Author: Editorial Board, ANU
At the end of 2022, there was little doubt that the Biden administration in Washington would join its predecessors in a mission to destroy the rules-based international trading system. war. In December, US Trade Representative Katherine Tai snorted at the WTO’s decision to oppose the Trump administration’s steel and aluminum tariffs.
And Biden’s team introduced the CHIPS and Science Act, which seeks to limit China’s participation in the complex international semiconductor chip trade and production network. There is no more pretending not to force countries to choose. If U.S. allies remain in the semiconductor business with China, they will be hit by sanctions. While this is marketed as a security policy, it looks like a crude protectionist industrial policy as some US companies have been given temporary licenses to continue operating in China.
In case of doubt, the Biden administration has since introduced the misnamed Inflation Reduction Act. This has significantly boosted US electric vehicle manufacturing subsidies due to its massive support for industrial policy. Exactly the problem the Biden administration is blaming. Chinese — and withdraw from open trade.
This is a significant shift in U.S. economic policy and a major blow to the rules-based economic order historically the U.S. has been a major defender. This is a systemically important development as the United States is still the world’s largest economy and the world’s second largest trading nation, even with its economic and social infrastructure problems. Although less important in the global economy and global trade than it once was, it is still a world superpower, and its innovation and moral authority mean that nations still look to Washington for leadership.
From architects to enforcers, the United States has become the top spoiler of the international trading system.
How did this come about? And what about the rest of the world, especially the trade-intensive economies of Asia, where economic and political security are deeply tied to the effectiveness of a rules-based multilateral trading system?
While that didn’t come immediately, Trump has undoubtedly accelerated policy shifts, adopting populist protections against foreigners and foreign products as a winning political strategy. In the absence of national contracts and policy strategies that emphasize social protection, and institutional arrangements to mitigate and compensate for the impact on those at the forefront of economic and social change and those caught up in its reversal, Trump We have captured a disaffected regime.
The Biden administration has also used its political payload and its policy philosophy to embed the same fundamental policy mistakes, assigning the wrong policy instruments to the wrong policy goals.
As William Reinsch argues in this week’s main article, changes in U.S. trade policy have meant that “traditional free trade agreements have benefited large corporations and their executives at the expense of workers. If that is true, there are more efficient ways to redress injustice than cutting off the benefits of trade. The Biden administration’s trade policy toward the middle class is focused on sharing the benefits of trade, but there is no trade policy to produce it.
Open trade has made America considerably richer. America First and decoupling make America poorer. Worker-centric trade policies that undermine international expertise and competitiveness reduce the wealth of nations that can guarantee the income and well-being of workers.
In forcing countries to choose between the US and China, Reinsch argues that the “change the rest of the world” policy the US is seeking is by no means economically or politically costless. But so far that doesn’t seem to be the case in America. ready to pay them.
Although primarily a matter of domestic policy mismanagement, geopolitical aspects play a big role. China is now seen as the dominant economic and security threat to the United States and, by extension, its allies. Economic separation from China is justified in terms of national security strategy. The COVID pandemic is fueling an irrational fear of vulnerability through exposure to international trade. And Russia’s invasion of Ukraine has deepened concerns about the security implications of trade dependence.
Across the country, Mr. Biden is hitting many different targets at once. Promote domestic production of key high-value commodities such as electric vehicles. Protect jobs in industries with political power such as steel. Reduce income inequality.
Internationally, he wants to make the United States more self-sufficient with safer international supply chains in key regions. To achieve that, he forges regional and global alliances. At the same time, responding to climate change issues. But his administration seems to have only a confused notion of how his intervention in one area of this policy mix will affect its ability to achieve the desired outcome in others.
There is one thing the rest of the world can be absolutely sure of. There is no quick solution to sort out the dysfunction of US national policy, which is currently affecting the proper implementation of national economic policy. The hitherto unthinkable reality is that the United States will likely be red-carded in conducting sound international economic diplomacy and out of the game for years to come. It will take a generation or two politically to resolve the pickle in which America is caught.
It is now the starting point for the implementation of international economic policies in Asia.
Countries in Asia and Europe and elsewhere, including allies of the United States (including allies of the United States) (most of the world) that have a deep strategic interest in an open rules-based multilateral trading system, We must protect that system from the United States. Phased rules, regional and plurilateral agreements. It will not be an easy task and will require political courage and diplomacy, especially in dealing with the United States itself.
Beijing’s actions will need to be changed to match its rhetoric, but it is clear that China, the world’s largest trading nation, has a stake in the existing rules-based system. We need to be involved in this effort in a way that allows us to move forward and circumvent the US tendency to divide the world into blocs.
The hope, to paraphrase Winston Churchill, is that the United States, as it always does, makes the right decision after trying everything else.
The EAF Editorial Board is located at the Crawford School of Public Policy at the Australian National University Asia Pacific College.