The New Washington Consensus
Both Trump and Biden have positioned themselves as economic nationalists, self-consciously abandoning the precepts of the old order.
Earlier this month, National Security Adviser Jake Sullivan delivered a speech at the Brookings Institution that historically would have made for front-page material but barely registered in the world beyond wonkdom. His address was a muscular statement of ideological intent.
He argued that President Joe Biden’s agenda channeled a set of ideas Sullivan called the “new Washington consensus.” There was a bit of cheek in his use of that term. The Washington Consensus was a phrase that entered circulation at the very end of the 1980s, describing the emerging bipartisan faith in globalization, deregulation, and the wisdom of markets, suited to an era of optimistic triumphalism. But that era is ending. Or, as Sullivan put it, “The last few decades revealed cracks in those foundations.”
What Sullivan championed in the speech was something like the antithesis of that old paradigm. He said that ever-greater global interdependence is no longer desirable. One reason is China, which participates in global capitalism without fairly playing by its rules. Another is the realization, exposed by the pandemic-induced crisis in the intricate global supply chain, that the American economy is vulnerable to even small disruptions on the other side of the planet. That crisis was an indication that the world has gone too far in a libertarian direction and needs the sort of regulation and government investment that only a short while ago were highly unfashionable in the Washington policy sphere.
Although he didn’t justify his use of the term this way, he could get away with describing his views as representative of a new “consensus”: Both Trump and Biden have positioned themselves as economic nationalists, self-consciously abandoning the precepts of the old order.
That’s not to describe the Trump and Biden versions of economic nationalism as equivalent. Although Trump delivered vituperative speeches, inflected by xenophobia, about elites destroying American manufacturing, he didn’t really have any ideas about how to reverse course beyond jacking up tariffs. Biden’s national-security adviser, by contrast, put a big idea at the center of his speech. He extolled the virtues of industrial strategy: a new role for the state in directing the trajectory of the economy.
Industrial strategy begins with the premise that the national interest demands that certain industries flourish domestically. The United States can’t rely on, say, semiconductors produced in Taiwan when China could plausibly invade that island and abruptly cut off access to the chips that run every car, laptop, and weapon system. To bolster such essential sectors of the economy, industrial strategy uses public investment, in the form of tax credits and subsidies, to prod firms to produce goods that the public needs.
The Sullivan speech was not just a policy wish list but a statement of values, a rejection of the idea that efficiency is the most important end of economic policy. All growth is not good growth, he argued, if it leaves America’s supply chains vulnerable to foreign adversaries and impedes the prospects of the American worker. The goal of industrial strategy is a safer, more equitable pattern of growth that better serves the national interest.
Many highfalutin speeches by presidential appointees are wishful projections. What made Sullivan’s different is that he described policy already in motion—based on all initial indications succeeding beyond expectations.
Biden’s industrial strategy has emerged in a patchwork of legislation and regulation. First came the CHIPS bill, with its $52.7 billion in subsidies for the semiconductor industry. Then came the Inflation Reduction Act, which funds various tax credits intended to spur demand for electric vehicles and designed to rapidly grow the supply of alternative energies. All the while, Biden has left Trump-era tariffs on China in place.
Semiconductor plants are intimidatingly expensive projects even with abundant government largesse; new energy infrastructure requires time-consuming permits, a strong disincentive against investment in the sector. Despite those obstacles, however, the administration’s strategy is yielding nearly instant results. Last month, the Financial Times published a report titled “‘Transformational Change’; Biden’s Industrial Policy Begins to Bear Fruit.” The article showed that firms have gone on a building spree since the passage of the two bills, committing $204 billion in large-scale projects in both the clean-energy and semiconductor industries. That’s twice what firms in those sectors spent in 2021—and 20 times what they spent in 2019. In this same time period, companies have launched 75 large-scale manufacturing projects. The FT couldn’t be sure whether these projects could be attributed to the new tax credits. But the sudden avalanche of capital investment suggests causation.
The Inflation Reduction Act was passed last August. Now there’s ample reason to believe that far more companies will avail themselves of the program than the accountants assumed. Where the Congressional Budget Office initially estimated that the IRA would fund nearly $390 billion worth of tax credits, it now anticipates that the government will spend $180 billion more than that.
High demand is creating a sense of panic about the expansiveness of the IRA. Joe Manchin regrets that the legislation, which he co-authored, doesn’t include any caps on the tax credits, which might have limited the sum the government will spend on clean energy. And he’s not the only hand-wringer. This week, The New York Times ran a piece headlined “Business Fervor Driving Up Costs.”
If the program does indeed result in far more spending than the initial estimate, that might not be healthy for government coffers. But it will be plausible evidence that the transition to clean energy is transpiring at an even faster clip than the Biden administration imagined. Because the IRA places no upper limit on tax credits, there won’t be a moment in the next 10 years when the government suddenly takes its foot off the accelerator. And by the end of the decade, that accelerator will be propelling electric vehicles.
Industrial strategy will fail to deliver on everything Sullivan promised—and, in some respects, may already have failed. The limits were visible in the United Auto Workers’ recent decision not to endorse Biden’s reelection. It was an understandable expression of self-interest. Much of the capital racing into the electric-vehicle business is destined for South Carolina and other states where firms don’t have to contend with nettlesome unions. The UAW is not wrong to fear that the new Washington consensus will replicate the sins of the old. The jobs may be green, but they will continue to be low paying and precarious.
Whatever the shortcomings of the policy, the conceptual change is real and significant. In a recent column, The New York Times’ Gail Collins distilled the prevailing wisdom about the 2024 race: “Donald Trump’s terrible and Joe Biden’s boring.” That widely shared description of Biden is an aesthetic judgment and strangely at odds with the substance of this presidency. The Biden administration is doing nothing less than rejecting the economic orthodoxy of the past 50 years and proposing a new theory of capitalism.
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