How Biden Tries to Save America by Divorcing Neoliberalism

Renowned Professor Di Dongsheng, who foresaw the Sino-US decoupling ten years ago, is trusted by a wide Chinese audience for his shrewd observations on international relations. Therefore, his insights on the Biden economic policy, as elaborated in the following article, offer a glimpse into how the Chinese public, especially those in academic circles, perceive the Biden administration.
March 20, 2024
Di Dongsheng
Professor of International Relations at Renmin University of China. Distinguished Fellow at the International Monetary Institute, Renmin University of China

1. The context in which the Democratic Party of the U.S. proposed its new vision of governance

The debut of the term “Bidenomics” can be traced back to late 2021 when Republican commentators used it to attack Biden’s economic policies. But American culture delights in self-deprecation as a means of displaying self-righteousness. Therefore, by late June 2023, the Biden administration had adopted the term itself to summarize its economic philosophy, categorizing it as a core idea of its reelection campaign. The so-called “New Washington Consensus,” on the other hand, was a concept proposed in late April 2023 by his national security adviser, Jack Sullivan. Despite a difference in focus, the two share inherent consistency.

The emergence of any new thought is inextricably linked with the unique historical context in which it was incubated. Similarly, the “New Washington Consensus” and “Bidenomics”, proposed by the Biden administration two and a half years after Biden came in power, should only be comprehended within the context of the distinct era in which the Democratic government of the United States exists.

First of all, Bidenomics emerged in a place where the neo-liberal economic philosophy or the old Washington Consensus has dominated the U.S. economic policy for more than 40 years since the birth of Reaganomics in 1979. With the prevalence of the old Washington Consensus comes the consequences of increasing disparities between the rich and the poor, the offshoring of industries, and political polarization. The blue-collar class among white people in the U.S., as self-considered victims of the economic globalization, have thus shifted allegiance away from the Democratic Party and turned to embrace Trump and the populist section of the Republican Party he represents.

Second, the rise of emerging powers, led by China, has posed a substantial, if not unimaginable, challenge to the United States. Among them, Russia has countered and challenged US military hegemony by force of arms, while China’s challenged US by its technological and industrial advances.

Strike of US auto workers in 2023

Finally, a new round of technological and industrial revolutions, centered on artificial intelligence and new energy sources, is setting off a new round of redistribution of wealth and national power among the major powers.

While the former is drastically reducing the number of jobs for white-collar workers, the latter is not only giving China a new industrial advantage, but also qualifying China to compete with the center-left parties in the United States and Europe for leadership in areas such as energy conservation and climate change.

The Biden administration’s new economic thinking or the so-called “New Washington Consensus” precisely reflects the failure of the liberal economics that the United States has long practiced or boasted of, as well as the longstanding problems that the U.S. economy has faced, such as the outflow of manufacturing, the hollowing-out of industry, the deterioration of the infrastructure, the virtualization of the economy, the over-financialization of the economy, the extreme polarization between the rich and the poor, the high rate of national debt, and ultimately, the high rate of unemployment and the high cost of living.
2. The Core of the Biden Administration’s New Economic Thinking

The most significant political indicator is the Biden administration’s reflection on neoliberal economics and the old Washington Consensus. The Biden administration’s critique of neoliberalism breaks down into the following parts:

For the past 40 years, the American society has focused excessively on economic growth without concern for the fair distribution of the wealth that comes out of the economic growth. To tackle this issue, focus should be placed on increases in median income rather than averages.

Domestic and foreign policies which previously centered on economic growth had overlooked key aspects such as geopolitics, national security, and the ecological environment. Moving forward, trade policy should prioritize the working class over consumer welfare.

The “trickle-down economics” advocated by the old Washington Consensus had proven poorly conceived, since wealth never trickled from the wealth to the poor.

Free market is obviously not omnipotent as it was portrayed to be. In a capital-driven market, companies naturally prioritize the maximization of the interests of shareholders, and inevitably placing issues such as the climate environment, supply chain resilience, and geopolitical vulnerability on a secondary position. Moving forward, it is recommended that market be guided by rules, provided with necessary subsidies and intervened by government so as to offer proper guidance to the private capital.

Let’s revisit Biden administration’s slogan from the perspective of wealth redistribution “from the middle out and bottom up”: it’s calling for greater investment in the public welfare system, such as health care, education, unemployment protection, and childcare, which will give the middle and the lower classes  money to spend and confidence to consume; it also calls for training of the labor force so as to help workers meet the challenges brought by re-industrialization and technological change; and it emphasizes long-term financial support for the people at the lower class, aimed at facilitating seeking changes both in situations of emergency and in status of extreme poverty.

In terms of industrial policy, the Biden administration believes that in order to enhance U.S. international competitiveness, it needs to invest heavily in manufacturing and infrastructure. In the two and a half years since the Biden administration came into power, it has garnered over $500 billion in private investment commitments, primarily focusing its industrial policy on new energy and semiconductors.

The three major bills Biden has passed, including the Infrastructure and Jobs Act, the Inflation Act, and the Chip Act, are all aimed at encouraging investments from both the public and private sector into going into the manufacturing industries.

Just as Roosevelt’s New Deal spread electricity across the United States in the 1930s, the Biden administration is committed to spreading high-speed broadband in American homes. In the aftermath of the 2008 international financial crisis, both Obama and Trump had vowed to build infrastructures and revitalize America’s manufacturing sector, but neither secured as much money and political capital as the Biden administration.

Intel’s new factory under construction

The Biden administration emphasizes the need to strengthen the genuine market competitiveness of American businesses rather than allowing them to thrive on monopolies. Regarding corporate taxation, they advocate for moderate tax increases instead of tax cuts like those favored by the Republican Party.

Additionally, to avoid compromising the competitiveness of American businesses due to higher tax rates, the Biden government is committed to pushing for setting a minimum corporate tax rate internationally. They believe that any form of monopoly and restrictions on market access should be subject to regulation to protect and strengthen competition among businesses. Even common non-compete agreements between companies and key technical personnel are advocated for nullification or restriction by the Biden administration. Some within the Biden government also advocate for intensified regulation and anti-monopoly measures against internet companies that have already attained monopolistic positions.

Both welfare policies and substantial subsidies for industries requires significant funding, and a sole reliance on limited funds obtained from taxing large corporations is greatly insufficient. So, where does the money come from? Influenced by left-wing figures in the Democratic Party such as Elizabeth Warren and Bernie Sanders, the Biden government effectively subscribes to the “Modern Monetary Theory” (MMT), no longer intimidated by deficits and debts, and no longer believing in the logic that fiscal deficits crowd out private investment.

In the first eight months of the 2023 fiscal year, the US federal government deficit has already reached $1.2 trillion, and it is expected to exceed $1.5 trillion for the whole year. With such massive fiscal spending, isn’t there concern about inflation spiraling out of control? In reality, before the fall of 2022, the Biden government did express concerns about the potential loss of control over inflation. However, after the fall of 2022, the Biden government realized that this round of inflation would not only remain under control but also be a “good inflation” because it is driven by wage growth for workers. As workers receive increasing incomes, it contributes to consumption, employment, and the repair of the balance sheets of households.

It is precisely due to this change in understanding that the later revisions to the “Inflation Act” has shifted the focus away from suppressing inflation and towards focusing on the new energy industry of Biden economics.

The focus of Bidenomics is domestic economic policy, while the so-called “New Washington Consensus” proposed by Sullivan emphasizes foreign strategic and economic policies, especially regarding how to compete with China and continue playing the role of world leader.

The “New Washington Consensus” aims to form a small coalition, advocating for “moving beyond traditional trade deals to innovative new international economic partnerships focused on the core challenges of our time.”, which essentially aims to exclude China. Sullivan advocates for investing trillions of dollars in public and private funds into emerging economies to renovate their infrastructure. Furthermore, he coined a term, stating that “address the debt distress faced by an increasingly large number of vulnerable countries”,  “to see all bilateral official and private creditors share the burden”.  This is essentially an attempt to encourage a large number of Southern countries to default on their debts to China while also seeking to undermine China’s Belt and Road Initiative.
3.Performance and Potential Challenges of the Biden Administration’s Economic New Thinking

In the short term, Bidenomics seems to have achieved commendable results, including a drop in the inflation rate from its peak to 3% in August 2023, despite high interest rates. The stock market is rising and poised to reach historic highs, consumer spending is robust, and corporate performance is growing, with unemployment at its lowest historical levels, essentially achieving full employment.

However, in the long term, the economic strategy of the Biden administration faces several challenges and potential pitfalls.

Firstly, while the policies of the Biden administration address the core issues of the current American economic and political landscape, their sustainability is questionable. The so-called “New Washington Consensus” is not truly a consensus. Several opinion polls in the United States currently show that two-thirds or even three-quarters of the population do not approve of Bidenomics. If he loses in the 2024 presidential election, the traditional energy interest groups behind the Republican government, such as the wealthy led by the Koch brothers, will demand the removal of most of Biden’s industrial policies. Some American media commentators suggest that behind the New Washington Consensus, progressive intellectuals represented by the Roosevelt Institute and the Hewlett Foundation may be overwhelmed by radical populists under a Republican-led government, leading to a regression in the new policies of the Biden administration.

Secondly, despite Sullivan’s attempts to unite various allies in the United States, Bidenomics carries a distinct economic nationalist hue, and his economic policies are, truthfully countereffective in promoting a more open global economic system.

French columnist Sylvie Kauffmann from Le Monde commented, in the triangular relationship between China, the United States, and Europe, Europe may not necessarily become a supporter of the New Washington Consensus as it did 40 years ago with the old Washington Consensus. As the decoupling between China and the United States deepens, it becomes challenging for the Biden administration to obtain full cooperation from countries (or regions) like Europe, Japan, and South Korea. The concept of “de-risking” proposed by Europe has been reluctantly accepted by the US government, which is sufficient to illustrate the problem.

Furthermore, the Biden administration’s new thinking also poses risks of further dividing the American political system. Carlos Roa, editor-in-chief of The National Interest, likened Sullivan’s New Washington Consensus to Gorbachev’s reforms: Gorbachev proposed a radical reform program that led the Soviet Union to “restructuring itself in accordance with new tasks and fundamental changes in society as a whole .” However, the Soviet social and political system fundamentally lacked the capacity to undertake such massive changes, which instead accelerated its collapse. Biden’s reform ideas may seem attractive from an economic theoretical perspective, but could their implementation lead to further social division? This possibility cannot be ruled out.

Image: On the eve of the Soviet economic collapse, people queue to buy bread.

Finally, there is an inherent logical contradiction in Bidenomics. Providing high welfare benefits to residents and substantial subsidies to industries increases federal fiscal costs. So where does the funding come from? The answer lies in Modern Monetary Theory (MMT), which relies on the issuance of the US dollar and taxation to finance government spending, thereby keeping the average interest rate on US debt below the inflation rate.

However, from the perspective of global market competition, as long as the United States does not relinquish the dominance of the dollar and maintains twin deficits, American manufactured goods are bound to lack international competitiveness. This constitutes the inherent contradiction within Bidenomics.
4. Impact on China and Our Response

Regarding Bidenomics, we should acknowledge its merits, as traces of Chinese experience and the Chinese approach can be seen in his policy ideas. In emphasizing government support for technological innovation and green development, there are similarities between the Biden administration’s ideology and Chinese policy ideology. Therefore, during the Biden administration’s tenure, there are both aspects of competition and cooperation between China and the United States.

So, how should China respond? I believe there are three strategies: low, medium, and high, each corresponding to different levels of difficulty, risk, and reward.

Starting with the low strategy: Accepting the Biden administration’s communication demands, stabilizing the situation of Sino-US relations, and striving to expand cooperation while mitigating confrontation as much as possible, thereby controlling risks and conflicts.

The medium strategy: Balancing competition and cooperation while ensuring that the overall relationship does not slide into full-scale confrontation. In the fields of diplomacy and public opinion, timely and moderate attacks should be made against its weaknesses. For example, highlighting the instability and unreliability of American ideology globally. Due to partisan struggles and electoral politics, any policy direction could be self-contradictory every four or eight years.

Additionally, we should leverage Biden’s new thinking on the old Washington Consensus to encourage developing countries to seek compensation from the United States, using American thought to counter America.

The United States once used international institutions and rules to induce or force developing countries to adopt the path of neoliberalism. Many countries complied and implemented austerity policies. Now, the Biden administration believes that the neoliberalism it advocated in the past was wrong. Therefore, as a responsible major power, the United States should provide necessary compensation for the harm and misguidance caused to other countries by its erroneous ideas and policies.

Optimal Strategy: China should unite with member countries of the Shanghai Cooperation Organization and countries with similar ideologies in the BRICS system to promote global monetary system reform, thereby limiting the fiscal policy space of the United States. As mentioned earlier, the effectiveness of the Biden administration’s new thinking is because it can leverage the seigniorage tax obtained from the global dominance of the US dollar. In other words, in the fiat currency system since 1971, it has been advantageous for countries to issue debt denominated in their own currencies, reversing the relationship between creditors and debtors that has been the norm for thousands of years, with wealthy countries owing debt in their own currency while poor countries accumulate debt in other countries’ currencies. Once the international monetary system returns to a hard anchor, using tangible assets to squeeze out virtual capital on a global scale, the high debts of countries like the United States, Japan, and the United Kingdom will become a huge burden, making their domestic welfare unsustainable, and inevitably leading to the collapse of global hegemony.

The so-called return to a hard anchor means that currency is once again linked to a basket of tangible commodities, preferably standardized, transferable, and tradable securitized financial assets based on a basket of tangible commodities.

This is because tangible wealth itself is limited and fundamentally exogenous to the economy, not changing with the economy’s endogenous, unlimited demand for currency.

The currency hard anchor of the 21st century may not necessarily be gold or silver but could be the weighted average price of a basket of tangible commodities cashable in the futures market. Currency issuers have an obligation to ensure that the purchasing power of their currency is anchored to this weighted average price.

So, what if the United States disagrees?

No problem, countries like China and Russia can establish their own hard anchor currencies and fairly share the seigniorage income with participating countries, rather than monopolizing the benefits like the US dollar. This way, they can maximize and expand the community of shared future for mankind and ultimately achieve Gresham’s Law in reverse, where good currency drives out bad. This strategy carries high risks but also high rewards.

These three strategies are all options for China to choose from, but low-risk, low-difficulty options will yield low returns, while high-risk, high-difficulty options will inevitably yield high returns.


Di Dongsheng
Professor of International Relations at Renmin University of China. Distinguished Fellow at the International Monetary Institute, Renmin University of China
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