With its internal contradictions, the “Biden Doctrine” favors Trump-style Chinese wars, while its overly military reach paves the way for debt crises.
Today, more than half of all Americans disapprove of Biden’s performance. He divides the nation like Trump did. More importantly, progressives’ confidence in the administration is eroding. The new cold wars against China, Russia, Iran and other countries are not their priority. American welfare is.
As the White House missed a historic opportunity to gradually reset U.S. economic and foreign policy, it got mired in its own contradictions.
As a net effect, China is increasingly serving as a scapegoat – as it did for Trump’s White House.
Undermine the American economy with the Chinese wars
Unlike all post-war American Democratic presidents, including Clinton and Obama, and their Republican peers, Trump and his super-high tariffs avoided trade liberalization, a strong dollar, and independence from the Fed. Biden’s multilateralist rhetoric masks similar goals, steeped in economic nationalism and inward-looking trade policy. The net effect is the contradiction between declared multilateral goals and trade wars against other countries.
Another contradiction will follow in trade negotiations with China. According to US Trade Representative Katherine Tai, the Biden administration will not rule out further tariff actions against China. Yet the White House is well aware that current tariff targets are not viable without a global recovery, which US protectionism has derailed since 2017.
Nothing in these contradictory debacles was inevitable. When Biden was still serving in the Obama administration, his chief economic adviser was Jared Bernstein, a highly respected progressive economist. When Trump raised tariffs in early 2019, Bernstein cautioned against conventional Washington wisdom that China should be penalized for violating international trade rules. “This is a mistake: the whole rationale may be wrong,” he said. “If so, it won’t help American workers, and as a protectionist effort, its costs to people around the world could outweigh its benefits.”
In the fall of 2019, Bernstein declared Trump’s trade policy a “disaster” and presented six ideas to the next president to correct trade policy. First, surgical tariffs can be a useful tool, but tariffs that are too high undermine economic recovery. Second, the trade deficit is not a scorecard amid the secular stagnation of the West when demand is weak. Third, America needs export-oriented industrial policies, not protectionism. Fourth, effective trade pacts require multiple stakeholders, including developing economies. Fifth, China has not engaged in currency manipulation for years, but Trump flirted with such risks. Finally, the race to the bottom of multinationals does not help those left behind; smart tax credits and subsidized employment do it.
Instead of grasping the ideas of his former adviser, Biden embraced precisely the opposing ideas; the dire trade policies of the far-right Trump administration.
Undermining well-being with overly military reach
Like Trump with his $ 2 trillion Covid-19 package, Biden is promoting huge direct transfers and lower taxes for workers and the unemployed. While it has already passed a $ 1.9 trillion stimulus package, the administration has struggled to launch yet another multibillion-dollar infrastructure package, which divides Democrats and Republicans who take a stand. for the 2022 elections. Oddly, parts of the package are explicitly defined as anti-China measures.
Ultimately, the real dilemma is that no amount of stimulus spending can make up for the fundamental contradiction of the Biden administration: Support for US military spending has happened for decades at the expense of welfare, as This is evidenced by the $ 8 trillion that was spent after September 11. wars over the past two decades.
Indeed, the key role in this equation belongs to current military spending, which exceeds $ 965 billion, due to military spending at the Pentagon and outside the Pentagon, and spending accumulated by past military spending, based on the benefits of the former. fighters plus interest on the $ 740 billion national debt. Because of its over-military reach, the United States invests far less than any other large advanced economy in well-being, defined here broadly as human resources, government, and physical infrastructure (Figure 1).
Figure 1 In fact, half of the US budget goes to military spending
* From a conventional point of view, military expenditure (eg national defense, ex-combatants) is only 20% of the total as it includes trust funds (eg social security); and most past military spending is indistinguishable from non-military spending. Source: Data from Analytical Outlook: Fiscal Year 2021, United States Government Budget
Towards debt crises
Naturally, the White House is less vocal about how the world’s most massive tax packages, ultra-low rates and quantitative easing will be financed. The simple answer is: by debt that will not be repaid, but monetized.
Today, the US debt stock has climbed to nearly $ 29 trillion (126% of GDP); comprised of debt held by the public ($ 22.2 trillion), which exceeds the size of the US economy, and debt held by public accounts ($ 6.2 trillion). In relative terms, the debt held by the public is almost at the same level as the American war debt in 1945. It is expected to almost double to reach 202% of GDP by 2051 (Figure 2).
Figure 2 Towards debt crises *
* Federal debt held by the public as% of GDP Source: CBO, March 2021.
All other things being equal, this type of debt taking is the death knell for the United States as the world’s anchor economy and the US dollar as the world’s primary reserve currency. And as the markets are looking to the future, the balance sheet will not wait until mid-21st century. He looms.
To defer the calculation, the Biden administration must print money continuously. In addition to the current challenges, it is likely to push the Fed to tackle climate change. And the Fed is likely to comply, to maintain its independence. Officially, Biden won’t favor a weaker dollar, but the measures adopted by the administration will force the Fed’s cooperation to finance huge budget deficits.
When the central bank finances government spending, money printing risks sparking inflation. When inflation starts to rise, as it has since the coronavirus contraction, the Fed must adopt a policy of benign neglect because a strict anti-inflationary policy would trigger a stock market crash and severe recession.
Such trajectories would be damaging for major foreign holders of federal debt, such as China and Hong Kong, which hold $ 1.3 trillion (18.4% of the total); more than any other country. Here’s yet another contradiction: If China no longer bought US securities and / or sold a significant portion of its dollar holdings, Washington would need other foreign and domestic investors to make up the gap, which would lead to a hike. interest rates.
And so, we are back in crash scenarios or worse if foreign investors reduce their holdings of US assets. en masse.
A doctrine without principles
Biden loyalists like to describe him as the reincarnated Truman; an image that his masters encourage. In reality, Biden wanted to present himself as the new Franklin D. Roosevelt. But as Bob Woodward and Robert Costa tell the tale in Peril, at the end of 2020, then-majority whip Jim Clayburn persuaded Biden to present himself as Truman who instead disintegrated the military. And that is what he did.
The “Biden Doctrine” is not a doctrine of geopolitical ideas or economic policies. Rather, it is political marketing, even if unprincipled doctrines are doomed to fail. Hence the growing populist need for China as a scapegoat.
Unlike Truman, Roosevelt expected the Grand Alliance of the United States, the Soviet Union, the United Kingdom and China to win in the postwar era. With the gradual diffusion of power, this is the kind of multipolarity that America, China, and the global economy desperately need in the 21st century.
Just as the Grand Alliance could have avoided the Cold War and its more than 20 million dead, mainly in Asia, it could deter the new, much more costly and deadly cold wars that are now looming.
The original commentary was posted by China-US Focus on October 22, 2021.