Nathan Gardels is the editor-in-chief of Noema Magazine.
Donald Trump broke the mold on globalization, mostly with his bombastic “America First” rhetoric that nonetheless shifted an entire mindset. U.S. President Joe Biden, with little bombast but competent policy chops, has succeeded in putting the interests of America’s working class and national security first. In the process, he has rankled key allies who depend more on the global economy than the U.S. does with its huge domestic market while provocatively seeking to impede China’s prospects of rapidly arriving at the forefront of technological prowess.
In short, the dismantling of the expansive interdependence constructed over recent decades, which Trump only tweeted about, is well underway. We are seeing today an early outline of what such a world might look like in all its geopolitical and geo-economic manifestations.
Biden’s signature success rests on three pillars: The CHIPS and Science Act aimed at building American self-reliance in semiconductor fabrication, supply chains and advanced R&D in frontier technologies; the Inflation Reduction Act focused on the transition to renewable energy; and strict export controls that clamp down on China’s access to cutting-edge information technologies from the West.
In a reverse twist of past trade battles in which the usually laissez-faire U.S. objected to subsidies and domestic content rules by more statist economies, last week President Emmanuel Macron of France and Chancellor Olaf Scholz of Germany threatened retaliation over the “unfair competition” and “market-distorting” provisions of the Inflation Reduction Act. Their concern is that Biden’s “buy American” requirement that would shift production and jobs of electric vehicles to the home front will hollow out their own formidable automobile industries. Macron hit back: “We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” he said.
South Korea, also a large car manufacturer and tech exporter, sees the IRA and the CHIPS Act as “a violation of trade rules” and the already negotiated agreement on “deepening economic partnership” with the U.S. One legislator from the National Assembly called Biden’s policies a “betrayal.”
China is apoplectic over the new export controls that go way beyond Trump’s anti-Huawei campaign, pushing it even deeper and more quickly into its “dual circulation” scheme of bolstering its own self-reliance in what now appears to be an inexorable course toward two worlds, two systems on all fronts. China had already started down this path with its Made in China 2025 effort announced several years ago.
In Noema this week, Jordan Schneider quotes U.S. National Security Advisor Jake Sullivan as saying: “We have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies. We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead.
That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”
As Schneider notes, this new policy overrides the arguments of other administration officials who fear going too far. He cites Treasury Secretary Janet Yellen’s 2021 testimony to Congress that: “If we are too broad in our policies in terms of how we approach [technological decoupling], we could lose the benefits that come from having globally integrated technology systems where advances in one country benefit countries worldwide. The globe has benefitted substantially from spillovers of technological developments.”
For now, the die is cast. “Ultimately,” writes Schneider, “President Biden’s tech policy will be judged on two things: did it allow the U.S. to retain its edge in critical technologies? And did its policy moves put the U.S. and China down a path to conflict in Taiwan — a possible threat, since cutting off Chinese firms from the Taiwanese semiconductor ecosystem means China has less to lose economically from a blockade.”
The End Of Globalization Or Hyper-Globalization?
“Democracy, national sovereignty and global economic integration,” Harvard’s Dani Rodrik presciently argued some years ago, “are mutually incompatible: We can combine any two of the three, but never have all three simultaneously and in full.”
As Rodrik wrote at the time: “Essentially, globalization went from being a means for national economic prosperity to becoming the end — with national domestic priorities having to adjust to globalization’s needs instead of vice versa. We need to rescue globalization not just from populists, but also from its cheerleaders. Globalization evangelists have done great damage to their cause not just by underplaying the real fears and concerns on which the Trumps of this world thrive, but by overlooking the benefits of a more moderate form of globalization. We must reassess the balance between national autonomy and economic globalization. Simply put, we have pushed economic globalization too far — toward an impractical version that we might call ‘hyper-globalization.’”
For Rodrik, there is no “one size fits all” globalization. “I am in favor of allowing countries much greater latitude in the conduct of industrial policies,” he said in an interview. “When they succeed, this is good not only for the countries themselves but also for other nations because it enables economic growth and hence, greater trade opportunities. When they fail, the costs are borne primarily by domestic consumers and taxpayers.”
It remains to be seen whether Biden’s retreat from being a cheerleader of hyper-globalization can at the same time keep open the beneficial doors of global commerce, or whether it will all fall apart into beggar-thy-neighbor protectionism that damages everybody — particularly when the well-woven threads of interdependence still crisscross all boundaries, including those of key allies and strategic competitors alike.
Going too far, or not going far enough, each entails considerable risks. By definition, unilateral action that seeks advantage over mutual benefit in a deeply interconnected system threatens the stable order upon which peace rests. History has regrettably demonstrated that if economic war erupts, more dire consequences are never far behind.
Getting the balance right is the hardest part. As Bill Clinton once sagely put it to me: “Building up one’s own country is not in contradiction with the imperative of global cooperation. It is the pre-condition for it.”