive reformation of global economic governance. Jake Sullivan’s speech last week confirmed that the Biden administration intends to seize that opportunity. But absent sustained Democratic control of the White House, the president will have a hard time entrenching a new economic paradigm. And so long as the Republican Party remains jingoistic, the new Washington consensus will be at risk of devolving into something more destructive than its predecessor.

Biden Just Declared the Death of Neoliberalism