It is more than passingly odd that a lead spokesperson apparently for Biden, if not Harris’s, global economic policies comes from Jake Sullivan, the National Security Adviser. Now don’t get me wrong. Jake is a very bright fellow who I have known for a number of years. Still, his repeated statements for the current economic policy seem, well, somewhat weird.
In any case Jake just recently returned to the Brookings Institution – in fact just the other day to provide an update on his original talk titled: “Renewing American Economic Leadership”. This original talk was delivered by Jake on April 27, 2023. Now, again in the realm of strange, it seems to me odd to have Jake providing an update when we are less than two weeks out from a Presidential vote. And while the Democrat may win the presidency, it will not be Joe Biden. Yes, the Vice President was part of the preceding administration, but still. And it may be, of course, that Jake might well assume a prominent role in a new Harris administration, if she were to win. Still, I am sure that the next administration will seek to design and announce its own global trade and investment strategy. And that says nothing if the other guy wins.
In any case it was good to listen to Jake review his original proposals. When he spoke in 2023 Jake pointedly framed the changed global landscape. As he said:
After the Second World War, the United States led a fragmented world to build a new international economic order. It lifted hundreds of millions of people out of poverty. It sustained thrilling technological revolutions. And it helped the United States and many other nations around the world achieve new levels of prosperity.
But the last few decades revealed cracks in those foundations. A shifting global economy left many working Americans and their communities behind. A financial crisis shook the middle class. A pandemic exposed the fragility of our supply chains. A changing climate threatened lives and livelihoods. Russia’s invasion of Ukraine underscored the risks of overdependence.
“So this moment demands that we forge a new consensus.” In broad strokes then, Jake proceeded to describe the changed landscape:
That’s why the United States, under President Biden, is pursuing a modern industrial and innovation strategy—both at home and with partners around the world. One that invests in the sources of our own economic and technological strength, that promotes diversified and resilient global supply chains, that sets high standards for everything from labor and the environment to trusted technology and good governance, and that deploys capital to deliver on public goods like climate and health.”
And what were the challenges that the early years of the Biden administration faced:
First, America’s industrial base had been hollowed out. …
The second challenge we faced was adapting to a new environment defined by geopolitical and security competition, with important economic impacts. …
The third challenge we faced was an accelerating climate crisis and the urgent need for a just and efficient energy transition. …
Finally, we faced the challenge of inequality and its damage to democracy.
According to Jake the administration knew what it had to do. As he declared:
When President Biden came to office, he knew the solution to each of these challenges was to restore an economic mentality that champions building. And that is the core of our economic approach. To build. To build capacity, to build resilience, to build inclusiveness, at home and with partners abroad. The capacity to produce and innovate, and to deliver public goods like strong physical and digital infrastructure and clean energy at scale. The resilience to withstand natural disasters and geopolitical shocks. And the inclusiveness to ensure a strong, vibrant American middle class and greater opportunity for working people around the world.
And you’ll not be surprised to hear that in his recently stated update the Biden administration has taken on these challenges and the policy initiatives are achieving results.
Now, I may well come back at a later moment to look at more of the Biden policy initiatives but I did want to examine at this time at least one of the challenges, the concerted effort to move away from freer trade – reducing tariffs, and instead focusing on targeted actions against a China that in Jake’s words:
The project of the 2020s and the 2030s is different from the project of the 1990s.
We know the problems we need to solve today: Creating diversified and resilient supply chains. Mobilizing public and private investment for a just clean energy transition and sustainable economic growth. Creating good jobs along the way, family-supporting jobs. Ensuring trust, safety, and openness in our digital infrastructure. Stopping a race-to-the-bottom in corporate taxation. Enhancing protections for labor and the environment.
So Jake in the update reflects on the Biden administration efforts and their result:
Advancing fairness, creating high quality jobs and revitalizing American communities can’t be an afterthought. Which is why we’ve made them central to our approach. In fact, as a result of the incentives in the IRA to build in traditional energy communities, investment in those communities has doubled under President Joe Biden.
The determination to build out the middle class underlies Biden economic policy. But how has it worked? Well, here, there seems to be some serious doubt notwithstanding the upbeat portrayal by Jake. Why do I say this? Let me turn to Robert Z Lawrence, a nonresident senior fellow at the Peterson Institute for International Economics (PIIE) and the Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard. Lawrence recently reviewed Biden administration trade policy in a Report for PIIE: “Is the United States undergoing a manufacturing renaissance that will boost the middle class?”
Lawrence points out the continuing struggle to bring back manufacturing jobs to the United States:
The historic trend of the declining share of jobs in manufacturing in the United States has bedeviled politicians and policymakers over many years. Elected in 2020 in the wake of an economic downturn aggravated by the COVID-19 pandemic, President Joseph R. Biden Jr. made the goal of his economic policies to “build back better” and restore the middle class by reviving industrial jobs, especially in the Midwest, which he labeled “growing the economy from the bottom up and the middle out.
The emphasis on manufacturing was reinforced by an economic nationalist goal of returning jobs supposedly sent overseas back to US shores—“making and building it in America,” as the administration proclaimed.
Now Lawrence goes into some detail on Biden administration efforts that are probably worth reviewing:
This emphasis is reflected in the special incentives for US manufacturing in President Biden’s programs. He raised the threshold local content requirement for procurement by the US government. The Infrastructure Investment and Jobs Act (also referred to as the Bipartisan Infrastructure Law) requires that all iron, steel, manufactured products, and construction materials used in its projects be made in America. The CHIPS and Science Act appropriates $24 billion in tax credits for manufacturing semiconductors in the United States and another $39 billion to provide incentives for investment in chip facilities and equipment in the United States. The Inflation Reduction Act (IRA) provides tax credits for clean energy investments and production and the purchase of electric vehicles (EVs) that are assembled in North America and have batteries that use minerals that are mined and refined in the United States or a country with which the United States has a free trade agreement.
Lawrence’s conclusion is stark and suggests an administration optimism that fails to match the desired growth hoped for:
The administration’s policies have expanded the base of manufacturing employment on the margins in recent years. But despite their appeal, these policies are unlikely to be the key to achieving middle class growth, because manufacturing no longer plays the role it played in the past in providing opportunities for workers without college degrees to join the middle class. Manufacturing can still help achieve other goals, such as providing hardware for the digital revolution; weapons for national security; and the EVs, wind turbines, and solar panels that are vital for decarbonization. But the sector is now too small to play a major role in reviving America’s depressed regions and providing significant opportunities for American workers.
The final conclusion is sobering:
Although it will spur rapid manufacturing employment growth in nontraditional locations, the Biden programs have not created a broad renaissance in US manufacturing, and they are unlikely to do so in the future. The effects of the programs on the Rust Belt states that experienced large manufacturing employment losses since 2000 are likely to be modest, and the impact will not significantly change the sectoral composition of the US labor market.
Manufacturing still has an important role to play in providing the goods necessary to rebuild US infrastructure, promote the digital revolution, and ease the transition to a decarbonized US economy. But because of its relatively small overall employment share—and the growing bias toward hiring more educated workers—the sector no longer provides non college workers with the opportunities it used to.
Although the Biden programs may achieve important social objectives, they are therefore unlikely to improve the opportunities for most workers without college degrees or help most of the country’s disadvantaged places.
To achieve a broad renaissance, obviously desired by the current administration, other tools are required. Greater targeted financial support and a concerted focus on training workers that in the past have proven difficult to develop in the US political and administrative context are required. It is a steep ask and difficult to achieve.
This Post originally appeared at my Substack Alan’s Newsletter – https://substack.com/home/post/p-150726560
Image Credit: Brookings Institution