What Made in America Means for the World

Remember when COVID-19 shut the whole world down? Memories of that period may be fading, but the pandemic has in fact altered how nations behave. Scarred by the experience of scarcity, countries have begun to safeguard their supply chains and focus on local production instead of trade. Big economies, in particular, have embarked on historic spending sprees, building out infrastructure and favoring domestic business over global competition. It’s a new era of industrial policy.

The decline of trade isn’t new, of course. So-called de-globalization has been underway since the financial crisis that began in 2007. But the pandemic sharply accelerated it and made geopolitics a central factor in economic policy, giving rise to neologisms such as friendshoring. Today, perhaps more than ever, trade policy is foreign policy.

The question is whether this new economic trend is good for the world. Answers vary—sometimes sharply—and Exhibit A in the debate is Washington’s recent decision to direct more than $400 billion of investment and subsidies toward green energy and semiconductors. Europe’s capitals have been quick to brand the United States’ moves as protectionist. Fine, but one also has to acknowledge the benefits that will come from a giant injection of cash into technologies that might just save the planet.

Part of the impetus for the White House’s policies is to compete with—and maybe even cut off—China. With economics converging on geopolitics, Foreign Policy has to wade in. So we asked Adam Posen, the president of the Peterson Institute for International Economics, to assess where U.S. economic policy is headed. Posen’s argument isn’t against industrial policy—which has its benefits, he writes—so much as it is against how Washington is prioritizing domestic manufacturing over foreign competition. The United States’ moves to withdraw from trade with China, spark a subsidy race, and maximize local production over the global development of new technologies, Posen argues, fly in the face of centuries of economic theory.

Cornell University’s Eswar Prasad considers the effects on smaller economies. As China, Europe, the United States, and even countries such as India embrace industrial policies—downplaying free trade in the process—many emerging markets and poorer countries are destined to suffer, Prasad writes.

What about the Biden administration’s take? It wouldn’t be fair to air out all these criticisms without giving the White House a chance to rebut, so I sat down for an FP Live interview with U.S. Trade Representative Katherine Tai, and a transcript of that conversation appears in this issue. Tai asserts that her government’s policies are the result of democratic debate and wrangling; hers is an admission that politics is a different beast, and necessarily more practical, than the theoretical science of economics. But she also makes an eloquent case for how her government is setting out to “de-risk”—and not de-globalize—in what was already an unequal world, made more unfair by the rise of a country that doesn’t play by the same rules as everyone else. (I had to push her to say China.)

Is Posen, Prasad, or Tai correct? Read on and decide for yourself.

As always, there’s lots more in our Spring 2023 issue, beginning with our sharpest arguments from around the world. And consider our collection of essays on objects that define the world today—masks, tanks, and Joe Biden’s aviators—a chaser to the bracing shot of industrial policy debate.

As ever,

Ravi Agrawal