Deglobalization and Revived Alliances: Biden Tries For Both

“America is back”, President Biden travelled to Cornwall in England to announce. After four years in which Donald Trump heaped scorn upon one-time allies for refusing to honour their financial commitments to NATO and assorted other malfeasances, Biden wants their approbation at minimum and affection if possible.

The President is a man who, his supporters claim, reminds them of Walt Whitman, who proclaimed that he contains multitudes, or as Scott Fitzgerald put it, meets “the test of a first-rate intelligence … the ability to hold two opposing views in mind at the same time and still retain the ability to function.” The President’s detractors call that cognitive dissonance, and argue that he has no idea that he is contradicting himself. After all, this a man who attacks Britain because its cruelty drove his Irish ancestors to America, a land of such limited opportunity that their descendant could rise no higher than the nation’s Presidency, and then plays FDR to Boris Johnson’s Winston Churchill by signing a new, modern “Atlantic Charter” setting out areas in which they will cooperate to rebuild a post-pandemic world that will halt climate change. The natural culmination of Biden’s belief that his domestic policy is the equivalent of Roosevelt’s transformative New Deal, and Johnson’s confusion of his shambolic self with the intensely focused subject of his biography.

The contradictions continue when Biden proclaims his loyalty to the interests of Ireland while organizing an international drive for a minimum corporate tax rate, which would deprive Ireland of one of the competitive advantages that underly its prosperity. And declares his devotion to a revived internationalism while at the same time launching a massive program of deglobalization.

Globalization A Winner For China

You remember globalization. Businesses would create intricate supply chains linking the best of every country into a super-efficient economic machine that would increase economic growth and welfare. Nations would beat their domestic plowshares and other products into international mergers that would combine low-cost labor with high-value financial management.

Alas, reality intruded on this pipedream. Yes, there were benefits, especially for China, a nation with a huge one-dollar-per-day workforce with which higher-paid American blue-collar workers could not compete, and a ruling party determined to immiserate American workers. US factories were shuttered, communities decimated, workers displaced. Meanwhile, the managerial class, bankers and financial architects, spread their talents over international rather than merely domestic enterprises, and prospered mightily. And brought us Donald Trump, who seems to have been alone in sensing the resentments aroused by the globalization that was being hailed by economic and political elites.

Globalization Runs Its Course

Now, globalization is on the run. America has decided to disentangle itself from the global economy. Last week the supposedly hopelessly divided senate, by a vote of 68-32, passed the 2,400-page U.S. Innovation and Competition Act. It would commit $250 billion over five years to decoupling from China, if successful ending American dependence on everything from chips to robots to rare-earth metals, rerouting supply chains that run through China. If the House goes along this will be a start on the road to matching China’s subsidies.

Biden burnished his I-am-not-Trump credentials by ending the ban on TikTok and WeChat, but then issued a broad order to government agencies to review all apps owned by America’s adversaries to determine whether they are threats to national security, and expanded restrictions on American investments in Chinese companies with ties to the regime’s military.

China, of course, is a special case, a country that is challenging America for world leadership and, according to sources in the Pentagon, preparing a military takeover of Taiwan, the home of Taiwan Semiconductor Manufacturing Co. (TSMC), source of most of the world’s most sophisticated chips. In a move to deglobalize the chip business, TSMC has agreed to build a $12 billion chip fabrication plant in Arizona and Samsung a $10 billion facility in Texas, reducing America’s dependence but, dangerously, also reducing the willingness of a country retreating from its obligations to lick the wounds created by lost wars, to defend Taiwan when China inevitably moves to regain control of the island. Europe and Japan are also planning to bring such production home from the global market.

Limits Of Economies Of Scale

But deglobalization is prompted by more than national security requirements. It turns out that in many industries the economies of scale do not extend beyond America’s or any nation’s borders. Most of the nation’s big banks have discovered that there are more costs than profits in globalizing their retail businesses. Jane Fraser, Citigroup’s new CEO, is retreating from consumer banking in thirteen countries is Asia, Europe and the Middle East. Britain’s HSBC and Spain’s BBVA are selling their unprofitable US businesses to American competitors. “There are limited synergies in running a global consumer business…,” says Jan Bellens, head of professional-service-provider EY’s global banking and capital markets sector.

Boeing also must be rethinking its globalized design and production process. British design expert Stephen Bayley points out that the company’s 787 Dreamliner depends on suppliers in the US, the UK for engines, France for passenger doors, Germany for cabin lighting, Italy for stabilizers, Japan for wings, Sweden for cargo doors. He argues that this complicated supply chain led to the “damaging delays and loss of corporate responsibility” that have blighted Boeing’s performance and damaged the airlines dependent on it.

There are, after all, limits to the managerial skills of the best and the brightest. Neither Warren Buffett, whose talents have been spread over businesses from soft drinks to soft ice cream to insurance and energy generation, nor his Brazilian partner 3G Capital seem to have realized that Kraft Foods had a portfolio of tired brands when they financed its $49 billion merger with Heinz.

There will, of course, always be areas in which the benefits of globalization will exceed their costs. But we are in an age in which maximizing domestic jobs and minimizing dependence on fragile supply chains and foreign adversaries are paramount policy goals. And in which the social and electoral consequences of globalization are more fully understood than in the glory days in which Tom Wolfe’s Masters of the Universe strode Wall Street and the globalized economy like colossi.

Biden Buys Foreign Popularity With U.S. Taxpayer Dollars

Meanwhile, Biden is taking satisfaction from new Pew polls. In twelve countries surveyed this year and last, 75% of respondents “express confidence in Biden, compared with 17% for Trump last year.” Some 77% of respondents described Biden as well qualified to be President compared with 16% who felt that way about Trump. It seems that smiling while giving away millions of doses of vaccine to fight Covid, and millions of dollars to fight climate change is a surer path to popularity than scowling while nagging other countries to honor their financial commitments to Nato and beating them to the punch in developing and lining up supplies of vaccine. And that the new popularity has not prompted the major EU countries to risk their trade relationships with China by joining Biden’s plan to finance a counter by democracies to China’s Belt and Road projects that are ringing the globe.