To the outside world, America seems to be a deeply polarised society. That’s certainly true in regards to social issues, where liberals and conservatives struggle to find even a single instance of shared political ground. But don’t let culture war divisions distract you from the emergence of a dangerous new consensus in America: the bipartisan embrace of economic nationalism.
Back in 2016, most people recognised that Donald Trump’s election as President would entail a shift away from the free trade consensus embraced by Reagan, Bush I, Clinton, Bush II, and Obama. Trump’s protectionist proclivities were a matter of record, and he quickly acted upon them through the imposition of import tariffs. Few anticipated that this shift on trade would accompany growing skepticism about free markets in general, let alone the degree to which the Biden Administration would accelerate America’s turn away from free trade.
Consider, for instance, Biden’s 2022 CHIPS Act. It provided $280 billion to advance research and development, build a stronger STEM labor force, and boost US semiconductor capabilities. Its companion bill – the misleadingly-named 2022 Inflation Reduction Act (IRA) – is just as interventionist. Far from dealing with inflation, the IRA made available $370 billion in tax breaks, grants, and targeted subsidies to bolster America’s manufacturing sector, as well as offering something dear to the American Left: a transition to green energy.
The actual dollar amounts are not important. What matters is that the Biden administration is unapologetically seeking to alter the sectoral allocation of capital and labour throughout the Federal government instead of leaving it to markets. It is also doing so on a scale that neither Bill Clinton nor George W. Bush would have contemplated.
There is no shortage of legislators across the American political spectrum who support this shift away from markets towards very intentional interventionism. Senators Elizabeth Warren and Marco Rubio could not have more divergent views on social questions. But if you look closely at their preferred economic policies, their alignment is remarkable.
Both insist, for example, that allowing China into the WTO cost American jobs. Warren and Rubio subsequently want to rethink the whole approach to trade. Both also maintain that America needs to make more extensive use of industrial policy. They’ve even co-sponsored legislation designed to reduce reliance on overseas production of pharmaceuticals.
The reasons for this broad shift towards economic nationalism include national security concerns about China, angst about climate change, and a desire to help blue-collar working-class Americans who, populists from the left and right maintain, have been net-losers from globalisation. It’s clear that American faith in markets to allocate resources efficiently has gone.
The long-term consequences for the American economy of this shift will prove dire. For one thing, economic nationalism’s track-record for delivering anticipated outcomes is abysmal, while its capacity to breed economic inefficiency and stifle growth is well-established.
And what does this sea-change in economic policy mean for the world outside the United States? Nothing good.
America’s inward economic turn means that it can no longer be relied upon to be supportive of trade liberalisation. Absent American pressure for a global lowering of trade barriers among WTO members, the growth-enhancing effects of multilateral trade liberalisation will slip out of reach. Less economically developed countries who desperately need to trade if they are to continue reducing poverty will be the biggest losers.
Economic nationalism in America also makes trade conflicts between big economic players more likely. Trump has already promised to slap a new 10 per cent tariff on all goods entering America if he is elected president in 2024. The temptation for other countries to retaliate would be acute.
The Biden Administration’s extensive use of subsidies is already inflicting its own economic dysfunctionalities upon other countries. Since the passing of the IRA and CHIPS Act, which offer generous tax credits for American-made products, governments around the world have been under pressure to provide similar subsidies to companies involved in green energy or semiconductor production. This will prove to be immensely wasteful – subsidies in Britain, the argument goes, will cancel out the effects of subsidies in America.
That’s if Britain can even afford to keep up with them. Motor manufacturing is a major export industry for the United Kingdom, and America is currently the second largest buying market. If the EU and America go to war over electric vehicles, a post-Brexit Britain may find itself left out in the cold, unable to bear the cost of retaliatory sanctions. As the saying goes, there is no winning in war: only varying degrees of loss.
Playing the subsidies game widens opportunities for efficiency-sapping cronyism. It drives an on-going misallocation of resources in any country whose government succumbs to such pressures. And does anyone seriously believe that an economically nationalist America would not respond to such measures by raising its own subsidies again, thereby sparking a subsidies arms-race?
It may be that we are only in the warm-up stages of an American embrace of economic nationalism. If so, the West is in for a wild ride, as the axioms associated with the Reagan-Clinton years are replaced with a Trump-Biden set of priorities. The end result will not only be a less prosperous America, but also a more economically fractured and poorer world.
"trade" - Google News
September 01, 2023 at 08:38PM
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Joe Biden's secret trade war will cripple Britain - The Telegraph
"trade" - Google News
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