The year's best stories
U.S. President Joe Biden’s economic policies don’t seem to have the makings of a reelection platform. Despite low unemployment and falling inflation, his campaign team has already mostly retired so-called Bidenomics as a slogan because the underlying economic record hasn’t proved popular with the American public.
U.S. President Joe Biden’s economic policies don’t seem to have the makings of a reelection platform. Despite low unemployment and falling inflation, his campaign team has already mostly retired so-called Bidenomics as a slogan because the underlying economic record hasn’t proved popular with the American public.
However, the place of Bidenomics in economic history already seems secure. The Biden administration has overseen a shift away from the era of free trade and globalization in favor of a renewed focus on industrial policy and controls on trade and investment. The Inflation Reduction Act used subsidies and tax breaks to boost the production of electric vehicles at home. The CHIPS and Science Act similarly subsidized semiconductor firms, while export controls aimed to prevent China from dominating the technology.
These policies are part of a global trend: The barriers between international commerce and domestic politics are breaking down. The results are mostly predictable, for better and for worse. Domestic subsidies have spurred an uptick in manufacturing in the United States just as they have elsewhere. But global trade and cross-border investment have fallen from previous highs. The Biden administration has backed away from its most confrontational rhetoric about China; mentions of decoupling have given way to talk of so-called de-risking.
The White House has also sought to mend ties with allies in Europe and Asia that felt mistreated by growing protectionism. Meanwhile, China has struggled to overcome economic stagnation after years of overinvestment in its domestic real-estate sector produced a bubble that finally seems on the verge of bursting.
For such reasons, critics argue that the industrial-policy era already contains the seeds of its eventual decline. The question, of course, is how long its reign will last. The beginnings of an answer can be found below, in Foreign Policy’s top reads on industrial policy from 2023.
By Adam Posen, March 24
Western commentators have become so accustomed to describing the negative sides of globalization that it has become easy to lose sight of its positives. This essay by Peterson Institute of International Economics President Adam Posen, which appeared in the spring edition of our print magazine, offers a bracing reminder of what the turn toward industrial policy has jeopardized.
Posen admits that the trend toward protectionist economic measures was a defensive response to years of unfair Chinese economic policy. “There is no question that many Chinese policies, including economic ones, are aggressive,” he writes. The essay reminds readers that there are multiple potential responses to the challenge posed by China—and that industrial policies of the sort that the West has pursued lately could backfire.
“Washington may feel frustrated with the lack of quick wins here, but that is no reason to take that frustration out on the rest of the world,” Posen writes. “In fact, doing so will make U.S. security worse by hindering the technological progress necessary for resilience and by eroding the United States’ influence on third countries.”
By Eswar Prasad, March 24
In many ways, emerging-market countries were the great beneficiaries of globalization—indeed, it is the reason that they may have “emerged” in the first place. Free trade allowed their manufacturing sectors and their middle classes to expand, and it enabled them to gain access to richer countries’ technology and know-how. Consumers worldwide benefited from the resulting increases in productivity and the eventual competition between companies in the developed and developing worlds.
Cornell University professor Eswar Prasad’s essay, which also appeared in FP’s spring print issue, describes how emerging markets may now end up as losers of the new turn toward industrial policy. “As countries retreat from globalization and begin to look increasingly inward, there could be wide-ranging implications for both economic and geopolitical stability,” he writes. “Just as with the surge in globalization, however, the consequences of this pullback are proving to be unevenly distributed, with low- and middle-income countries bearing the brunt.”
U.S. President Joe Biden speaks with dignitaries and employees at U.S. technology company ViaSat in Carlsbad, California, on Nov. 4, 2022.Sandy Huffaker/Getty Images
By Howard W. French, March 1
Although widespread industrial policies mark a shift from the era of globalization, they are nothing new in the broader context of economic history. The U.S. CHIPS Act, which subsidizes domestic manufacturing, resembles a strategy widely used by countries in the early stages of their development. But those that stick with industrial policy beyond that initial jump-start often come to regret it: “China has had very mediocre results in identifying the most important frontiers of economic activity for the future,” FP’s Howard W. French writes.
French goes on to consider why the history of industrial policy has been so inauspicious and whether there is any reason to think that history will now be overcome. “A traditional answer, not without a solid basis in logic, is that governments and bureaucrats are poor at assessing both the complexity of markets and rapidly changing technology horizons,” he writes. “Perhaps most importantly, unlike businesspeople who must raise capital privately, those who formulate and execute grand industrial policies using public money don’t risk losing their shirts. That danger is an incredible tonic, and we haven’t figured out how to replace it.”
By Edward Alden, June 22
It is to Biden’s credit that he achieved significant bipartisan consensus at home for restoring a major role for government in the economy. But no such consensus exists internationally, especially among U.S. trading partners that see themselves on the losing side of the resulting policies, FP’s Edward Alden writes.
“The Reagan model of cutting tariffs and reducing regulatory obstacles had the virtue of letting the chips fall where they may,” Alden writes. “In championing a different model, the Biden team has struggled to address the concerns of trading partners who fear private investment will now flow away from their economies to the United States as companies around the world chase the enormous new subsidies on offer.”
By Michael Hirsh, Sept. 23
East Asia is a long-running laboratory for industrial policy, but Western analysts have typically assumed that the results of that experiment were negative. In that way, the West’s ongoing policy shift also involves a reassessment of old economic debates about the efficacy of government intervention in the economy.
FP’s Michael Hirsh surveys these controversies amid recent headlines about Japan’s return to economic growth, describing how former economic apostates are now being vindicated. “New empirical data from the last few years indicates that many of East Asia’s industrial policy investments from decades ago have paid off big time,” he writes.
“Younger economists such as Ernest Liu of Princeton University have debunked some of the old biases against industrial policy—mainly that it lacks the reliable information necessary to target appropriate sectors—by showing that new measures of market distortions can supply just that.”
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