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The US can't be both protectionist and world leader

What if the US itself, even under Biden, turns against the system it’s supposed to guard, becoming an agent of economic nationalism, international fragmentation and hostile bloc-building?
Last Updated : 30 May 2024, 05:45 IST
Last Updated : 30 May 2024, 05:45 IST

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By Andreas Kluth

President Joe Biden likes to call the United States “the indispensable nation.” By that he means that America is the only power simultaneously mighty and benevolent enough to preserve whatever is left of a liberal order — one in which rules and multilateral institutions govern, among other things, a system of relatively free international finance and trade.

But what if the US itself, even under Biden, turns against the system it’s supposed to guard, becoming an agent of economic nationalism, international fragmentation and hostile bloc-building?

Doubts to that effect have popped up throughout the Pax Americana, the long period of US leadership that followed World War II. What most frightened America’s friends abroad, though, was Donald Trump in the White House. His “America First” worldview was a throwback to a much earlier US stance of isolationism and nationalism.

The infamous symbol of that older tradition was the Smoot-Hawley Tariff Act of 1930. Named after its sponsors, it hiked duties on America’s trading partners, thus making US consumers and importers poorer and foreign exporters angrier. Their governments “retaliated” (a stupid term, since they only impoverished their own importers out of spite) with tariffs against the US. And so it went, in round after round of “beggar-thy-neighbor” protectionism that made the Great Depression worse and nations more aggressive. Within a decade, the world was at war. The US Senate today calls Smoot-Hawley “among the most catastrophic acts in congressional history.”

With that disaster in mind, US leaders after the war went the other way. With its economic, military and soft power unrivaled, Washington built political institutions such as the United Nations as well as economic organs such as the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade, which in 1995 became the World Trade Organization. Their job was to set rules for finance and trade, at least for the free (as opposed to communist) world and parts of the non-aligned (or “Third World”).

With the US guarding the system, trade and capital flows increased and then soared after the dissolution of the Soviet Union. This heyday of globalization lifted millions if not billions of people worldwide out of poverty. But there were also costs: some workers in some countries, including the US, lost their livelihoods whenever the economics of comparative advantage made production elsewhere in the world more efficient, or when some countries — notably China, even though it joined the WTO in 2001 — didn’t play by the rules.

These frustrations caused a protectionist backlash in the US. Some pols and pundits were livid at China in particular and wanted to hit back at its foul play while bypassing the WTO, which in theory has mechanisms to settle such disputes. Others, notably Trump, were irate at almost all of America’s trading partners, especially if the US ran current-account deficits with them, as in the case of Germany.

Once in the Oval Office, Trump went full Smoot-Hawley. He imposed tariffs on steel and aluminum from lots of countries, on Chinese goods from clothes and shoes to furniture and electronics, and even on stuff made in Europe and other countries that consider themselves friends.

The bigger surprise is what Biden did when he took over. Instead of reverting to a liberal trade policy in keeping with his internationalist reputation, he kept the Trump tariffs. He even added some: This month, the US slapped a new round of restrictions on Chinese electric vehicles, solar panels and more. On trade, Trump and Biden now vie for the presidency in nuanced shades of the same protectionist hue: Trump promises to erect huge trade barriers around much of the economy, Biden merely to wall off specific sectors — the administration calls that approach “small yard and high fence.”

Counting only tariffs, quotas and other trade barriers in fact understates the nationalist turn in US economic policy. Biden is especially proud of his industrial policy, embedded into legislative packages with misleading titles such as the CHIPS and Science Act or the Inflation Reduction Act and consisting of huge subsidies to American companies. As with tariffs, European and Asian countries are retaliating with their own industrial policies. “We’ve got a subsidies war, which is worse than a trade war, because subsidies are harder to roll back,” says Adam Posen, president of the Peterson Institute for International Economics.

Biden has also continued in the same vein as Trump in another disturbing way. He’s been dissing the WTO by blocking nominees to its appellate courts and thus sabotaging the entire multilateral trade regime. Instead, Biden is betting on bilateral and regional trade deals, hoping to hug democracies and snub autocracies. As Mathew Burrows and Robert Manning at the Stimson Center show, global trade and finance are fragmenting into rival and increasingly hostile blocs, one centered on China and extending into the “Global South,” another around the US and other Western countries. This trend, they think, will “increase the likelihood of conflict” and is reminiscent of the 1930s.

The Biden administration’s defense, and indeed the entire “new Washington consensus,” counters that in this new quasi-Cold War with China, as in the original Cold War with the Soviet Union, security trumps markets. That’s true, up to a point. It would be naive and dangerous if the US and its allies, in the name of free trade, made themselves dependent on, say, Chinese lithium or dysprosium or semiconductors.

But is steel really one of these sensitive “dual-use” technologies? Are solar panels, ship-to-shore cranes, face masks or many of the other items on Biden’s latest tariff list? By all means, the US and its allies should, in the argot of the new Washington consensus, “de-risk” their relationship with China. But the suspicion remains that the US, across both sides of the aisle and both presidential campaigns, has turned protectionist.

If so, this shift has frightening implications for the world economy and world peace. Hegemonic Stability Theory, which posits that the world needs a custodian power to maintain order and prosperity, assumes that the global leader is not only mighty enough but also willing to deploy its might to preserve a liberal system. “It’s about benevolent or malevolent hegemony,” Posen of the Peterson Institute told me. “Not: Is the US capable? But: What does it intend to do?”

History teaches, Hegel said, “that peoples and governments never have learned anything from history.” If the US, under Biden or any president, wants to remain the indispensable nation, it better bone up on Smoot-Hawley’s ugly history, prove Hegel wrong and once again act like a benevolent leader.

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Published 30 May 2024, 05:45 IST

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