American 'Progressives' Want to Go Back to the 1950s

"The Biden administration plans a fundamental transformation of American economic policy at home and abroad. That's the takeaway from national security adviser Jake Sullivan's speech at the Brookings Institution last week. Initial press coverage focused on the nuances of China policy -- "derisking" is in, "decoupling" is out -- but to stop there is to miss the point. This was a big speech about major policy changes, and those who want to understand the direction of American policy in a second Biden term would be unwise to overlook it.

The break with post-Cold War Democratic trade and economic policy is radical. Gone are the emphases on trade liberalization, growth and market-oriented reform. Those misguided policies, in the administration's view, are responsible for many of the ills afflicting humanity today. China's ascent, the erosion of the American middle class, the rise of populism, climate change and financial instability are the consequences of the flawed economic policies promoted by, among others, President Bill Clinton and his Treasury secretaries, Robert Rubin and Larry Summers.

So much for the old Washington consensus, as this policy mix was called in its heyday. What Mr. Sullivan proposes to take its place focuses on shaping industrial policy, protecting against China, defending American labor from foreign low-wage competition, and using tools ranging from tariffs to international financial institutions to push countries in the Global South to meet climate-change goals. Governments would do much more to direct capital toward the industries and outcomes bureaucrats and elected officials prefer.

Politically, Mr. Sullivan's new Washington consensus reflects the convergence of three elements of Democratic politics. Labor unions hated Clinton-era trade policy, opposing the North American Free Trade Agreement, the formation of the World Trade Organization and China's admission into it. In their view, allowing developing countries to compete in American markets with low-wage labor constitutes a "race to the bottom" -- something Mr. Sullivan explicitly says the new policy is designed to avoid.

Also worried about races to the bottom are climate activists and renewables lobbyists. Poor countries typically impose less-onerous environmental regulations on industry to maximize their cost advantages. Banning or penalizing products made with fossil fuels and other carbon-intensive methods would force low- and middle-income countries toward climate policies they might otherwise avoid.

For lobbyists, the administration's approach means literally trillions of dollars in business opportunities as international trade policy drives low-income countries to adopt products and technologies the renewables lobby hawks.

Finally, many so-called progressives and democratic socialists yearn to return to the system of relatively closed and highly regulated national economies that characterized the immediate post-World War II era. The rise of integrated global financial markets and trade liberalization undermined national governments' ability to control economic conditions inside their frontiers. Mr. Sullivan's new consensus seeks to establish global financial rules and tax policies that would support national governments' ability to return to the strong regulatory policies of the 1950s.

The Biden approach is politically shrewd, appealing to blue-collar Democrats as well as greens and progressives. Many CEOs, however dubious they are about the long-term consequences of growing government influence over the economy, will see opportunity in the subsidies Biden-style economic activism offers.

As my colleague Joseph Sternberg recently pointed out, many Europeans resent the protectionist America-first subsidies built into the misleadingly titled Inflation Reduction Act. But smart European opinion understands that in the long run the new Washington consensus will be a godsend to Brussels. Many Democrats have long wanted American social and economic policy to become more European. That is exactly what Mr. Biden's new economic policy aims to deliver. It might better be called the Brussels consensus as the mix of green activism, state planning and labor protectionism the administration embraces reflects classic European Union views.

There are, of course, questions. Can bureaucrats generate brilliant plans for industrial and technological growth that work better than markets? Will policies that failed to bring social peace in countries like France block Trumpian populism in the U.S.? Over the past 20 years, American economic growth has substantially outpaced that of the EU. Will conforming American economic policy to the model of the slow-growth EU help the West keep pace with China? Will pressuring low- and middle-income countries to adopt more expensive energy policies while blunting their ability to capitalize on low labor costs help the West find allies beyond the Group of Seven?

The Biden approach is less innovation than nostalgia. There is little in it that would surprise Walter Mondale. But to oppose Bidenism effectively, pro-market Democrats and Republicans will have to do more than grouse about the statism and crony capitalism embedded in the administration's approach. They need to develop domestic and international economic policies that are equally shrewd politically -- and more likely to work." [1]

1. 'Progressives' Want to Go Back to the 1950s
Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 02 May 2023: A.15.