Estimated reading time: 7 minutes

2024, the year of elections, will reach its climax in one week when Americans take to the ballot box—and the economy is the biggest issue. Unsurprisingly, the electorate is concerned with changes that will affect them, namely inflation, wages, public infrastructure, taxes, and so forth.

The presidential candidates are well aware of this. That’s why, when he was inaugurated in 2020, President Joe Biden focused on improving the situation not for Americans as consumers, but for them as workers. He sought to bolster American industry first, erring from the temptation to import: with this break in policy, the portmanteau ‘Bidenomics’ was born.

For global partners importing to the US, however, this shift in trade policy psychology has led to confusion and criticism. During his term in office, Biden’s inward-looking investment policies have resulted in public rifts from European and Asian allies. In this, the Inflationary Reduction Act (IRA) particularly beset the US’s standing in global trade.

But with Bidenomics’ insurgence in the newest ‘Cold War’ against China, the US is seeking to limit China’s influence in the country while cementing American networks around the world. For such new frontiers, it feels eerily like histories of ‘spheres of influence’ are repeating themselves. 

In the final week of his term, Bidenomics will be unpicked from every direction. To join from a macro, international perspective: has the White House’s program of American industrialisation through subsidies and tariffs come at the expense of international trade?

The essence of Bidenomics

The Biden administration sought primarily to bolster the US economy after the shocks of the COVID-19 Pandemic, focusing on growing the economy from the bottom up and middle out. This was seen as a break from the ‘trickle-down’ convention (though how much of a ‘break’ this was will come into question, with Elon Musk’s net worth growing by $30 billion in a single day).

In this regard, Bidenomics prioritised the recovery of the labour market; reinvigorated competition policy and anti-trust legislation; and, in what has become known as an ‘industrial strategy’, rolled out a long-term public investment campaign to bolster productive sectors of the economy.

It is mainly with this industrial strategy that global trade networks are concerned. Four new laws expedited the industrialising process:

• The 2021 American Rescue Plan Act; 
• The 2021 Infrastructure and Jobs Act;
• The 2022 Inflation Reduction Act; and
• The 2022 CHIPS and Science Act. 

Collectively, these programs were worth a staggering $3.8 trillion.

The Inflation Reduction Act

For a few reasons, the IRA is poorly named – not least because it has impacted international policy far more than inflation.

Praise for the IRA comes for its provision of more details on how climate policies will be implemented – electric vehicle tax credits, for instance. A Rhodium Group report finds that the IRA, combined with other current policies, could drive US greenhouse gas emissions to 32-51% below 2005 levels by 2035, still not enough to meet the country’s Paris Agreement target of 50-52% reductions by 2030, but a meaningful improvement from previous projections.

On the other hand, the IRA marks an American turn towards protectionism, which they have historically broken from. In 1789, former president George Washington wrote, “I use no porter or cheese in my family, but such as is made in America—both those articles may now be purchased of an excellent quality.” American protectionism was a sign of resistance to their British colonists. The McKinley Tariff, enacted by former president William McKinley, earned him the nickname the ‘Napoleon of Protection’.

But since the Second World War and the formation of the General Agreement on Tariffs and Trade (GATT), which became the World Trade Organisation (WTO) in 1995, the US has been firmly committed to, and an open proponent of, markets.

The IRA, in particular, has drawn the ire of US trading partners. By offering lucrative subsidies and incentives for domestic production in clean energy industries, the Act has been perceived as a protectionist measure that could exclude international players from the lucrative US market. There was certainly some retaliation, whether or not in explicit imitation to the ‘America First’ rhetoric. The UK’s ‘Levelling Up’ and the EU’s cohesion and structural policy both sought to revitalise their relative industrial heartlands. 

But while the IRA instigated concern in its implementation, rhetoric and economic theory drowned out the actuality on the ground.

Historian Adam Tooze argued that the US’s reaction to the IRA has been “disproportionate and question-begging.” The scale of the IRA’s spending, while large in absolute terms, is only half the size of what Europe has already committed to clean energy subsidies. Tooze suggests that the EU’s response may be more about creating a “crisis” to justify its own industrial policy ambitions than a genuine concern over the IRA’s impact.

Particularly since a new threat to global supply chains has attracted much more attention in the last year: China.

Coming in from the Cold War

One of the most significant shortcomings of Maganomics during former president Donald Trump’s 2016-2020 tenure was its aggression with China. This confrontation disrupted global supply chains while yielding few fruits. Were he re-elected, Trump would be far more aggressive in his economic nationalism, promising a 20% tariff on all imports and a 60% duty on all Chinese goods. 

The targeted nature of Bidenomics contrasts with Trump’s general and all-encompassing proposals. Nonetheless, the Biden administration has extended Maganomics by finalising tariff increases on certain Chinese-made products, including a 100% tariff on electric vehicles, a 50% tariff on solar cells, and a 25% tariff on electrical vehicle batteries, critical minerals, steel, aluminium, face masks, and ship-to-shore cranes. These tariff hikes, which impact about $15 billion in US imports, are part of the administration’s efforts to boost domestic manufacturing in industries like clean energy and semiconductor chips. 

China appealed these ‘discriminatory subsidies’ to the World Trade Organisation earlier this year, but a retaliatory tariff war is on the horizon. The drop in trade between the US and China is expected to continue into 2024 and beyond, with a forecast -1% compound annual growth rate (CAGR) in nominal terms (-3% CAGR in real terms) over the next ten years. 

As a result, the US is likely to strengthen trade with closer partners, particularly with Canada and Mexico, primus inter pares under the USMCA agreement. In nominal terms, Mexico and Canada are expected to increase trade with the US at 5% and 4% CAGR respectively. US-EU trade is also set to pick up thanks to increased energy trade, at a 5% CAGR in nominal terms.

Meanwhile, China will continue pivoting away from the US and the EU, focusing instead on strengthening trade with Russia, the Association of Southeast Asian Nations (ASEAN), India, Africa, and the Southern Common Market (MERCOSUR). Chinese trade with Russia is projected to grow at a robust 6% CAGR in real terms, and trade with the broader “Global South,” consisting of G77 countries excluding China, is expected to accelerate at a 6% CAGR in real terms as these regions continue to become more prominent in the global economy.

Beyond the figures, the reassessment of supply chain routes that Bidenomics has brought about highlighted key global bottlenecks. 95% of advanced semiconductors come from Taiwan, 10 countries export 80% of the world’s pharmaceuticals… the examples are endless, and Bidenomics responded by nearshoring in these industries, spotlighting them on the global stage. 

But, as with most big shocks in the last four years, Bidenomics elucidated the elasticity of global supply chains.

A good microcosm of this shift is in the solar panel industry. The change in US trade policy under Bidenomics has opened up opportunities for Indian solar manufacturers to fill the gap left by the exclusion of Chinese exports. US imports of Indian solar panels and cells surpassed  $1.8 billion last year, up from about $250 million the prior year, according to BloombergNEF. Indian firms like Waaree and VSK Energy have also announced plans to invest over $1 billion each in new US manufacturing facilities, betting that “the main advantage is that they’re not Chinese,” as Heliene CEO Martin Pochtaruk remarked.

Bidenomics has resulted in the emergence of alternative suppliers, permanently reshaping global trade dynamics in this critical green energy sector.

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Bidenomics has on the one hand defined the future of commodities through its focus on nearshoring American production within clean energy industries. International bodies responded with surprise and outrage at their potential exclusion from trade in these commodities – which means they are now paying attention. 

It was essential to turn sustainability into something profitable rather than a chore, and Bidenomics has done this. Now, the EU and other partners need to urgently make their own green investment conditions more attractive. As they say, supply creates demand.

But Bidenomics’ main legacy has been a rethinking of trade routes and options. If the US were to be as protectionist as the WTO would allow, what would happen to global trade, which flows so often through the US? More so, what would happen if this were the case for any country or commodity? 

Bidenomics, intentionally or otherwise, highlighted bottlenecks of overreliance in global supply chains. It also proved their malleability and fluidity through the neck of the bottle.