Amid the violent challenges to the world system in Ukraine and the Middle East, it’s easy to overlook the corroding economic pillars of international order. Under President Biden, American economic policy is morphing into a toxic combination of protectionism and green activism guaranteed to slow growth and create global friction.
That matters. Seventy-five years ago, in 1948, the wheels were coming off post-World War II American foreign policy. Moscow was toppling democratic governments in Europe. Mao Zedong was marching on Beijing. Violence stalked the Middle East as fighting between newly independent Israel and its neighbors created a massive humanitarian crisis and threatened a wider war.
As the global system teetered precariously, President Harry S. Truman and Secretary of State George Marshall understood three big truths. First, peace in a nuclear age could last only if the U.S. and its allies had the power and will to deter the enemy powers seeking to overturn the world order. Second, at least on the basics, foreign policy had to be bipartisan. Third, the American-led world system had to raise living standards both at home and abroad. At home, we could never sustain the necessary defense budgets or limit polarization unless the economy delivered for the average American family. Abroad, only rising living standards could promote the political stability and pro-capitalist sentiment that our system needed to survive.
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That’s not how the Biden administration does business. Even as threats mount, it plans to shrink the defense budget in real terms. No one in the White House seems to be engaging with people like Sen. Jim Risch and Tom Cotton the way Harry Truman wooed Republican internationalists in the 1940s. And the White House remains committed to economic policies that will undermine growth at home while eroding political and social stability across much of the Global South.
While there is a clear national-security argument for managing certain elements of our trade relationship with serial rule-breakers and strategic adversaries such as China, free trade is critical to the economic dynamism the U.S. and its global system need. Team Biden is borrowing some of Team Trump’s worst ideas in a misguided effort to shore up domestic manufacturing. Worse still, the combination of protectionism with even a well-managed energy transition could dramatically slow world growth while driving a wedge between the West and the Global South.
The challenge that the energy transition poses for the world economy, and therefore to global political stability, is significantly greater than either the administration or many of its critics have yet understood. It isn’t only about the cost of badly designed green pork-barrel projects such as the ethanol disaster or the multibillion-dollar offshore wind farms that became uneconomical once interest rates returned to their historic norms. Even if all the green investments miraculously work out as hoped and cost no more than projected, we are going to have a problem.
That’s because the green transition requires a massive shift of investment away from creating new goods and services toward replacing our existing energy and transport systems with systems that duplicate capabilities we already have. If we replace a coal-fired plant with solar panels and wind farms, we haven’t spent money to make more power. We’ve spent money to replace power we already had. If we build a massive electric-vehicle charging infrastructure across the country—as well as the much larger electric grid needed to support it—we will have simply replaced the current system of gasoline distribution that performs the same function.
In the long run that may well be the smart choice. And in 2100 our descendants may thank us for our foresight. Even so, diverting trillions of dollars away from increasing the supply of consumer goods and energy to duplicating capabilities that already exist is going to affect living standards around the world. It will also drive inflation. Investments in a parallel energy system will create jobs and economic demand but won’t create a sufficient supply of new goods to satisfy that demand. That excess demand will drive prices higher.
Truman and Marshall understood in their bones that inflation, stagnant living standards and protectionism lead to disaster. Bad economic policies drive polarization and populist revolt in rich countries. They drive revolutionary upheavals and strongman rule in poor ones. Neither outcome is good for American security.
Team Biden wants to preserve the world order whose foundations Truman and Marshall laid down. It worries, legitimately, that a second Trump term would be chaotic. But nearly three years into its mandate, the administration lurches from one crisis to the next, and the outlook, at home and abroad, is darkening from week to week.