Economic nationalism has become the new ‘Washington Consensus.’
Economic nationalism has become the new ‘Washington Consensus.’
T he Allies’ victory in the Second World War was in a sense rooted in a short text, the Atlantic Charter of 1941, in which Franklin D. Roosevelt and Winston Churchill committed their nations to the principles of a common cause against Nazism. Just so, democracy’s victory in the Cold War can be traced to the G-7’s “Bonn Declaration” in 1985. At that summit, a virtual pantheon of great democratic leaders — Ronald Reagan, Margaret Thatcher, Helmut Kohl, Yasuhiro Nakasone, and even the socialist president of France, François Mitterand — committed their nations to a policy of low regulation, low taxation, and free trade.
The Bonn Declaration enshrined the free world’s embrace of the American model of free markets and democratic institutions. A few years later, the Soviet Union collapsed like the Potemkin Village it was, and Communist China nearly suffered the same fate. The “Washington Consensus” carried the principles of the Bonn Declaration into development policy for poor countries. And despite its far more dubious results there, a new decade seemed to confirm the primacy of free markets and limited government. The commitments of Reagan and Thatcher were wholeheartedly embraced by a new left’s Bill Clinton and Tony Blair.
The greatest economic expansion in the history of the world continued apace, but serious trouble was already brewing. The populist economic nationalism of the 1920s and 1930s, on which many had blamed the worst of the Great Depression, started to rear its head again. Fringe parties such as France’s National Front, which hates socialism and free trade in roughly equal measure, were suddenly a force to be reckoned with at the ballot box.
Just as the triumphalist pro-democracy agenda was getting buried in Iraq’s scorching sands and Afghanistan’s forbidding mountains, the global financial crisis of 2007-2008 appeared like a tsunami. The crisis dramatically deepened the angst of globalization’s discontents and gave them a new global pejorative: the hated “neoliberal dogma.” On left and right, the principles enshrined in the Bonn Declaration of 1985 gave way to a vision of economic and cultural security that emphasized government intervention in free markets and the closing of borders — even as it somewhat schizophrenically railed against democratic institutions as a swamp of thieving special interests.
By the time the 2016 election rolled around, the defense of the liberal order had fallen to Hillary Clinton, no John F. Kennedy, as it were. President Trump was elected on a platform of forthright economic nationalism, the first major presidential candidate since the 1930s who wasn’t embarrassed to admit that he liked tariffs, especially the retaliatory kind.
His first act in office was to walk out of the Trans-Pacific Partnership. Having joined the Trump White House in those early weeks, I have always thought that President Trump’s withdrawal from the TPP could have happened only in those early days, before a proper policy process was in place. That is because Trump’s stated reason for withdrawing from TPP — his conviction that the TPP gave a huge opening to China — was clearly the opposite of the truth, as would quickly have emerged in any proper analysis of the policy.
In reality, the TPP — which pointedly did not include China — was an attempt to organize a coalition of pro-American states on China’s near periphery. Its ultimate purpose was to make China decide between cooperation on America’s terms and confrontation that would lead quickly to its isolation. It was built on the logic of the Marshall Plan and NATO, minus their enormous subsidies paid for by American taxpayers. And when we withdrew from the TPP, America’s Asian partners immediately began hedging their bets: They became more solicitous of Chinese interests, more receptive to China’s entreaties, and more skeptical of America and the principles for which it had long stood.
Few things have elevated the international prestige and attractiveness of the Chinese model more than America’s withdrawal from the TPP. Withdrawing from the TPP, in other words, was precisely the windfall for China that Trump thought the TPP itself was.
The Biden administration’s incoming China experts understand this as well as the traditional China hawks of the GOP understand it. But Trump demonstrated that — at least in 2016 — working-class Americans were starting to equate free trade with economic insecurity. Exit polls show that a large number of union workers who voted Trump in 2016 swung to Biden in 2020, probably (at least in part) because farm workers and factory workers across the Rust Belt ended up on the short end of Trump’s trade disputes. But that insight has not yet displaced the current bipartisan assumption that free trade and limited government are losing platforms with working-class voters.
Hence Biden’s hesitation to rejoin the TPP, which he has criticized in terms similar (in substance if not outward flourishes) to those that Trump used to assail NAFTA. Hence also, Biden’s lurch toward economic nationalism this week, when he ostentatiously canceled Trump’s “Buy American” executive order and replaced it with one that was . . . nearly identical. The differences between the policy statements are almost comically trivial, and recall the C student who paraphrases slightly so he won’t get caught plagiarizing.
Trump’s 2017 executive order states:
It shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.
Biden’s executive order, issued Monday, states:
It is the policy of my Administration that the United States Government should, consistent with applicable law, use terms and conditions of Federal financial assistance awards and Federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States.
The trouble with the federal government’s 1950s-era “Buy America Laws” is that, as globalization has proliferated, supply chains have become almost uniformly transnational. As a result, agencies have found the laws increasingly exorbitant, with the skyrocketing costs of made-in-America substitutes for the globalized goods that federal agencies would otherwise acquire. So they resort to waivers to get around the law and keep their expenditures at something approaching a reasonable cost to taxpayers.
The Biden administration has thus far done a good job spinning reporters (most of whom obviously far prefer Biden to Trump) on the differences between the approaches of the two administrations. Parallel stories in the Washington Post (“Biden aims for new course on trade, breaking with Trump and Democratic predecessors”) and the Wall Street Journal (“Biden Team Promises New Look in Trade Policy”) gave Biden’s communications shop the headlines it wanted, but otherwise show remarkably little difference between the policies of the two presidents.
This bodes ill for America’s global position and for America’s workers. America’s loss of faith in the principles that defeated totalitarianism in the second half of the 20th century recalls the crisis of pacifism and self-doubt that left European democracies fatally weakened in the first half of the 20th century, as totalitarian powers armed for war.
It is perhaps inevitable that the Left’s traditional anti-corporate animus has now become almost as popular on the right, given Big Tech’s demonstration in the last couple of years that it can happily and successfully perform whatever service may be required of it by a one-party state, whether in America or in China, including censorship and other functions of a state media.
But as the 2020 election shows, abandoning the pillars of America’s victories against totalitarianism may not be a winning electoral formula, much less a winning grand strategy for democracy.