Clintonomics was the last successful US economic policy blueprint – and it worked politically for the US and many other countries that tried it. It worked for Tony Blair and Gordon Brown. The main planks of Clintonomics were macroeconomic stabilisation, global trade liberalisation, welfare reform and economic deregulation. The last of these went too far. But as package, it worked.
Bidenomics is not working politically, even for Joe Biden. A recent New York Times/Siena College poll shows Donald Trump beating Biden in five of the six most important swing states in the US. The whole thrust of Bidenomics had been to re-empower the Rust Belt economically. But the Rust Belt is trending towards Trump.
Jake Sullivan, the US national security adviser, cited the reinvigoration of the US industrial base as the first goal of Bideonomics. This talk resonates loudly in the political echo chambers of the European centre left. Rachel Reeves, the shadow chancellor, hailed what she called an emergent global consensus in favour of a stronger industrial policy, a more active state, and the “friendshoring” of supply chains away from China. But apart from its $550bn Infrastructure Investment and Jobs Act, there is not much from the Bidenomics agenda that would work for the Labour Party, or anyone else in Europe.
The hollowing out of industrial bases has been going on for decades in many Western countries (though not in Germany and Japan), the result of trade liberalisation and specialisation in sectors such as finance. Germany stands out as a cautionary tale of the political consequences of backing industry against such trends. To support its manufacturing base, Germany needed cheaper gas, for which it sold its soul to Vladimir Putin. The result was the Nord Stream gas pipelines in the Baltic Sea, the causes of much political friction even before Putin’s invasion of Ukraine. Reliance on Russia and China was the price Germany paid to secure its industrial competitiveness. It also had to introduce painful supply-side reforms to suppress wages.
The single most important policy of the Biden administration, also admired by Reeves, is the Inflation Reduction Act – which is not about inflation at all but about luring foreign companies into the US with large subsidies. Its focus is on technologies that reduce carbon emissions and improvements to healthcare. The estimated total cost is $740bn.
The counterpart to these programmes has been a huge fiscal expansion. During the pandemic, the combined fiscal stimulus from the Trump and Biden administrations came to $5trn. The International Monetary Fund’s latest World Economic Outlook report put this year’s US deficit at 8.2 per cent of economic output, with projections of more than 7 per cent for 2024 and 2025.
[See also: The Inflation Reduction Act is rewiring the global economy]
Clintonomics and Bidenomics are polar opposites: macroeconomic consolidation vs deficit spending; offshoring vs reshoring; deregulation vs re-regulation. But the most important difference is that Bidenomics cannot be exported. We cannot all lure businesses away from each other with huge subsidies, and expect to be better off. Globally, this is a zero-sum game.
Under Clinton, George W Bush and Barack Obama, the US acted as an anchor for the rest of the world by absorbing the savings surpluses of the globalised economy. Bidenomics, by contrast, is a beggar-thy-neighbour policy, very similar to the competitiveness-based economic doctrines of Germany and China.
Not nearly as obsessed with its competitiveness as Germany, the UK has always been a mini-version of the old US. It has been running current-account deficits and specialising in services such as finance and high-tech areas, like vaccines and fintech. Post-Brexit, the UK would be better off reaping the benefits of these specialisms rather than emulating someone else’s economic models – and, mercifully, Reeves is not emulating Biden’s irresponsible macroeconomic policies.
Bideonomics’ core is reindustrialisation – the bit that Reeves is keen to emulate. But this is easier said than done. Industry requires highly skilled labour, trained in specialised industrial processes. Where do these people come from?
The Germans know a thing or two about ensuring a flow of qualified staff to industry, and even they are struggling. Now they are trying to mirror one part of Bidenomics at massive cost – its semiconductor subsidies. The US’s Chips and Science Act of 2022 created a $280bn programme to reshore production of semiconductor, AI, robotics and quantum-computing technologies – and Germany has started subsidising chip-makers too: €10bn went to Intel, and €1bn to Infineon. Never before has a German government subsidised a single industry by so much in such a short period of time. A better response to a supply-chain squeeze would have been to diversify suppliers, rather than spending billions to lure them to produce within Germany.
Whatever happens in the 2024 White House race, it will not fundamentally alter the course of US economic policy. Much of Bidenomics is a filtered continuation of what Trump started in 2017: the trade war against China and industrial reshoring via tax incentives – policies directed against other countries that put America first.
Clintonomics and Bidenomics reflect two opposing economic philosophies, the globalist versus the mercantilist approach: win-win vs win-lose. For a mid-sized, open economy like the UK’s, Clintonomics worked. Bidenomics is pure poison.
[See also: Poland’s nationalists won’t go quietly]
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This article appears in the 08 Nov 2023 issue of the New Statesman, The Age of Fury