Once the main slogan was “globalization” and the sub-slogan “American primacy”. It was not just a rhetorical device. Indeed, the US believed that after the collapse of “existing socialism” and the dominance of the market economy on a global scale, symbolically condensing China’s turn to capitalism, this formed the economic condition for a world economy that was increasingly open and increasingly more interdependent, in which they could be the dominant force. And they would achieve this because they would simultaneously be at the center of world economic transactions and constitute the most powerful military force, the only real superpower.
Against this background it was imperative to accelerate globalization, to remove barriers to the movement of goods and capital, to privatize public infrastructure worldwide, to generalize the terms of “free trade”, while the US sought, on various occasions, to ratify the their military arsenal.
The crisis of globalization
But already from the beginning of the 2000s it appeared that things were not going so well with what we would call “globalization”. It was not only that major social and political movements began to be explicitly defined as “anti-globalization”. Mainly it was that the actual dynamics of globalization were different.
The crisis of 2008 was simultaneously a crisis of the increased financialization of the world economy, which contained the distance between the hyperinflation of the financial sphere and the real economy, a crisis of the neoliberal “paradigm” and belief in the inherent rationality of the market, and a crisis of globalization . Especially the last element was gradually reflected also at the level of measurable indicators. After the 2008 crisis, global trade trends did not follow the pre-crisis dynamics and remained closer to stagnation until the pandemic.
Moreover, the landscape of the world economy that took shape after 2000 did not signal an American economic hegemony. The US remained the world’s largest economy, but it was China in particular that grew the most. In 2000 China accounted for 3.6% of world GDP and the US for 30.3%. In 2020, China accounted for 17.3% of global GDP and the US for 24.7%. In the same period the share of G7 countries in global GDP fell from 66.5% to 47.2%.
Worse, the US appeared to be losing its ability to set the “agenda” of the global economy and be a model for development. On the other hand, China appeared to be setting a tone that other countries were ready to follow: more emphasis on productive investment than on expanding the financial sphere, globalization with an emphasis on investment and trade, not capital-money flows. Important role of the state in validating and strengthening this policy.
The US response: the push for a new ‘industrial policy’
A first US response to this challenge was to swing towards a new version of “trade war”. This was quite intense during the Trump administration, when on the one hand the US chose to withdraw from the major free trade agreements that had begun to be negotiated in previous years, on the other hand it adopted certain trade war practices mainly with China and secondarily with the EU.
The response of the Biden administration appears to be different. Judging by the rhetoric of some of its representatives and the choices it has made so far, the key change is that the emphasis on free trade and free movement of capital is now being replaced by an “industrial strategy”, where governments use subsidies or tax incentives in order to achieve specific national goals. For example, the US has already decided and begun implementing such measures in an effort to upgrade its own production of electric vehicles and batteries.
Against this background there is more emphasis on bilateral agreements than on comprehensive global free trade agreements.
The representatives of the Biden administration themselves have tried to present this process as a modern version of supply economics. As Biden administration Treasury Secretary and former Fed chief Janet Yellen presented it in a 2022 speech, this is not a classic version of supply-side economics that simply relies on deregulation and tax cuts to bring about increased private investment. Modern “supply-side economics” for Yellen emphasizes human resources, public infrastructure, research and development, and sustainable growth, with a central claim to overcoming the problem of low productivity growth facing the US economy.
However, again the increased intervention of the state is limited to large subsidies and support in specific sectors and not e.g. in the state itself taking over critical sectors of production. That is, again the critical factor will be whether private investment will respond.
The question of hegemony
The rhetoric of the representatives of the American government indicates that in this way they would like the USA to regain a hegemonic role in the world economy, in the sense of projecting an “example” of economic development that the rest of the countries would like to follow, according to way that e.g. after World War II the USA exported aspects of its production model to other countries as well.
Of course, in terms of the hegemonic appeal of such a new “paradigm”, the problem is that so far the American initiatives have mainly been perceived by the other major Western economies, especially the European ones, as rather a version of American neo-protectionism and as an attempt to limit high-tech imports in the USA and be replaced by domestic production.
Accordingly, a key aspect of the US strategy to counter competition from China, namely the attempt to limit China’s access to high-tech products produced by countries friendly to the US, is essentially an attempt to slow down the rate at which the China closing the development gap with the US has the side effect of making it difficult for Western economies that have no problem importing the supposedly cheaper Chinese high-tech final products.
That is, the US runs into the great challenge of any “hegemonic” strategy, which is that in order to be truly hegemonic, it must indeed be in the interest of being allies but still economic competitors.
