Middle-Class Dynamics for U.S. Foreign Policy?

Middle-Class Dynamics for U.S. Foreign Policy?

Orbis Issue revisited: Spring 2021 (65:2), “Challenges Facing the Biden Administration

The focus on foreign (economic) policy for the middle class remains a key organizing principle for the Biden administration, but so far it has seemed more powerful rhetorically than in implementation. In part this reflects the fact that a key element of foreign policy for the middle class involves making changes at home via redistribution and investment that would reduce vulnerabilities of Americans. The Biden Administration, for example, has focused not only on using restrictive geoeconomics tools like sanctions, export controls, and investment screening but has also focused on ways it can invest in new capabilities and alternatives at home and abroad. The America Competes Act (previously the U.S. Innovation and Competition Act) that incorporates the CHIPS act is part of this. Boosting spending on STEM R&D at home and some additional spending in coordination with allies in Asia to counter China rather than primarily relying on economic restrictions. The U.S. Treasury has focused on improving global tax treatment and highlighting measures to reduce vulnerability to money laundering in the U.S.—not just highlighting vulnerability abroad.

These are welcome, but not quick, fixes, and they come with their own intended and unintended consequences, as building redundancy in supply chains and remaking them is costly.

Other measures aim to increase U.S. resilience to external and domestic vulnerabilities, including moving forward on more transparency around beneficial ownership to make the U.S. less of a safe haven for global tax evasion and illicit activities. Meanwhile, the United States works to reshape global rules to meet new U.S. priorities, but coming to common ground with allies is not a quick and easy fix. The challenge, though, is that the focus on U.S. priorities, including expansion of Buy American measures—aimed to support U.S. production—and lukewarm interest in new rule-setting bodies from some allies have limited the development of new coalitions.

“Foreign Policy for the Middle Class” is regularly cited by Treasury, State, and trade representatives, including initiatives at WTO, the recent sanctions review, the approach to global tax policy and recently about the concern around forced labor. In practice, it has been trickier to implement and has reinforced some status quo policies—especially on trade policy, where, if anything, USTR seems focused on retaining some of the tariffs imposed by the Trump administration, even if they boost prices for middle-class/lower-income buyers. On the sanctions side, a focus on the impact of sanctions on small U.S. business is the most palpable example. Efforts to improve communication, find new ways of outreach, and reduce information asymmetry are examples of how this is framing the thought process, but implementation is likely to be tougher. Treasury’s efforts to provide more clarity on their rules and to respond more proactively to U.S. businesses are welcome, but overall these measures coincide with a set of regulations that raise the compliance burden in ways that are challenging for small businesses. And many of these policies can have adverse effects on the middle class and smaller businesses abroad. That may be by design, in countries like Iran, but this can pose challenges for U.S. national security by encouraging financial and technological workarounds and bifurcations.

An open question for some of these initiatives, such as the recent one on forced labor, might be whether these interests of the middle class are shared by the American people. Measures that restrict imports from Xinjiang are a rare bipartisan spark in Congress, for example. The limitations to some of these policies can be seen in the messaging around inflation—in particular concerning rising gas prices, which focused on calling on OPEC+ to pump more fuel and for strategic reserves to be opened.

In this focus on the middle class, the Biden Administration is connecting with some of its key allies—in Canada, the U.K., the E.U., and beyond—but connecting the links between bilateral/small-group agreements has some challenges, especially as more of the policies are focused on localizing jobs and deepening U.S. supply chains, even as imports remain high. The Biden Administration seems less obviously transactional than the Trump Administration and more focused on building minilateral coalitions around priorities. This reflects its belief that a coordinated set of policies and standards will be more effective. That said, it is persisting with a high degree of bilateral coordination, selectively building new alliances (QUAD, bilateral groups on supply chain issues, and COVID) and trying to repurpose existing ones to meet these goals. Overall, U.S. efforts to constrain adversaries like China and Russia on human rights, cybersecurity, and other grounds while also collaborating on issues like the climate—and holding third countries to account—have yet to bear much fruit. This compartmentalization was always going to be difficult, and it may encourage decisions that reduce U.S. long-term leverage. Similarly, balancing between short-term crises—including the energy shortages that Russia exacerbated in summer 2021—and sending a clear message on future goals is a challenge for any administration.

This is an administration that looks for partners, recognizes it can’t do everything unilaterally, and doesn’t treat all foreign players equally—i.e., a trade threat from Canada or the E.U. is different than one from China. However, there is more focus on deepening local supply chains where possible, producing at home, and other policies that continue to misalign with allies. Some efforts, like the U.S.-E.U. Trade and Technology Council (which the foreign affairs spokesman for the Social Democrats, Nils Schmid, identified in the winter issue of Orbis as a promising development in trans-Atlantic relations) which aims to move forward on standards, energy, and other innovation, as well as recent efforts to bridge the gaps on steel tariffs, have been positive steps. So too have been initiatives with the QUAD, COVID vaccine delivery, and related measures.

Another challenge surrounds the risk of protectionism fits in—and how to support Americans, especially the middle class, in global trade. As fiscal restraint in some key countries—China, parts of Europe, and some other emerging markets who lack policy space—puts more pressure on the U.S. consumer to be the primary global consumer, the risk of leakage and other countries benefiting from U.S. fiscal stimulus became an increasing concern that amplified bipartisan interest in protectionism. Across the political spectrum in the U.S. and other countries there is an increased comfort level with government intervention and involvement, which complicates the interplay between these global roles. This is not necessarily all bad; selecting key sectors of focus, nurturing them, and planning for the future involves a role for government.

What is clear, though, is that this is not primarily a restorationist approach. While there is a desire to coordinate with allies and to make sure democracies deliver and add to their resilience, the U.S. is looking to reshape rules in ways that may take power away from adversaries and to update/develop new tools—but also allies that have been able to leverage them. The U.S. is somewhat less willing than in the past to invest in global public goods for their own sake and is relatively selective in support of these measures, picking and choosing those that are most politically expedient. This reflects a shift in sentiment palpable since about 2014 that shifted the U.S. role in the world. The challenge will be using this power to manage through the crises and disorder, especially at a time when divides and distrust are growing within the U.S. and many of its allies. While the administration has taken important steps to rebuild trust with allies, it will need to continue to link these long-term goals with those that really build resilience, lest it be forced into a reactive state.

 

The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.

 

 

 

 

 

 

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