A revised Washington Consensus is beginning to gain coherence

US President Joe Biden’s administration represents a radical departure from previous Democratic administrations, pursuing ambitious industrial policies to revive domestic manufacturing and facilitate green transition. It has taken a tougher stance on China than any previous administration, including former President Donald Trump, 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 different elements and reassures countries, including China, that its economic strategy is not focused on confrontation, unilateralism and protectionism. But recent comments from US Treasury Secretary Janet Yellen and National Security Adviser Jake Sullivan indicate that the administration is now taking steps to address the issue, potentially signaling the emergence of a new Washington Consensus.

The administration’s approach to the world economy reflects a wider intellectual shift. Senior US policy makers now believe that the post-1990 model of globalization, which prioritized free trade and free markets over national security, climate change, and the economic security of the middle class, undermined the socioeconomic foundations of healthy democracies. Is done.

In his remarks, Sullivan laid out 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 catalyze private investment in the sectors considered. Vital to American 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”. economic partnership” that addresses global challenges such as climate change, digital security, job creation, and corporate tax competition. The United States will seek to mobilize trillions of dollars in investment in emerging economies and provide aid to those facing credit crunch.

While each of these areas presents unique challenges, some are particularly contentious, as other countries view certain policies, such as the administration’s ‘Buy American’ requirements, as protectionist. But Sullivan’s fifth pillar, which focuses on “protecting our core technologies,” may 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 clearest expression of this pillar. And the administration is reportedly planning additional restrictions on US investment in Chinese tech firms, particularly in strategically important sectors such as microchips.

Chinese officials, including President Xi Jinping, have accused the US of imposing a “technological blockade” on the country. Financial Times columnist Edward Luce agreed: 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”, driven by national-security concerns and aimed at “a narrow slice” of advanced technologies. were on purpose.

Yellen’s speech, given at the Johns Hopkins School of Advanced International Studies in late April, anticipated Sullivan’s message a week later. Export controls, she argued, are meant to address national-security concerns and “remain narrow in scope and targeted.” He stressed that the US is not trying to undermine China’s economic development and technological modernization.

The clarifications provided by Sullivan and Yellen indicate that the administration understands the risks of imposing overly broad trade and investment restrictions in the name of national security. Such measures would hurt the global economy and are likely to provoke China to retaliate.

A stable global order rests on norms and practices that recognize the right of each country to defend its national interests. There is also a need for rules of the road to ensure that the defense of these interests is well calibrated and does not harm other countries. Achieving this can be challenging, but it is not impossible. When governments pursue national-security objectives through unilateral policies that negatively affect other countries, policymakers must clearly articulate their goals, maintain open lines of communication, and follow through on those policies. Should propose narrowly targeted measures aimed at minimizing adverse effects. Policies should not be pursued with the express purpose of punishing or undermining the other side, and failure to reach an acceptable agreement in one area should not become an excuse for retaliation in an unrelated domain. As Stephen Walt and I have argued, such self-imposed limits on acceptable policies can help prevent escalation and even lead to reluctant acceptance from the other side.

Recent statements by Yellen and Sullivan suggest that the foreign economic policies of the Biden administration will be consistent with these principles. But some important questions remain unanswered. For example, were US export controls on advanced chips well-calibrated, or did they go too far in destroying Chinese technological capability without substantially benefiting US national security? And, given that the sanctions are expanding into other important areas such as AI and nuclear fusion, can we still describe them as targeting only a “narrow slice” of technology? Furthermore, it is unclear whether the “direct” national-security concerns cited by Sullivan and Yellen are genuine or merely an excuse for unilateral action. Is the US ready to accept a multipolar world order in which China has the power to shape regional and global rule-making? Or is the administration committed to American primacy, as Biden’s strategy suggests?

Actions speak louder than words and will reveal the answers to these questions. But the comments from Yellen and Sullivan offer some reassurance to those who believe the US can address legitimate national-security concerns without undermining the global economy. ©2023/Project Syndicate

Dani Roderick is Professor of International Political Economy at the Harvard Kennedy School, and author of Straight Talk on Trade: Ideas for a Saner World Economy.