Economic nationalism need not involve protectionism
4 min read . Updated: 21 Dec 2020, 08:51 PM IST
PremiumJoe Biden’s key challenge will be to balance US domestic interests with a more open trade regime
US President-elect Joe Biden has been building his cabinet team for an administrative transition in a deeply fractured America with a fragile politico-economic landscape. Socially, the nation hasn’t been this divided in modern history.
Even though Biden’s own electoral victory has inspired much hope in the liberal-democratic world, this silver lining comes at a dark time for the democratic functioning of public institutions, now marred by a deep erosion of social and public trust in the state.
Many scholars, writers and political commentators are welcoming the prospect of reviving moribund multilateralism once a Biden-Harris administration takes office, but most (including myself) feel this might be a little far-fetched to presume, and so might many of the international projections emerging from a change of guard in the US. The real focus of Biden’s new administration is most likely to be on “problems to fix" at home, an particularly on a plan for handling the American economy.
As Biden’s own economic team, featuring the likes of Janet Yellen as Treasury secretary among others who served in the Obama or Clinton administrations, works hard to remake and redirect the Trump administration’s approach to US economic relations overseas, a key distinction may remain in the policy ecosystem and its direction: i.e. the Trumpism that evolved from Trump’s own political messaging on the (past) ill-effects of (hyper) globalization and its impact on the lives of millions of Americans.
A Trumpist policy environment conditioned by the spirit of promoting economic nationalism, albeit in a softened avatar, could be the new administration’s focus as well. On the fiscal front, an election campaign won by the Biden-Harris team on the hope of raising corporate taxes and upping deficit spending on climate change, energy reform and government-supported healthcare insurance, will need careful implementation, given America’s soaring public debt.
In the past, particularly from the early 80s onwards, the US had championed ideas of (hyper) globalization, pursued more open trade agreements with developing nations like China and also within its region with countries like Mexico. All, in the hope of making American businesses and workers better off. Trump’s push for “America First" and the popular support it got appears to have forced an all-round rethink of that.
For Biden, there is some merit in taking a principled approach that enables the US to prioritize its own interests, resources and factor endowments, as against an overt dependence on others. A balanced stance, therefore, on renegotiating ‘bad’ trade deals or giving the US an edge in new trade deals will have positive pay-offs for Americans.
Also, America’s own economic trajectory in the medium- to long-term future is broadly entwined with the way it re-imagines its relations with China. China, the world’s second-largest economy, is a key market for many American companies, even while it’s seen to be stealing US technology and often skirting international rules (Chinese exchange-rate devaluations included). While the Chinese may dispute these allegations, Biden’s administration will need to find a way to work alongside China, not against it. In some areas, cooperation is vital, but in others, the US could counter Beijing’s rising influence. Both sides would have to work towards a suitable balance of power. That won’t be easy. The rise of economic nationalism has, unfortunately, seen increasing trade protectionism and mutually-destructive stances taken in bilateral engagements. The World Trade Organization, as a waning multilateral institution, seems to have lost its ability to foster a fairer, more progressive trade liberalisation agenda, as envisaged.
Adopting a balanced approach to economic nationalism, without being swayed by mutually destructive tariff-led protectionism, shall require a careful recalibration of US policy by Yellen and others in Biden’s team. One way to do this would be by incubating a policy framework that aims to build trade arrangements and new partnerships around a more comprehensive trade policy mechanism, one that focuses on ensuring basic compliance in agreements with international labour laws and minimum wage standards for engaged workers, and also on reducing any opportunities for “social dumping".
While progressively working towards trade policy systems that are more comprehensive, the US domestic economic policy focus should be on creating ‘good jobs’, as Dani Rodrik calls them. ‘Good’ jobs, according to Rodrik, require the creation of “specific skills which can be created only by productive firms with supply-and-demand side gains". “On supply side," he writes, “workers must be equipped with the hard and soft skills that productive firms require. On demand side, there must be a large enough segment of smaller and medium-size firms that are both productive and able to expand employment." This can be facilitated by encouraging sector-based training programmes (as done in Texas, New York).
However, the key challenge for Biden, or any political establishment in the US, would be to make the elemental features of globalization work by ensuring that economic integration becomes more compatible with domestic social and political stability. How this tightrope challenge is dealt with may define the first term of a Biden-Harris administration in the US, with ramifications across the region and globe.
Deepanshu Mohan is associate professor of economics at OP Jindal Global University
