US Leadership: Let’s Get Real
The Biden Administration has issued a call for “Renewing American Economic Leadership” (RAEL). Let’s get real. The US is in no position to “renew” the many aspects of its global economic leadership that naturally weakened over time — or that Washington willingly sacrificed to other goals.
The administration has made some desperately needed shifts towards a more activist domestic industrial policy that promotes domestic manufacturing of microchips and of clean-energy components. That’s a good thing and should benefit the country. Internationally, though, its RAEL initiative looks more like Trump’s MAGA (Make American Great Again) by another name than it does a feasible or well-thought-out strategy.
The administration has little new to propose as it confronts an increasingly multipolar global geopolitical and economic landscape. Rather, it is looking to the past for rhetorical props and, when that fails, belligerently complaining of real or imagined threats to national security. Learning to share power and to live with a smaller role on the international stage is not yet part of the conversation at the upper reaches of American leadership — which is frightening.
The only positive thing you can say is that Washington’s failure to adjust to reality might provide impetus for the country’s ill-governed citizens to strike out on their own toward community-level governance and degrowth.
Promises, Promises
This spring, Treasury Secretary Janet Yellen and National Security Advisor Jake Sullivan each set out to clarify US economic policy in an international context. Their two very different talks overlap on two important points: First, they define national security as the top international concern; and second, they stress that the US is and will by right remain “at the heart” of the global economy — the core around which peripheral countries organize as partners, or competitors.
Yellen and Sullivan both talk about climate change and the energy transition, as well, portraying this as one of the areas where the US is by right the global leader. Of the many questionable aspects of their worldview, given China’s leadership in renewable energy, this ranks high on the delusional scale.
Yellen’s speech focused largely on China and is embarrassing close to a restatement of the old Washington Consensus, the immediate post-Soviet-era concept that the entire world should follow US free-market principles in economic, trade, and monetary policies. China failed to accept the agenda, it seems. It pivoted away from “market reforms” towards a “state-driven approach that will undercut its neighbors and countries across the world,” Yellin says.
The US, in contrast, “proceeds with confidence in its long-term economic strength,” and remains “the largest and most dynamic economy in the world.” The US wants to work with China, but “our national security interests and those of our allies and partners” come first. The US will protect its national security interests only with “narrowly targeted actions,” Yellen says, without directly mentioning the Administration’s broad campaign to deny China access to all the latest microchips and all equipment to manufacture them. Nor does she mention attempts to undercut dollar supremacy in trade and finance.
Sullivan’s speech, to its credit, isn’t so simplistic. It is an explanation of how a new activist domestic industrial policy integrates into a foreign policy no longer focused on lowering tariffs and “non-tariff barriers to trade.” It is partly aimed at reassuring Europeans and others who fear they may be frozen out by the Made in America requirements for tax breaks and direct subsidies that are central to the new US domestic industrial strategy.
Sullivan concedes some past errors. Long US championing of “tax cutting and deregulation, privatization over public action, and trade liberalization as an end in itself” didn’t work out well. “Finance” gained, but US manufacturing and its middle class lost out. In my words, globalization gutted America. The “new Washington Consensus” he describes will bring a “fairer, more durable global economic order.” Or so he says.
It sounds good. Many of the ideas Sullivan packages under this brand, from more emphasis on the environment and workers’ rights to reducing inequality, are good and are supported to a degree by promising new US domestic policies.
But at the international level, where is the administration trying to take the US? Sullivan’s unimaginative answer is, in effect, back to the New Deal Order developed by President Franklin Roosevelt and perpetuated by both US political parties through the post-WWII decades until the energy-crisis-ridden 1970s. The US will toss out neoliberalism and return to its glory days — to policies that defeated the Depression, the Nazis, and the Japanese imperialists.
Specifically, Sullivan advocates a public-private model of industrial planning that aims at restoring core domestic strengths: manufacturing, technical innovation, and control of global energy supply. Prominently coupled with this is a Cold War willingness to do whatever it takes to defeat domestic deindustrialization, the Russians, and the Chinese — not exactly Make America Great Again, but close. No big American political divides here.
Problems on Problems
The problem is, when the US rolled out its international order 80 years ago under Democrat Harry Truman and Republican Dwight Eisenhower, it had virtually all the world’s money, most of its factories (outside the Soviet Union), and control over the supply of oil (outside the Soviet Union), the up-and-coming new energy source.
Now the US has the world’s largest chunk of government debt, few factories, and rapidly diminishing world-level control over either old or the up-and-coming new energy sources.
Worse for Washington, its “strategic competitor” China is in a position now which, while not as dominant, is disconcertingly similar to that of the US in 1945: It has lots of cash to lend out, it has the most factories, and it’s way out front on developing the up-and-coming new energy sources. Through its close relations with Russia and Saudi Arabia, it’s well-placed even in the fossil fuels where the US was once kingpin.
Also, the policies Washington is adopting bear at least as much similarity to domestic economic strategies adopted by Beijing to its great advantage under the “reform and opening-up” initiated by Deng Xiaoping in the late 1970s as they do to Roosevelt’s earlier New Deal approach. These policies have a pretty good track record in several places, including post-war Germany and Japan, so it might seem that a new Washington-Beijing Consensus could be achievable — and beneficial for the world from a conventional economic perspective.
But forget that. It ignores the question of who’s boss. And that’s an issue that most US leaders — be they Republican or Democrat, in Washington or on Wall Street or in Silicon Valley — simply aren’t facing. Multilateralism, they seem to mutely ask? What multilateralism?
As stated, MAGA and RAEL both sound as if they accept the rather obvious fact that the US has fallen from the pinnacle of world leadership. But in both cases, they also presuppose a quick return to that role. They don’t acknowledge that much of the world no longer wants US leadership and that the US has no clear idea where it wants to lead the world.
Look at some of the specific falls the US has taken: It runs chronic, huge government, trade, and balance of payments deficits. Personal and corporate debt is enormous. This problem has been recognized and discussed for decades. Yet US leaders have for decades enunciated no intention, much less plan, to fix it. Speaker of the House Kevin McCarthy recently proposed yet another commission to yet again tackle government debt, but few even in his own party are paying attention.
The dollar is still the dominant currency of world trade and finance, but that is under steady attack, due in large part to resentment at Washington’s increasing reliance on financial sanctions to impose its will on others. There has been barely a mention of “dedollarization” moves from the US government — Yellen didn’t touch on it in her speech — and the financial and business elites pour scorn on the notion that the almighty dollar could ever be challenged. The result of this willful ignorance could be a painful jolt.
Resorting to talk of war doesn’t help. The US has essentially lost all the wars it has fought in the last 50 years, starting with Vietnam, ending with Afghanistan and, most would agree, including Iraq/Syria. Americans have no stomach for more war unless somebody else fights it (as in Ukraine) and the cost goes on a credit card. Yet annual increases in the military budget are routine and unquestioned — a budget that already dwarfs the combined total of all the spending by all the countries that have defeated the US in all those wars over the last five decades.
Bottom-up Solutions
Does it really matter if US leaders kid themselves and their constituents about US leadership? Won’t others largely ignore their platitudes and won’t the drift towards multilateralism continue regardless? Perhaps. But it surely doesn’t help US standing that its leaders appear either dishonest or ignorant in their assessment of the state of the world.
Worse, not facing up publicly to problems with the international economic order inevitably shifts the discussion to national security, a militarized zone where the US leadership appears to feel on more solid ground — despite their dubious military record.
A sizable portion of ordinary Americans accept that the country has deep problems which it must deal with as a top priority, and that this may mean sharing the international limelight. Or so the polls tell us. But rather than encouraging and building on this to help the country accept its diminished global role, both Trump and Biden have chosen to blame outsiders — mainly the Chinese and Russians — and pretend that the US is still the “indispensable power” of Hillary Clinton’s and the foreign policy establishment’s imagination.
America needs desperately to move on, to reinvent itself as more egalitarian, cleaner, less carbon-dependent, and less consumerist. But its aging leaders see no way forward, and younger leaders haven’t garnered the energy to replace them. The American people will have to reinvent themselves from the ground up, it seems, one household and one community at a time. You can argue whether it should and could be otherwise, a challenge I’ll take up soon. But for now, that’s the way it is.
