An American foreign policy for the middle class

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What is good for the United States is good for the world. That is the message that the United States was trying to sell at the G7 meeting in Hiroshima. The Biden administration has recently been accused by allies and adversaries alike of putting America first, if not only, in some of its economic policies. But in Japan, the US team tried to connect the dots between its people and the country’s place-based economic strategies and its new approach to foreign policy.

Joe Biden’s national security adviser, Jake Sullivan, recently gave a speech in which he said that gross domestic product growth by itself is not good enough, it must be sustainable and equitable. This is the challenge for decades to come and a clear departure from the traditional Washington Consensus model, which focused on unfettered growth through deregulation and trade liberalization.

Having gotten the Europeans, Canadians and Japanese to join shared clean energy supply chain efforts ahead of the G7, the administration used its time in Japan to push through the details of what a US-led industrial policy would look like. around climate, particularly in the global south. This, too, is new: The Washington Consensus was all about delivering a single growth playbook to the world. Today’s world is much more multipolar, a reality that the US must recognize and adapt to as it tries to bring a greater coalition of nations to a new economic order, even if it does not yet have a fully unified theory.

However, some principles are beginning to take shape, notably that global markets must be incentivized in new ways to put not only the planet first, but also its people, or, specifically, its workers. One of the central problems of the old system of globalization was that it constantly prioritized capital over labor. That can result in strong growth, though not always. But it certainly results in further financialization and financial fragility (as measured by the increasing number of financial crises).

It also leads to growing inequality as wealth is concentrated in a handful of places. One of Biden’s main goals at home has been to fight this. In a 2021 speech, she laid out a new approach to national competition policy, designed to put workers first. This approach was also evident in the G7, in the promise to fight “economic coercion”, whether from companies or states.

The immediate targets on that front are Russian commodity militarization and Chinese mercantilism. But the ultimate goal is to avoid economic bottlenecks wherever they occur. This builds on the push for resilience over “efficiency,” which is less about “decoupling” with China than about “derisking” in many markets. By framing a new trade and foreign policy not around the US-China conflict, but in terms of limiting dangerous concentrations of power in any nation or company, the administration hopes to address multiple issues at once: unfair state subsidies , monopoly problems at home and abroad. and national security concerns, without triggering a new war.

That means creating more redundancy in supply chains that have the potential to be weaponized. It also means working with new partners in the global south to create stronger supplies of commodities such as rare earth minerals. This was also the subject of discussion at the summit, as the US tried to show that “friendly hosting” was not something to be done only with the EU, Japan, Canada and Australia.

De-risking is a message to which the G7 nations, and indeed many others, respond. No one wants to live in a world where an autocrat can turn Europe’s supply of grain or gas on and off, or where the global supply of high-end semiconductors can be limited by blockading a single island. Hence the efforts to work with Europe, Japan, Korea, Taiwan and India to coordinate new semiconductor incentives, subsidizing more chips everywhere.

But devising the metrics and institutions for this new world, and figuring out how best to incentivize sustainable and equitable growth, will be a long and challenging process. While the US is willing to bring issues like World Bank reform to the table, it has not spent as much time on the hot topic of how to reform the World Trade Organization. And the tensions remain. The G7 communiqué made clear a desire to take on any “non-commercial policies and practices,” which, for the US, includes those in China that negatively affect workers or the environment, and limit access to technologies that compromise national security.

Still, Biden finally gave the world a clearer argument for why flagship national economic programs like the Inflation Cut Act, the Chip Act, and allocating more money for infrastructure tied to high labor and environmental standards They are not about nationalism but about a new approach to growth both nationally and globally. “The president believes that a bottom-up, out-of-the-box approach focused on resiliency, sustainability and worker empowerment is best for the US, but also for the world,” says deputy security adviser National Mike Pyle.

Whether you call it a middle-class foreign policy or a new global industrial policy, it’s certainly very different from the “market knows best” strategy the US has embraced at home and abroad over the past few years. decades.

frog.foroohar@ft.com