National Security Advisor Jake Sullivan outlined the Biden administration’s international economic policy at the Hutchins Center on Fiscal and Monetary Policy at Brookings on April 27. For video and a transcript of the speech and the Q&A that followed, click here. Below are reactions we solicited from observers with different viewpoints including former Treasury Secretary Lawrence Summers, Oren Cass of American Compass, Todd Tucker of the Roosevelt Institute, Bob Davis (formerly) of The Wall Street Journal, and scholars from Brookings and other Washington think tanks.
- Emily Benson: Not an Easy Sell, But Creative
- Oren Cass: De-risking Is Insufficient—Decoupling is essential.
- Martin Chorzempa: Tension between rhetoric and practice
- Bob Davis: Action, not just words, needed to de-escalate with China
- David Dollar: “Buy American” is a mistake
- Josh Gotbaum: Challenges of dual use technologies
- Ryan Hass: Three quibbles with Sullivan
- Mireya Solis: Bold vision, success in question
- Larry Summers: Too much focus on manufacturing, not enough on consumers
- Todd Tucker: “Thumbs up”
Not an easy sell, but creative
Emily Benson, Director, Project on Trade & Technology and Scholl Chair in International Business, Center for Strategic & International Studies
Jake Sullivan’s speech at Brookings was relatively light on news but heavy on philosophy, arguing that capitalism needs to look fundamentally different in order to confront today’s problems. Sullivan argued, for example, that the traditional approach to trade was based on a set of “oversimplified assumptions.” To illustrate this point, Sullivan likened the transition to this new global vision as shifting from a Parthenon approach of the post-WWII era—a system characterized by neat columns and clean lines—to a future replete with Frank Gehry-style architecture, evoking Gehry’s overlapping ribbons of steel and aluminum that adorn buildings worldwide. In an apt coincidence, Gehry’s new museum, which is set to open in 2025 in Abu Dhabi, is designed around the theme of “intentionally ‘messy’ moving into clarity.” This “intentionally messy” economic order is unfolding now, as indicated by the pursuit of mini-sectoral arrangements like the Global Arrangement on Sustainable Steel and Aluminum with the European Union or a series of critical minerals deals with partners such as Japan. This new economic order reflects a messier—but probably more accurate version—of how the world really works.
The message is to trust the Americans, and the rest will come.
The speech called for patience and confidence in building a global vision, which Sullivan said would require “dedicated commitment” among allied economies. Sullivan was generous with his support of the European Union (EU), clearly aligning itself with EU President von der Leyen’s bid to de-risk rather than decouple. This direct support for the European Union is a not-so-subtle nudge for the bloc to continue inching closer to the U.S. economic and security approach toward China. Whether and when EU member states hear the message—and whether they will commit to making this new economic order a reality—remains to be seen. Other third countries, such as India, which holds this year’s G20 presidency, and next year’s host, Brazil, will also need to buy into a new era focused on decarbonization and de-risking. Familiar questions, such as how to define green trade or what constitutes a national security risk, will continue to surface in prominent ways.
The message is to trust the Americans, and the rest will come. After decades of foreign policy missteps and growing tension with China that leaves most countries awkwardly in the middle, it is not clear that will be an easy sell. This also relies on a fundamental assumption that the administration has sufficient time to “finish the job,” which may or may not be the case. Either way, we should appreciate the forward-looking creativity of the administration and acknowledge their attempt to do what few have dared: to rethink capitalism for the 21st century.
De-risking is insufficient—Decoupling is essential
Oren Cass, Executive Director, American Compass
Jake Sullivan opened his remarks with a sophisticated critique of “oversimplified market efficiency,” an uncommon and welcome focus for a national security advisor. In the domestic context, that thinking by Sullivan and his White House colleagues has led to valuable progress on issues like antitrust and industrial policy. So, it is disappointing that the Biden administration still refuses to apply its analysis properly to the challenge of America’s economic relationship with China, instead trusting that market forces will generate positive results. Sullivan characterized the China challenge in terms of national security, calling for a “small yard, high fence” approach to economic restrictions. Because limiting military tech transfer and ensuring resilient supply chains are the issue, “we are for de-risking and diversifying, not decoupling.”
But even if China was to disarm tomorrow, credibly foreswearing any aspirations beyond its borders, its influence as an economic actor would remain deeply corrosive to American liberty and prosperity. Decoupling is essential. Our nation’s free enterprise system is incompatible with one dominated by state-owned, -controlled, and -subsidized competitors. Asking American firms and workers to compete with their Chinese counterparts grants Chinese policymakers the power to shape American capital allocations and labor-market conditions from the far side of the Pacific. Likewise, our political system is incompatible with an authoritarian one. If our firms are tasked with maximizing their profits, and the greatest profit can be had by kowtowing to the Chinese Communist Party (CCP), that is what our business leaders will do. Michael Bloomberg will apologize for Boris Johnson’s criticism of China at his conference (and ensure next year’s conference is more CCP-friendly).
No one considered seriously an integration of the American and Soviet economic systems. We only countenanced a coupling with China because we assumed wrongly that it would lead to economic and political liberalization. Some are still dreaming. In her speech at Johns Hopkins last week, Treasury Secretary Janet Yellen imagined “a growing China that plays by the rules” and fosters “rising demand for U.S. products and services and more dynamic U.S. industries.” That world sounds lovely, but our international economic strategy should reflect the one we inhabit.
Tension between rhetoric and practice
Martin Chorzempa, senior fellow, Peterson Institute for International Economics
As national security considerations exert increased influence on economic activity, clarity on the economic views of key national security policymakers like Jake Sullivan is welcome. His speech was wide-ranging, but two areas where rhetoric and practice are in tension could use more explanation: how the administration plans to engage with allies and the trade-offs where security and economics intertwine.
First, Sullivan’s welcome vision for a “strong, resilient, and leading-edge techno-industrial base” shared between the U.S. and partners is much more realistic than making everything at home, but the speech will not change widespread perception that bringing as much activity as possible to the United States—often to the consternation of U.S. allies, as with the Inflation Reduction Act—is the primary goal. The emphasis on resilience is understandable with COVID supply disruptions and bottlenecks in recent memory, but a single-minded focus on resilience to the detriment of efficiency could be just as harmful as the opposite, especially if inflation is to be tamed. U.S. allies have shown continued commitment to the kind of trade agreements the speech rejects—focused on reducing barriers to trade between each other, far beyond tariff reductions. To that end, I hope the administration can articulate something missing from the speech, an agenda that explores removing barriers to flows of capital, goods, and technology at least among security allies. Providing benefits like enhanced market access and streamlined security reviews or export controls could help the administration ensure allies can prosper better together, not just share the burden of sacrifices from forgoing sales in China’s market.
Second, he underscored that restrictions to trade and investment will be narrowly targeted to militarily-relevant areas, a “small yard, high fence” concept rather than a “blockade” against China. There is thus little daylight between his speech and Treasury Secretary Yellen’s vision for policy with China. How small the yard is already, however, is in the eye of the beholder, and it could grow quite large in the future. Though the administration has tried to carefully target controls, technology areas Sullivan cited in a speech last year as requiring “as large of a lead as possible” include many crucial for the future of commercial technology. Of those, advanced semiconductors were targeted for controls a month later, which hit chips not just for military applications but for data centers, autonomous vehicles, and many artificial intelligence uses. Part of the administration’s vision could illuminate how it weighs trade-offs in national security restrictions that come at an economic cost—understanding that such costs can create security vulnerabilities in the longer term. For example, if export controls today deprive U.S. firms of enough revenue or fears of future controls lead them to be “designed out” of supply chains, they may not have the resources to stay at the cutting edge, removing the U.S. ability to put controls on advanced technology for national security and harming the techno-industrial base.
Action, not just words, needed to de-escalate with China
Bob Davis, former Wall Street Journal reporter, co-author of Superpower Showdown, a history of U.S.-China trade and economic battles.
Jake Sullivan had a lot of audiences in mind for his remarks.
The message to Congress: The administration is pushing ahead with industrial policy. Don’t expect any cuts to the China tariffs. (“In today’s world, trade policy needs to be about more than tariff reduction,” he said.)
To allies: We want you to invest, too, though we want to be number one. Kind of like NATO. (“Burden-sharing when it comes to taking some economic hit to protect your national security is harder to quantify and then harder to implement.”)
And to China: We’re open for business. We want to trade with you. We don’t want to hold you down. Really.
The last is the toughest message for Sullivan to deliver believably. At its core the administration’s China policy is a) build up the U.S., b) work with allies, and c) hobble China. The hobbling part is clearest in the administration’s expansive export controls which try to block China from getting advanced semiconductors and semiconductor manufacturing equipment.
It will take more than words or even meetings with the Chinese to right U.S.-China relations.
As Sullivan said in September: “Given the foundational nature of certain technologies, we must maintain as large of a lead as possible.” At Brookings he said the Chinese had misinterpreted the U.S. approach as a “technology blockade.” He’s right about Chinese hyperbole, but the breadth of the administration’s ambitions in restraining China’s tech sector is astonishing—much more than the Trump team tried.
Now the administration is worried that its tough message is only adding to the downward spiral in relations. Rather than talk about “de-coupling,” Sullivan used the more diplomatic term of “de-risking,” favored by the Europeans. And the controls? “We are simply ensuring that U.S. and allied technology is not used against us. We are not cutting off trade.”
But it will take more than words or even meetings with the Chinese to right U.S.-China relations. To be believed, the U.S. should take some concrete action to deescalate. A good start would be by ending threats to ban TikTok and figuring out ways to limit the harm from all social media. Let’s see if Beijing reciprocates. Even if it doesn’t, that’s the right policy for the U.S. as it confronts China.
“Buy American” is a mistake
David Dollar, Senior Fellow, John L. Thornton China Center, Brookings Institution
There are several things I like about the strategy Sullivan laid out: the recognition that economic strength is the foundation of national security and that global issues such as climate change must be addressed in order to create a foundation for global peace and prosperity.
What worries me is the heavy focus on industrial policy measures that involve both subsidies and protection of the domestic market through “Buy American” provisions. Subsidies are well justified for issues with large externalities, but in my opinion the protectionism will prove to be a mistake. Also, the administration is using one instrument, industrial policy, to hit two targets: protect national security and bring back manufacturing jobs. By trying to hit two targets, each one is to some extent undermined. For national security: the Buy American provisions upset our allies and undermine the alliance of advanced democratic states. They also make the energy transition more expensive and hence slower. Limiting the subsidies for electric vehicles to ones with a certain amount of American content inevitably makes EVs more expensive and slows their adoption.
Concerning the second target, generating manufacturing jobs in the U.S., the administration’s approach is incredibly indirect. It consists of subsidizing the build-up of capital stock through direct subsidies and, indirectly, through import protection with the hope that more capital stock will generate more jobs. Assuming that the infrastructure construction and investments in semiconductors and EVs actually proceed, there will be apparent job creation. But some, perhaps all, of the workers will be pulled from elsewhere in the economy, including from other manufacturing employment. There is no guarantee that there will be net manufacturing job creation.
A more direct approach would be to focus on labor issues, broadly defined: better environment for union organizing; shoring up social security; public support to childcare and pre-K so that parents who want to work are able; and mid-career retraining. To be fair to President Biden, these are all part of his broader agenda. But the administration’s focus has been on the industrial policy measures, and now there seems little chance of advancing the social agenda. The risk then is that over the next few years there will be little or no progress in the manufacturing renaissance, and this failure will be both evident and politically salient.
Challenges of dual use technologies
Josh Gotbaum, guest scholar, Economic Studies, Brookings; former Assistant Secretary of Defense for Economic Security and former Assistant Treasury Secretary for Economic Policy.
Last September, Jake Sullivan asserted that losing U.S. preeminence in “foundational technologies” could threaten national security. “Staying a couple of generations ahead” of other “countries of concern,” he said, was no longer sufficient. Within weeks the administration followed up, prohibiting exports to China of advanced semiconductor chips and their manufacturing technologies.
At Brookings, Sullivan asserted these actions were motivated solely by national security concerns, not economic competition—that export controls “are narrowly focused on technology that could tilt the military balance.” Sullivan said this “narrow focus” was an example of using “high fences” only to protect “small yards.” In practice, the focus isn’t narrow and the yard is hardly small because these technologies have profound non-military applications. In the jargon of the national security community, they are “dual use.”
National security export controls have long been concerned with the risks of transferred technology. In the 1990s, limits were set on the power of chips and supercomputers that could be exported to non-friendly nations. Now digital technology extends far beyond traditional military applications. As David Sanger aptly titled his book, cyber is The Perfect Weapon, equally capable of disrupting power grids and political elections. Within a few years, advances in AI could make those examples seem quaint.
AI techniques will of course be used for advanced weaponry, but they also will be used to make better electric cars, aircraft, supply systems, and innumerable other commercial products and services. In short, these national security measures have major economic implications, too.
These technologies being dual use also makes enforcing export controls more difficult. The administration can limit the transfer of some technologies to China only with the cooperation of other countries to prevent diversion. Russia’s ability to access certain chips despite sanctions is a reminder of the difficulties involved.
Another complication is that export controls are now taking place in a world with far more international trade. During the Cold War, trade with the Soviet Union was sufficiently small that the primary challenge was getting other Western-nation allies to agree not to ship their products or ours. The departments of State, Commerce, and Defense (and their international counterparts that formed the Coordinating Committee for Multilateral Export Controls, or COCOM) didn’t have to worry about trade offsets: There wasn’t much trade to offset.
The world economy is much different today and the U.S. remains heavily trade dependent. Sullivan and Treasury Secretary Janet Yellen in her recent speech took pains to say they support trade, that there’s no attempt to “decouple” the U.S. and Chinese economies. This is sensible since some critical materials are now available only from China, but Sullivan suggests a more complicated agenda, noting the need for the U.S. and its allies to bolster economic “resilience” and to avoid supply disruptions.
All this reinforces Sullivan’s larger point that national security, economic security, and foreign policy issues are intimately intertwined. Some of the resolution may involve lower fences, but it’s obviously a much bigger backyard.
Three quibbles with Sullivan
Ryan Hass, Michael H. Armacost Chair in Foreign Policy Studies, Chen-Fu and Cecilia Yen Koo Chair in Taiwan Studies, Brookings
Jake Sullivan is rigorous and thoughtful in pushing forward American renewal. His speech provided a powerful reminder that he and his team are working purposefully to elevate America’s competitiveness and not just respond to crises and manage challenges that confront them. Sullivan did a great job connecting America’s international economic agenda to our country’s national security. Ultimately, economic strength is the foundation upon which national security is built. No country can be stronger in the world than it is at home.
If I had to quibble with Sullivan’s speech, though, I would point to three potential shortcomings.
First, the speech undervalued the unique attributes that enable America’s enduring success. America’s greatest asymmetric advantage is its capacity to attract talented people from around the world who want to bring their ideas and ambitions to our shores. This attraction is fueled by a creative and dynamic society, a fair and predictable legal system, deep and liquid capital markets, and confidence in knowing that big ideas can scale globally. There is a can-do, globetrotting spirit at the heart of America’s attraction that was notably absent from Sullivan’s critique of the past and his call for greater domestic production and supply chain resiliency going forward. By retreating from America’s role as defender and promoter of open markets, Sullivan has reduced America’s capacity to serve as an agenda-setter on the international economic stage. Domestic production and supply chain resiliency are perfectly defensible goals, but a rallying cry for restoration of American global economic leadership they are not.
Second, Sullivan’s speech may overweight the price other countries are willing to pay in service of American leadership. Virtually no other country holds the same threat perception of China as the United States. For most other countries, China is viewed as a risk and an opportunity. Exaggerating other countries’ enthusiasm for embracing economic inefficiencies in service of friend-shoring supply chains runs the risk of setting this project up for disappointment.
Finally, on China, Sullivan’s message would have more purchase with many of America’s longstanding partners if they were viewed as elements of a genuine strategy to nudge China’s behavior in less predatory and more market-driven directions rather than pieces of an effort to constrain China’s growth. Eschewing decoupling in favor of de-risking doesn’t answer the mail. America typically uses combinations of threats and incentives to influence how countries identify and pursue their interests. When the only tools on display for China are threats and punishments, America’s partners understand the score and therefore devalue the seriousness of America’s efforts to influence Chinese behavior.
Bold vision, success in question
Mireya Solis, Knight Chair in Japan Studies & Director, Center for East Asian Policy Studies, Brookings.
Jake Sullivan offered a compelling articulation of the Biden administration’s international economic strategy. Given the fast clip at which the U.S. government is rolling out policies of huge consequence on industrial policy, export controls, electrification incentives, inbound (and soon outbound) investment screening, etc., this explanation of how the administration identifies the problem set (deindustrialization, inequality, carbonization, and non-market economies) and its remedies is welcome.
One the most striking elements in the Sullivan speech is the notion that we are arriving at a “New Washington Consensus,” one where the U.S. no longer worships at the altar of trade liberalization, where it will unapologetically pull all policy levers to build at home, and where it will craft nimble new economic partnerships with other nations to address the challenges of today.
The vision advertised is bold, but its ultimate success is in question. The dismissal of past trade agreements in the speech is way too simplistic—free trade agreements (FTAs) have long been about much more than just tariff elimination. Comprehensive trade agreements have leveraged the incentives of expanded market access to codify complex rulebooks with enforceable obligations. This essential bargain is absent from the current Indo-Pacific Economic Framework for Prosperity (IPEF) negotiations, making it hard to anticipate ambitious outcomes with actionable commitments on labor, digital, and the environment. Case in point is the critical minerals trade agreement with Japan with toothless provisions on labor and environment. Cosmetic trade agreements will not achieve the lofty objectives Sullivan laid out.
The vision advertised is bold, but its ultimate success is in question.
The speech overplayed the consensus said to exist between the United States and its trading partners. Asian countries continue to believe strongly in the merits of FTAs while the U.S. has abandoned comprehensive trade negotiations. The domestic content obligations of the Inflation Reduction Act and the extraterritoriality clauses of export controls continue to rankle our allies. Nor is it clear that a domestic consensus has been forged with strong inter-branch cooperation. Rather, the Biden administration has chosen to negotiate new economic frameworks as executive agreements that will bypass Congressional ratification. Capitol Hill is not happy with its marginalization, and our partners worry that executive-branch deals will have a short shelf life in this polarized America.
Too much focus on manufacturing, not enough on consumers
Lawrence Summers, Charles W. Eliot University Professor at Harvard and former U.S. Treasury Secretary.
(Summers was asked about Sullivan’s remarks on Bloomberg’s Wall Street Week. This is a lightly edited version of his reply.)
Jake Sullivan is a very thoughtful leader, and [this speech was] probably the most carefully intellectually developed exposition of the administration’s philosophy that we have had to date. Certainly, he’s right that the world has changed. He’s right that China represents a new kind of challenge. He’s right to emphasize after what we’ve seen in Europe with oil [and] other things, the importance of resilience.
But I was disappointed that the speech did not emphasize the central importance of importing low-priced goods. That is a substantial part of what determines the living standards of Americans. That is a substantial part of what determines the competitiveness of American producers. For example, we have 60,000 people working in the steel industry and 6 million people working in industries that use steel. When we raise the price of steel, we are hurting people. The Peterson Institute for International Economics estimated some time ago that trade reduced costs for consumers by more than a trillion dollars and that if we had removed our tariffs and other measures, it would’ve added 2% to people’s real incomes by reducing inflation pressure.
I think that the administration is much too quick to move to industrial policy strategies on grounds of resilience. Let me give you two examples. The Jones Act was the resilience policy of the 1920s. It says: Let’s have all our shipping be on U.S. carriers. That’s made the price of heating oil considerably higher in New England all year. That screwed up our efforts to help Puerto Rico after the hurricane because we didn’t have adequate capacity. We had a major infant formula problem in this country that was related to “buy American” policies. That meant we couldn’t turn quickly to European supply chains. Of course, we’re all for resilience. We’re all for strong U.S. producers and strong U.S. businesses. But what I find missing in the approach is helping consumers, which after all is the middle class and is central to how people feel they’re doing. Also missing is recognizing the importance of cooperation in producing a more prosperous global economy that works to our benefit and the United States maintaining its commitment to other countries, which we have not done in the trade area for quite some time.
So, my reaction to the speech was mixed. There are things I very much liked and there’s a lot of creativity that has been displayed by the administration, but I think in their extreme preoccupation with manufacturing, their failure to consider consumers, and their reluctance to embrace cooperation in favor of more aggressive economic nationalism, I don’t think they’re quite in the place that will ultimately serve the long-run interests of the United States. They’re in a tradition somewhat different than the tradition that we followed after the Second World War, which was much more multilateral and global in its approach. And it’s a little more reminiscent of some of the mistakes that were made in the global economy after the First World War.
“Thumbs up”
Todd N. Tucker, Director of Industrial Policy and Trade, Roosevelt Institute.
In 2021-22, the Biden administration unveiled numerous initiatives from the Infrastructure Investment and Jobs Act to the CHIPS and Science Act to the Inflation Reduction Act. Collectively, as a recent Roosevelt Institute forum with Biden administration alumni made clear, these laws showed that the domestic political economy of the United States is moving decidedly and openly toward industrial policy and making public decisions about how and where industries engage in productive activities. This is as much about restoring faith in democracy as it is about economic development.
What’s been missing—until Jake Sullivan’s Brookings speech—was the international component. It is not that U.S. trading partners have been unaware of what American policymakers were up to. Indeed, since at least October 2021, foreign policymakers and auto companies lobbied the U.S. Congress to get rid of core components of the original Build Back Better Act, which included bonuses for union-made and domestically-assembled cars. Ironically, they were successful at convincing the pivotal vote—Sen. Joe Manchin (D-WV) —on the first ask but not the second. This means union workers in both Europe and the U.S. will now be put into deeper competition with non-union workers in the U.S. South and other so-called “right to work” states.
Rather, the U.S.’s trading partners have been unclear on the framework for economic and security collaboration going forward. Sullivan provided this framework, and it amounts to investing and building the 21st century economic transition together. In some cases, this is about moving away from a moribund neoliberalism to more dynamic enterprises. As an example, instead of hoping for breakthroughs at the World Trade Organization after nearly 30 years of impasse, there are new sectoral deals like the Global Arrangement on Sustainable Steel and Aluminum that can serve as building blocks for industrial cooperation. In other cases, it involves moving beyond a solely defensive posture vis-à-vis China, thinking through ways to collaborate with the People’s Republic of China on shared goals, and building out the number of winners in the developing world from the U.S.’s historic investments.
In short, Sullivan’s speech deserves a thumbs up. It showed that the administration is not merely reacting to the excesses of neoliberalism but has a positive vision for democracy and the international order going forward.
The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation.
Commentary
Reactions to National Security Advisor Jake Sullivan’s Brookings speech
May 2, 2023