What’s good for America is good for the world. That’s the message the US was trying to sell at the G7 meeting in Hiroshima. The Biden administration has recently been accused by allies and opponents of putting the United States first, if not isolating, in certain economic policies. But in Japan, the U.S. team sought to link their people and place-based domestic economic strategy to their new approach to foreign policy.
Joe Biden’s national security adviser, Jack Sullivan, recently spoke out that GDP growth by itself isn’t good enough — it has to be sustainable and fair. This is the challenge for the coming decades and a clear shift from the traditional Washington Consensus model, which focused on unfettered growth through deregulation and trade liberalization.
After successfully engaging Europeans, Canadians and Japanese in efforts to share clean energy supply chains ahead of the G7 meeting, the administration used its time in Japan to advance the details of a US-led climate industrial policy — particularly in the global south. This is also new – the Washington consensus is to provide the world with a growth playbook. Today’s world is more multipolar, a reality the US must acknowledge and adapt to as it seeks to bring a larger coalition of nations into a new economic order — one that doesn’t yet have a fully unified theory.
However, some principles are beginning to emerge, notably the need to incentivize global markets in new ways that prioritize not only the planet, but its people—or, more specifically, its workers. One of the core problems of the old globalization system was that it always prioritized capital over labor. This can lead to strong growth, though not always. But it will certainly lead to more financialization and financial fragility (as measured by a growing number of financial crises).
It also leads to rising inequality as wealth is concentrated in a few places. One of Biden’s main goals at home is to fight it. In a speech in 2021, he proposed a new approach to domestic competition policy that aims to prioritize workers. At the G7 meeting, this approach was also reflected in a pledge to combat “economic coercion”, whether by companies or states.
The immediate targets in this regard are commodity weaponization in Russia and mercantilism in China. But the ultimate goal is to avoid any economic bottlenecks. This is based on a drive for resilience rather than “efficiency”, which is less about “decoupling” from China than “de-risking” in many markets. By crafting a new trade and foreign policy centered not on US-China conflict but on limiting the dangerous concentration of power in any country or corporation, the government hopes to tackle multiple problems at once—unfair state subsidies, monopoly problems at home and abroad, and national security issues—without sparking new wars.
That means building more redundancies in supply chains that could potentially be weaponized. It also means working with new partners in the global south to create stronger supplies of commodities, such as rare earth minerals. This will also be discussed at the summit, as the US tries to show that “supporting friends” is not something that has to be done alone with the EU, Japan, Canada and Australia.
De-risking is the message that the G7 countries, and many others, echo. Nobody wants to live in a world where Europe’s food or gas supplies can be turned on and off by a dictator, or the global supply of high-end semiconductors can be fenced off by blocking an island. So try to work with Europe, Japan, South Korea, Taiwan and India to coordinate new semiconductor incentives to subsidize more chips everywhere.
But developing the metrics and institutions for this new world, and figuring out how to better incentivize sustainable and equitable growth, will be a long and challenging process. While the US is willing to bring issues such as World Bank reform to the table, it has spent less time on the larger flashpoint of how to reform the World Trade Organization. Tensions remain. The G7 communiqué expresses a clear desire to adopt any “non-market policies and practices,” which, in the case of the United States, include those in China that adversely affect workers or the environment, and restrict access to technologies that endanger national security.
Still, Biden did end up making a clearer argument to the world as to why signature domestic economic programs like the Lower Inflation Act, the Chip Act, and spending more money on infrastructure related to high labor and environmental standards More money, not about nationalism, but about new approaches to domestic and global growth. “The president believes that a bottom-up, middle-out approach focused on resilience, sustainability and worker empowerment is best for America, but also for the world,” Vice National said security consultant Mike Pyle.
Whether you call it a foreign policy aimed at the middle class, or a new global industrial policy, it is certainly very different from the “market knows best” strategy that the United States has pursued at home and abroad for the past few decades.
rana.foroohar@ft.com