Beyond America: The Global Implications of Biden's Industrial Policy

Striving for Global Progress Amid Competing Priorities.

Former Australian Prime Minister Paul Keating once said, “when you change the government, you change the country”. January 2021 saw Trump (begrudgingly) removed and Biden installed in the White House. New government, new country? Maybe. But in the foreign policy realm, things took a while to shift. Title 42 remained in place until May 2023 when the policy’s legality was increasingly called into question. Trump era tariffs on plywood and solar panels inter alia remain in place with new export controls on semiconductors and cutting-edge software added on for good measure. Trump’s Made in America instinct became a legislative reality with first the CHIPS and Science Act and then the IRA pouring billions into stimulating US manufacturing.

But Biden’s mandarins are not the instinctual unilateralists of the Trump administration. And so, we have Biden’s National Security Advisor and committed internationalist Jake Sullivan addressing the Brookings Institute on what America’s Industrial Policy means in a global context.

That the US “is pursuing a modern industrial and innovation strategy—both at home and with partners around the world” is significant. As discussed by the GPI, industrial policy was almost verboten in Washington and policy circles around the western world since the fall of the Berlin wall. Sullivan’s speech shows it’s back in vogue and that the old “Washington Consensus” is dead.

But even at its height in the 1980s and ‘90s, this so-called consensus didn’t extend to every low- and middle-income country (LMIC). It was roundly ignored by the Asian Tigers on their economic growth journeys. Other LMICs saw this success and tried to follow suit. Yet the government of a typical African country still relies disproportionately on revenue from raw commodity exports, be they mineral or agricultural, to fund their economies – whether or not they followed the leadership of the Americans or the Asian Tigers. Does this purported new American economic leadership offer anything better?

Figure 1: According to the UN a country is ‘resource dependent’ when commodities account for over 60% of its physical exports. 83% of African countries meet this criterion. (Adapted from The Economist and UNCATD)

As one would expect from the US National Security Advisor, Sullivan clearly and unapologetically couches everything in terms of how this new world will be good for the US. But he talks about the need for partners aboard to join the US in building capacity, resilience, and inclusiveness. Sullivan envisages a world where the US and its “like-minded” partners have built “a strong, resilient, and leading-edge techno-industrial base”. But for those countries south of the Sahara which find themselves a long way from the technological frontier they might wonder exactly where in that world they can fit.

What’s there…

The unavoidable subtext is competition with China. It permeates the speech. As much as Sullivan tries to lower the temperature at times, he still plays all the greatest hits: Belt and Road Initiative, Debt Trap Diplomacy, state subsidized industries, military expansion despite admission to the WTO and integration into global trade more broadly. American Industrial Policy is clearly pro-American but it’s also very clearly about countering China as well.

Probably the most unequivocal positive for developing and emerging economics is the Partnership for Global Infrastructure and Investment (PGII). A G7 led initiative, the PGII says it will invest US$600bn over the next five years into infrastructure in developing and emerging economies. Of course, a swipe at BRI follows hot on the heels of talking about the PGII but LMICs need all the infrastructure they can get. If a bit of large power rivalry drives more money into large and small infrastructure, that’s no bad thing.

Sullivan talks a lot about the ‘energy transition’. For developing countries this really should be from ‘not very much’ to ‘a whole lot more’ energy. But it seems unlikely that’s what Sullivan is referring to. Of course, it’s about the US and other developed countries transitioning to non-fossil fuel powered energy. This is probably the most double-edged side of Sullivan’s speech. He mentions at length about working with like-minded countries and helping partners. And the potential contours of this help are easily discernable: a lot of US investment into nickel, cobalt, lithium and the other green and/or rare earth minerals that the world will need in abundance. But balancing those investments with emerging markets’ desire to be Botswana and not Nigeria is going to be tricky. Indonesia already has a ban on exporting raw nickel and bauxite is poised to do the same for tin and copper. The governments of Bolivia and Chile continue to signal a desire to play a more active role in the development of their lithium assets.

Sullivan says that when Biden hears ‘climate’ he thinks ‘jobs’. A nice inclination and rhetorical flourish from a man who is at pains to stress his working class bona fides. The jobs he is presumably thinking of are the jobs making batteries for fleets of EVs or mass manufacturing of wind turbines, except in West Virgina and not West Papua. Given America’s fiscal clout, and it’s willingness to deploy it, US industrial policy may mean that sub-Saharan Africa must continue to make do with basic commodity exports with all the value addition, and associated jobs, located elsewhere.

What’s missing…

Across sub-Saharan African, 50% of people work in agriculture, almost one in ten children die until the age of five, almost half of all children who finish primary school can’t read, the median age is 19 and youth unemployment hovers around 30%. Sullivan never mentions agriculture, health, education nor investments into jobs in LMICs. Of course, this is just one speech and it’s not from Samantha Power or even Anthony Blinken but it’s hard to escape the fact that the US’s priorities are the US’s. A Venn diagram showing the intersection with Malawi’s would not a have a large overlap.

The US is spending billions of dollars to create a better world for the US. There are some chances for some LMICs to also benefit if they have something the US wants and needs. If they don’t, the new American Industrial Policy doesn’t seem to contain much promise. Sullivan does not layout how LMIC’s desire for jobs, growth, and investment will be reconciled with the US’s desire for the same.

The view from the state houses of LMICs…

Sullivan sketches out a hazy vision of a positive sum world where all can benefit from the US’s renewed love of industrial policy being implemented by an outworld-looking administration. But this vision is easier to imagine for Mexico or Bolivia, countries with proximity or resources needed by the US, than it is for Madagascar or Burundi. It’s hard not to read Sullivan’s speech and think that it’s just about catching a few crumbs falling from the table. There is money and opportunity for LMICs, but their governments will have to balance domestic priorities with the those of the US’s when chasing the promised investments.

In Sullivan’s defense, he must walk a very fine line. At once protectionist and internationalist. Unapologetically US first but selling an enlightened self-interest argument for international development. He wants to take the US back to a model they “championed 80 years ago” which financed partners to reduce poverty and create prosperity but this time the jobs should be (re)created in the US. Sullivan, the US government, and the governments of LMICs will need to negotiate the inherent tensions of competing goals. If they can, then America’s re-embrace of activist domestic Industrial Policy may just deliver the global boat-lifting desired by all.