President Joseph R. Biden's rousing State of the Union speech this month vividly reiterated American support for democracy in Europe and Asia. The United States, he declared, is forging military and political ties with allies to support Ukraine against Russian aggression.
What was missing in the President's speech was even a passing reference to America's leadership in international economic relations, creating a world economy that has prospered because of fair trade and open markets, under rules the United States helped write. There was also nothing about working more closely with other countries for the common good. Economic ties with allies, no less than political ties, have kept Europe and Asia close.
The message instead was that when it comes to the United States spending $1.2 trillion in modernizing infrastructure, nothing from outside the United States will qualify, regardless, one supposes, of considerations of quality, availability, or cost. America has been in intense talks with its allies on building resilience into supply chains, but such cooperation was not taken into account. A preference for buying domestic goods is one stance that has been around for decades; a prohibition on any foreign content goes a step further.
The speech was not the first time that the Biden administration has adopted a stance at variance to working with other countries. The Inflation Reduction Act, signed into law last year, discriminates against foreign goods, including from our closest allies. Discriminatory subsidies, contrary to US international obligations, and opposed when other countries (like China on semiconductors) have enacted them, would be paid to buyers of electric vehicles that are assembled in the United States with batteries made from materials sourced in the United States. Similarly, the Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act of 2022 provides $50 billion to support US production of semiconductors. Both acts have popular goals, the first aiding the environment by lowering greenhouse gas emissions and the second to avoid excess dependency on two countries in Asia for the most advanced computer chips. What is missing is consideration of working with other countries to reach these objectives.
Global leadership requires more than defense arrangements and a strong domestic economy. It requires fostering a world in which economic relations with other countries are considered in making policy choices. What should the administration do going forward?
- Start out by working with key allies and others who are like-minded to improve the rules governing world trade where they are currently inadequate. And then re-commit to living up to the rules.
- Tailor trade remedies to valid concerns – invoking national security as a reason for restricting imports of steel and aluminum from allies is clearly a bogus rationale and indefensible.
- Work with allies to create rules and measures to assure that the challenges of trading with a state-capitalist country such as China are designed to offset market distortions and serve clear long-term goals, as opposed to imposing broad tariffs that may largely transfer costs on to Americans that are not justified by the benefits.
- Re-engage with the Pacific rim countries that joined the United States in signing the Trans-Pacific Partnership in 2016, which President Donald Trump repudiated when taking office. Washington should seek closer economic relations with these countries that can offer market access, instead of abandoning the pact to China, which has applied to take America's place.
- Find a way to join the US economy more closely with that of the European Union, providing additional access to the European Union, the world's largest market, and ensuring that both sides of the Atlantic cooperate, not undercut each other, on climate change.
America's values and its democratic beliefs cannot be promoted with an economic policy that looks inward. The goal of leading in concert with others to greater prosperity is not inconsistent with the values of the Biden administration to restore dignity and prosperity to workers—enlightened domestic policies are needed to overcome inequalities. These objectives cannot be reached by a retreat from engaging with the world. President Biden said repeatedly on Tuesday night, "Let's finish the job." He might have added, "Let's return to the job we have abandoned."
Full disclosure: During my career I have worked as an advisor to the presidents of the industrial unions of the AFL-CIO as well as the CEOs of major American exporters where they had common interests. I have had long associations with the US semiconductor and steel industries. I served as a trade negotiator for the United States and as an international civil servant at the World Trade Organization. I remain sympathetic, in the context of an open rules-based international trading system, to resolving the challenges these workers, companies, and institutions face.
This publication does not include a replication package.