« President Joe Biden has set out a domestic economic program that represents a marked departure from four decades of neoliberal policies that minimized the role of the state »
1The election of Democrat Joe Biden as US president, buttressed by legislative wins that gave the Democrats narrow control of both houses of Congress, is likely to signal significant shifts in US economic policy in some spheres. However, there may be less change in other long-standing policies and the administration may leave some Trumpian policies in place. This contribution provides an overview of the most important economic shifts that are likely under Biden at the domestic, global, and North American levels while noting what is uncertain or less likely to change.
2As a candidate and in the first months of his mandate, President Joe Biden has set out a domestic economic program that represents a marked departure from four decades of neoliberal policies that minimized the role of the state. His program has already achieved early successes in his first months in office, buoyed by the needs and public perception of an economy struggling under the economic impacts of the coronavirus pandemic. Former President Trump and congressional Republicans had also agreed to large economic stimulus packages in the early months of the COVID-19 pandemic in 2020 when the economy was in a free-fall and unemployment was skyrocketing. However, they then mounted truculent resistance to further stimulus. Despite their unanimous opposition, Biden as president was able to achieve a large additional stimulus package in early 2021, with stronger social protection features (Congress.gov. 2021). He then turned immediately to longer-term economic proposals that set out an intended shift toward more state intervention in the economy (The White House 2021a, 2021b). These proposals include massive investment in the country’s badly decayed infrastructure, including roads, rail, and water, along with investment in social infrastructures such as early childhood education, elder care, free community college, and universal broadband. They also include significant public investments in research and development, accompanied by industrial policies to advance US capabilities in industries including clean energy, electric vehicles, and semiconductors. Finally, Biden’s plans emphasize « buy American » policies and efforts to rebuild supply chains in the US.
3All of these steps are intended to create jobs, to replace those lost during the pandemic (as of April 2021 there were still almost 10 million unemployed) but also to upgrade the quality of jobs that had suffered from wage stagnation and increasing precarity during the decades of neoliberal policies (Bureau of Labor Statistics 2021). How much of this agenda Biden can accomplish will depend significantly on his ability to hold together his narrow Democratic majorities in Congress and to retain them after the 2022 mid-term election. It will also depend on the trajectory of the recovery from the pandemic, both in terms of public health and the economic repercussions. A strong economic recovery would buoy Democratic prospects in the mid-term election. But the successive waves of the pandemic sweeping the globe well into 2021 are evidence that the virus has not been conquered and therefore economic projections are particularly uncertain.
4Biden has said he will not pursue any new trade deals until he has led a recovery from the health and economic crisis. He is likely to keep to his word on this while his administration is fully occupied with the domestic economic crisis and efforts to legislate large shifts in medium-term policy and spending. He will not want to spend significant political capital on a topic as controversial as new trade agreements. An equally important factor is that Trump forced recognition by many in the Democratic party that decades of a corporate-dominated approach to trade and globalization by both parties had left the Democrats in a precarious electoral position. The Democratic coalition depends significantly on working-class voters and Trump's ability to win many of those votes with a critique of trade laid bare the political liability that those policies had created for Democrats. It will take some time and effort to sort out where a new trade consensus can be found in the party.
5That said, Biden’s domestic program may require changes in some of the current rules at the World Trade Organization (WTO) and bilateral and regional free trade agreements. An obvious example is the « buy American » policy. This will require either an agreed moratorium or agreed changes to the WTO Agreement on Government Procurement, the GPA. Failing that the US could withdraw from the agreement, which was floated by the Trump administration as a possibility, or choose to violate the agreement without facing consequences if the WTO dispute resolution mechanism remains dysfunctional. However, given Biden’s efforts to rebuild collaboration with allies the more confrontational options seem unlikely.
6Perhaps more profoundly, some of the industrial policies that Biden has proposed could violate anti-subsidy, anti-dumping, and anti-state aid provisions of the WTO and some free trade agreements. If so, his administration will need to address those constraints – often negotiated at the insistence of the US itself – through renegotiation with trade partners if he wants to carry out his domestic policies. Given the support that many countries are offering to their firms and industries to deal with the fallout from the pandemic, the US is not the only country that might want a moratorium or renegotiation in these areas. The discourse in Europe has shifted considerably due to the pandemic, with much more talk of building national industrial champions, huge increases in state aid, and even government equity stakes in private businesses. Before the pandemic, as recently as early 2020, the US, EU, and Japan proposed to strengthen the WTO disciplines on subsidies, state aid, and state-owned enterprises, an effort that was targeted against China, but future debates on these issues will be reshaped by the changes in their policies. In effect, they have behaved more like China during the pandemic-induced economic disruption.
7The pandemic made it clear that small government was not up to the task of rescuing public health and national economies. So there is likely to be a re-evaluation by the US and others of trade policies that constrain government policy space. An early indication of the depth of rethinking can be found in the decision by the US to agree to negotiate a waiver of intellectual property rights for coronavirus vaccines. Given the strong sway held by the pharmaceutical industry over US trade policy for several decades, the agreement to negotiate over waiving provisions of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) with respect to vaccines represents a considerable shift.
8This is a potentially pivotal moment in terms of changing the US trade policy paradigm. That said, one aspect of Biden’s foreign economic policy that has surprised some is his continuation of Trump’s antagonistic approach toward China. If the Biden administration chooses to view international issues primarily through an anti-China lens, the political space for moving away from the neo-mercantile stance would narrow.
9The US Mexico Canada Agreement (USMCA) was ratified by a strong bipartisan majority in the US Congress last year, a rare example of a cross-party agreement on trade. This was because the final agreement contained elements negotiated by the Trump administration, attracting Republican votes, and elements negotiated by the Democratic-led House of Representatives, which strengthened labour, environmental, and enforcement provisions and attracted Democratic votes. Given this bi-partisan political ownership of the USMCA, it is not likely that there will be an attempt to revisit its terms in the near future. Instead, the Biden administration is likely to let the agreement roll out over the next few years.
10Many chapters of the USMCA continue the pro-corporate approach of earlier US free trade agreements, with strong protections for US commercial interests. Indeed, the agreement expanded these to include key demands of the digital industry. There is already pressure on the US Trade Representative (USTR) from US corporate lobbies to take action on their sectorial concerns regarding Mexico and Canada. That said, the new USTR, Katherine Tai, has adopted a different tone in early discussions with North American trade partners from the aggressive « America first » stance of the Trump administration. USTR Tai has argued that trade needs to advance equity and opportunity for all stakeholders, which could lead to more accommodation of domestic social and economic concerns in the three countries (USTR 2021). Strong pressure for enforcement of the newly robust labour terms of the agreement from within the Democratic Party will be a factor.
11The Biden administration has pivoted away from four decades of US neoliberal deference to markets, at least in domestic economic policy. The shape of his international economic policy appears to be more contested, with different factions in the administration and the Democratic Party facing off on important questions. Perhaps the most decisive of these disputes will be the decision whether to give primacy to a confrontation with China. If that is the direction chosen, the scope for coordinated support for global economic recovery and stability will be reduced, along with meaningful collaboration on climate change and other global commons issues.
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