The new Great Game: big-power politics behind the come-back of industrial strategy and managed trade
The government of President Biden has rolled out a “modern American industrial strategy”, dramatically qualifying the 40-year western consensus on free markets, globalization and China. The spearhead of the new approach is not the Treasury or Commerce Department but the national security establishment, and the main objective is to “contain China” in sectors where its rise poses a threat to US primacy in the world-system. This gives US economic engagement with allies and the world-economy-at-large a more geopolitical and techno-nationalist cast than since the Second World War. The government is boosting investment in certain high-tech sectors in America, while it chokes China’s access to crucial technologies and limits the reach of Chinese tech and telecommunications companies abroad. It is pressuring allies to comply with its restrictions, lest their firms benefit from US firms’ absence. This essay describes the complicated responses within the US and within European allies. It concludes that high-level geopolitics will continue to shape international and national economic policy for long into the future, much more pervasively than in the decades since the Second World War. A possible upside is that the American embrace of a modern industrial strategy opens the door to a more dispassionate consideration of industrial policy possibilities for developing countries than in the past.
- President Biden’s “modern American industrial strategy” poses acute trade-offs between the US national interest and the interests of American commercial actors. Global and regional forums should focus on how to manage these trade-offs, alongside bilateral Beijing-Washington working groups.
- Western policymakers must tread a fine line between making their military priorities “China-safe” and cooperating with China to achieve their climate and economic goals.
- The US, EU, and Japan must find a way to avoid a subsidy “race to the bottom” in high tech, which may benefit subsidized corporations but hurt countries.
- The come-back of industrial strategy in the US paves the way for a less ideological consideration of the appropriate role of the state in economic development than has been possible during the heyday of neoliberalism. This entails a revamp of the Bretton Woods framework, including the World Trade Organization (WTO).
- The design of policy has to be shaped by the two-by-two matrix of less-risky “government followership” and more risky “government leadership”; and less risky “horizontal policies” and more risky “sectoral or vertical policies”.
Photo by Pok Rie