4 key features through which American capitalism is reinventing itself - according to the important lecture given by Jake Sullivan, US National Security Adviser to the White House in late April at Johns Hopkins University.

The place is significant, as the first China Study Center was established in the mid-eighties of the last century. Competition with China is one of the main determinants in Washington's "new narrative of the global economy", or what some called the "New Washington Consensus" - a reference to the Washington Consensus in the late eighties of the last century, which provided recommendations to developing countries based on activating the free market and reducing state intervention in development, provided that the implementation of these recommendations is led by the Fund and the World Bank.

Leading U.S. policymakers now believe that the post-1990 globalization model, which prioritized trade and free markets over national security, climate change, and the economic security of the middle class, has undermined the social and economic foundations of healthy democracies.

Competition with China is one of the key determinants of Washington's "new narrative of the global economy," or what some have called the "New Washington Consensus."

The Four Features of the New Definition

  • First, governments intervene to change market outcomes in the face of an unrealistically promoted formula based on a free market controlled by the forces of supply and demand.

The goal of government intervention is to change market outcomes in ways that are better aligned with national security requirements, not in order to improve efficiency, but to enhance national security and economic resilience.

It is not clear whether the alleged "direct" national security concerns mentioned by Sullivan are real or merely an excuse for unilateral action.

Free-market fundamentalists may feel upset, but in the real world, many relatively uncontroversial – even widely supported – government interventions shape market outcomes.

  • Second, reshape the supply side of the economy in pursuit of goals other than resource efficiency. This is achieved through the integration of investments between the private and the public, as evidenced by the provision of Corona vaccines, where public investment encouraged companies to speed up the production of vaccines.

Another example: Public sector investment in infrastructure, education, and the science and technology base of the economy is an essential complement to private investment, mitigating risks, increasing returns, and enhancing overall economic performance.

The United States has pursued an economic agenda that US Treasury Secretary Janet Yellen called in a lecture at the same university: "modern supply-side economics." It means "designing our policies to expand the productive capacity of the U.S. economy, that is, raising the ceiling of what our economy can produce" regardless of efficiency, and is not intended to be self-sufficient as was proposed in developing countries in the postcolonial era, as this production capacity is concentrated in specific sectors such as medical materials, clean energy technology, and semiconductors.

  • Third, restrictions on the free flow of trade, investment, and technological flows versus globalization based on the coherence of the multilateral trading system, and the diversion of many of the links in complex global semiconductor supply chains either to the United States or to friendly or reliable trading partners that directly negate market outcomes in an important sector.
  • Fourth: the transition to a high-value productive economy and technology versus the financial economy.

"No matter how big our common challenges are, no matter how many barriers we've removed," Sullivan says. Now, no one – and certainly not me – rules out the power of the markets. But in the name of simplified market efficiency, entire supply chains for strategic goods, along with the industries and jobs that made them, moved abroad. The assumption that deep trade liberalization would help America export goods, not jobs and capacity, was a promise made, but not kept.

"The other implicit assumption was that the type of growth doesn't matter. All the growth was good. Therefore, many reforms have combined and combined to distinguish some sectors of the economy, such as finance, while other key sectors, such as semiconductors and infrastructure, have atrophied."

There are two competing agendas shaping U.S. domestic and foreign economic policies, one focused on creating an inclusive, resilient, prosperous, and sustainable U.S. economy, and the other on geopolitics and maintaining superiority over China.

Why Washington's New Consensus?

Sullivan's reasons for redefining capitalism are:

  • "The financial crisis shook the middle class" – referring to the 2008 financial crisis, referring to the transfer of jobs to China.
  • "The pandemic has exposed the fragility of our supply chains."
  • "Climate change threatens lives and livelihoods," he points to future challenges where the assumption that the fight against climate change will drive global growth in the 21st century.
  • "The Russian invasion of Ukraine highlighted the dangers of overdependence," meaning Europe's dependence on Russian oil.
  • So this moment, according to Sullivan, "requires that we reach a new consensus."

    Adding to the above factors is the question of competition with China, or, more plainly, the preservation of American supremacy in an international system in which there is perhaps no more widely accepted reality today than the idea that it is no longer unipolar in which the United States is the only hegemonist, as it was in the nineties.

    "The challenge we faced was adapting to a new environment defined by geopolitical and security competition, with significant economic impacts," Sullivan says, adding, "We had to deal with the fact that a large non-market economy (China) was integrated into the international economic system in a way that posed significant challenges."

    But President Biden's administration has adopted a tougher stance toward China than any previous administration, including that of former President Donald Trump, treating the Chinese regime as an adversary and imposing restrictions on exports, investment and biotechnology.

    There are currently two competing agendas shaping U.S. domestic and foreign economic policies. One is an internal outlook focused on creating an inclusive, resilient, prosperous, and sustainable U.S. economy, while the second focuses on geopolitics and maintaining U.S. superiority over China.

    The future of the global economy depends on the outcome of this conflict, and whether these conflicting priorities can coexist.

    Two notes on the nature of the conflict

    But what we should emphasize are two points:

    • First, Sino-American rivalry is not zero-sum in nature — as it was in the Cold War era with the Soviet Union: "We support risk and diversification, not separation. We will continue to invest in our own capabilities, and in secure and resilient supply chains. We will continue to push for equal opportunities for our workers and companies and to defend against abuses. Our export controls will remain narrowly focused on technology that can alter the military balance. We simply ensure that American and allied technology is not used against us."

    "We don't cut off trade. In fact, the United States still enjoys a very large trade and investment relationship with China." Bilateral trade between the United States and China set a new record last year.

    "When you move away from the economy, we compete with China on multiple dimensions, but we are not looking for confrontation or conflict," the national security adviser stresses.

    • Second, despite Sullivan's apparent glamour when he linked the local to the global, the American to the European, and the West to the rest of the world, the details are difficult because China offers alternatives to Western policies – as in Afghanistan, which it integrated into the new Silk Road project after it was abandoned by the West, and great inducements to developing countries through investments and loans, and has made great strides in containing some European countries.

    In whose interest is this new international order?

    Regardless of Sullivan's evangelism when he links U.S. national security to values such as democracy, human rights, equality in the distribution of growth dividends, workers' rights, and the revival of their unions, success seems to him: "The world needs an international economic system that works for our wage earners, works for our industries, works for our climate, works for our national security, and works for the world's poorest and most vulnerable countries."

    Thus, we are facing an international system that works first and foremost for America, and for its partners, whose roles are determined by their position in supply chains and strategic competition with China, and may ultimately work for the world's poorest and most vulnerable countries, according to Sullivan: "We are also committed to addressing the debt crisis faced by a growing number of vulnerable countries."

    Finally, can the US address its national security concerns and its rivalry or conflict with China without undermining the global economy?