On Thursday, December 10, Adam Posen joined Markus’ Academy to discuss international economic challenges for President-Elect Joe Biden.
Posen is the president of Peterson Institute of International Economics.
Watch the full presentation below and download the slides here. You can also watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.
Presidents rarely tackle international economic issues early on, but many of Biden’s most urgent problems are inescapably international in nature. On day one, Biden will face challenges—for example vaccine distribution, climate change, or conflict with China—that require immediate international cooperation. Of course, political constraints will affect this work, including a divided electorate or Congress, a bipartisan fear of the threat posed by Chinese leadership, and a loss of reputational soft power by the U.S.
Globalization is about more than goods, and has, in some ways, been eroding the past 15 years. When studying globalization, economists tend to focus on global value chains and trade. Posen said goods are just one part of globalization, and by overweighting them we develop a false sense of an increase in globalization. In fact, globalization is a multi-layered web of ideas, human capital, and norms and is increasing or decreasing in different ways in different contexts.
The effect of the Trump administration’s trade policies were exactly what economics textbooks would predict. Tariffs were paid by consumers, the trade deficit increased, sanctions and threats diverted trade from the U.S., corruption grew, reshoring didn’t happen, and immigration restrictions did not create “good jobs.”
If Biden continues to pursue “Buy American” domestic purchase policies, it will have a big cost for consumers. Posen notes that since WWII, Americans have been increasingly providing services instead of manufacturing. He notes that the Trump administration’s obsession with manufacturing was partially motivated by ideas of toxic masculinity that have harmful consequences.
The dollar isn’t a political hot point right now, but it will be interesting to see how the Biden administration approaches those they see as exploiting a strong dollar. Posen thinks we shouldn’t worry about activities by some countries with smaller economies, while noting that these activities of many small countries can meaningfully accumulate and affect jobs and other issues.
International cooperation is possible, but requires “common effort.” Countries involved need to agree on simultaneous contributions to a common goal and common abstention from specific behaviors. On China, Posen recommends influencing economic issues by directly addressing, rather than ignoring, both issues of cooperation and issues of confrontation.