When the Inflation Reduction Act was signed into law last August, it fired the starting gun on a new, green industrial arms race. But it also seemed to signal the end of something: America’s uniform rhetorical commitment to the global reign of free markets.
There were hundreds of billions of dollars (at least) in green-energy spending embedded in the I.R.A., but the new spigot of directed federal subsidies also came with a throwback set of “Buy American” trade restrictions. If your E.V. battery wasn’t 50 percent manufactured or assembled in the United States, or 40 percent produced by minerals mined or processed in the country or by its free-trade allies, you couldn’t claim the tax credits that made it affordable. If you’re building a solar farm with modules containing less than the required domestic content, you aren’t going to be getting the full subsidy either.
The policy wonks called this a “new industrial policy,” acknowledging that it was inspired by the success of China’s state-directed capitalism and the necessity of competing with it. Indeed, you could see all these stipulations as a kind of declaration of a new trade war, over the industrial base of the future, in which our rival superpower was starting with an astonishing lead. By last count, China controlled almost three-quarters of the global production of almost every aspect of solar-panel or electric-vehicle battery manufacturing. For some inputs, the figure was 90 percent or 95 percent.
Twenty years ago, or even 10, this division of labor would have seemed like the natural order of things: American money turning to Chinese manufacturing to engineer our dreams of high-tech prosperity. You could refer to the whole intuitive system in shorthand by just saying the word “Apple.” But more recently, the iPhone’s tangled supply chains started looking to American policymakers less like a miracle of globalization than like what might pass in Washington for a casus belli. And the threat of such a war has helped draw a curtain on a whole ideological era, one that has persisted for decades under the tattered and contested banner of “neoliberalism.”
In April, in a speech at the Brookings Institution, Jake Sullivan, the national security adviser, somewhat formally declared the death of that old “Washington Consensus.” For a generation, American leaders of both parties had spoken of the country’s global economic interests in terms that were as high-minded and even messianic as they were simplistic and prescriptive: What was good for markets was good for America and what was good for America was good for the world. This was always something of an alibi for the country and its self-congratulatory ruling class, as anyone looking under the hood could have told you — a way of dressing up economic policy powered by financial interests as something approaching charity, or at least noblesse oblige (and, perhaps by design, overlooking the very real costs to American workers and the climate as well).
But it is striking, even so, just how naked the emerging “new consensus” looks, with those costumes discarded and the masks off. In January, at Davos, before the assembled and entrenched global business caste, the U.S. trade representative, Katherine Tai, called it bluntly “a new economic world order.” In April, just after the International Monetary Fund and World Bank spring meetings, Janet Yellen declared that America could tolerate continued Chinese growth — but perhaps only as long as the United States remained the world’s predominant superpower, she implied. Sullivan, too, has tried to speak softly — suggesting that the United States wanted to disengage from China in only a few key areas of strategic significance (computer chips, green tech, A.I.) and that the new policy of economic rivalry was conflict over a “small yard” protected by a “high fence.” But he also has bluntly stated that his job is to serve not Goldman Sachs and its partners in China but the workers of America. This month, a longtime Biden aide, Jennifer Harris, approvingly tweeted a photo of a graduate student’s tattoo: “Death to neoliberalism,” it read.
What follows is not entirely clear. The “new consensus” has meant enormous state investment, directed toward industrial revival all around the postindustrial world. But it’s not yet obvious that such a revival is truly workable — “Can the World Make an Electric-Car Battery Without China?” a headline in The Times recently wondered — which is one reason many regard that new economic world order as an expression of geopolitical rivalry more than industrial policy pursued for its own sake. Not long ago, China’s green-tech manufacturing boom looked like a possible climate lifeline; today it is more likely to be described by American bureaucrats as a suspicious display of rivalrous statecraft. And it is somewhat disorienting, even for critics of neoliberalism, to be heading into an escalating trade war without an ideological banner flying above. Hardly anyone at any point on the American political spectrum is talking about open markets and free trade in those once-familiar absolutes.
Skepticism has spread to market acolytes overseas too. Earlier in April, Christine Lagarde, president of the European Central Bank, called for a new industrial policy across the continent; this month, President Emmanuel Macron of France, long the international face of neoliberalism, echoed the call. Five years ago, sanctimonious neoliberals mocked Donald Trump’s zero-sum view of the world as a kind of Dunning-Kruger geopolitics. But today, you hear few invocations among politicians or diplomats or bureaucrats of any truly universal positive-sum model of free markets or economic growth.
How profound is the change, beyond the rhetorical turn? In many ways, perhaps smaller than it may sound — the ships of state and business are large and hard to redirect, with small turns often hailed (or denounced) as total reversals. And the turn is motivated by some genuine and indeed progressive reckoning with the shortcomings of the old consensus, or at least its promises and presumptions, which Sullivan was careful to highlight in his speech: that markets were always efficient and productive, that all growth was good growth and that globally, more of it would mean more prosperity and inevitably a liberalization of the world’s more autocratic and repressive regimes. On the domestic front, the implication is clear: a recognition that the free-market policies of the past several decades have punished the American working and middle classes, particularly in politically sensitive areas of the Rust Belt. Or, in the language of the campaign trail: Trade deals need to benefit the people of Pennsylvania and Michigan rather than those of Shenzhen and Shanghai.
That raises the question of whether this realignment will truly yield tangible benefits, particularly to those left behind by the neoliberal decades. Beginning this year, the I.M.F. has tried to map out the course ahead and to tabulate how much is at stake in what it has called, somewhat euphemistically, “geoeconomic fragmentation” — by which it means not just shriveled trade networks and reduced capital flows but also dwindling migration, tighter intellectual property restrictions, tariff conflicts and maybe even hot wars, including between superpowers. The headline finding, that such forces could reduce global G.D.P. by up to 7 percent, was scary enough. But some of the more focused estimates were even more startling. Twenty percent of all American wealth was at risk, the I.M.F. suggested. For parts of Europe, it was 15 percent.
Now, the I.M.F. isn’t exactly an objective arbiter here — a bit like the fox warning about the risks of liberating the henhouse. And short of outright great-power war, “geoeconomic fragmentation” may well look to most observers more like zombie neoliberalism, only modified and recalibrated in certain ways. But it is nevertheless remarkable, after decades of criticism from the global left and growing dissatisfaction since the Great Recession, how much of what we think we know about the nature of global trade emerges from neoliberalism itself — and how uncertain a post-neoliberal future looks, even to those eager for change, once you withdraw the operational framework provided by the end of history.
For Polycrisis, Tim Sahay and Kate McKenzie write about the “New Washington consensus” and the way that Biden’s “foreign policy for the middle class” may leave the global south behind; and Lachlan Carey digs into the I.R.A.’s green industrial policy.
For New Left Review, Cedric Durand weighs in on the “limits of neo-industrialism.”
In American Affairs, David Oks and Henry Williams on “the long, slow death of global development.”
The economist Branko Milanovic, who gave the world the eye-opening “elephant chart” illustrating ballooning economic inequality: “I have seen two big ideologies fall apart in my lifetime: communism and neoliberalism.”
Politico’s Gavin Bade on “Joe Biden’s struggles to create a ‘new world economic order.’”
In the Financial Times, Adam Tooze on the waning significance of the “peace interest” of international business — and what conflicts may lie ahead as a result.
From Foreign Policy in 2020, Jake Sullivan and Jennifer Harris on America’s need for a “new economic philosophy.”
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