An American Investment Boom Would Be Good for the World
The impact of "market access" restrictions and local-content provisions is vastly overrated compared to the basic fact that a dramatic increase in U.S. spending would boost American imports.
The open international system will not survive—and would not deserve to—if the preservation of that system stands in the way of shared prosperity, rising living standards, and environmental protection.
Fortunately, there is no inherent conflict between openness and these other goals.
Unfortunately, many of those who claim to be defenders of the post-WWII system have repeatedly undermined that project through their own disastrous choices.1 Michael Pettis and I wrote Trade Wars Are Class Wars precisely because we feared that elite failures would lead to the rejection of internationalism entirely—and make room for a new generation of chauvinists and opportunists who would once again pit the world’s peoples against each other.2
The past few years of U.S. economic policymaking suggest that key officials understand this. (It surely helps that at least a few of them have read the book.) The federal government has committed to spend trillions of dollars with the American Rescue Plan Act (ARP), the Infrastructure Investment and Jobs Act (IIJA), the CHIPS Act, and the Inflation Reduction Act (IRA) to keep the global economy humming and to support domestic manufacturing and clean energy investment.3
If it works, this approach should boost global manufacturing demand, ease the supply constraints of the past few years, and support the green transition. While this would be good for Americans, producers outside the U.S. also stand to gain enormously from the coming imbalance between America’s investment needs and its extant productive capacity.
Yet critics both in America and abroad appear to care more about narrowly legalistic definitions than the overall health of the global system. Instead of celebrating the potential benefits of an American investment boom, they worry about incentives that favor production in the U.S. and the lack of interest in new trade deals. Greg Ip at the Wall Street Journal provides a good example of this line of argument in a recent column:
The foreign and domestic arms of Bidenomics are also at odds with each other, despite [U.S. National Security Advisor Jake] Sullivan’s insistence that they are complementary. While seeking solidarity with like-minded partners against Russia and China, the buy-American policies of the Biden administration discriminate against those same partners…Unlike Donald Trump, Biden isn’t seeking to tear up existing free trade agreements or to raise tariffs. But neither is he interested in new trade agreements or lowering tariffs. His Indo-Pacific Economic Framework seeks cooperation with allies in the region on labor conditions, climate policy, tax compliance and corruption, but it doesn’t offer increased access to the U.S. market in return, as the TPP [Trans-Pacific Partnership], its rejected predecessor, did. To foreign trade partners, it’s an underwhelming proposition.
The problem with this reasoning is that it prioritizes legal proceduralism over outcomes. Despite what the lawyers and other specialists may say, trade policy, conventionally understood, has very little impact on trade. Macro forces matter much more than these micro measures—and the macro impact of the recent U.S. policy mix is unambiguously positive for both the U.S. and the world.