Two cheers for the new Washington Consensus

US National Security Advisor Jake Sullivan gave an important speech in late April on the Biden Administration’s approach to economic policy, building on previous remarks by senior Administration officials such as Janet Yellen a few weeks back and Brian Deese last year.

The policy pendulum is swinging back; a new economic policy regime is being implemented in response to new economic and geopolitical realities. The Biden Administration is implementing aggressive industrial policy at home and is engaged in active economic statecraft abroad in response to China.  As the largest economy in the world, this will have major spillover effects across the global economy – deeply affecting economies, as well as firms and investors. 

And many aspects of this policy direction are likely to be sustained into future Administrations.  There will be differences in detail and emphasis, but the political centre of gravity has shifted on industrial policy in the US since the Trump Administration.  Indeed, one way of interpreting Mr Sullivan’s speech is as a new Washington Consensus. 

The problem diagnosis

The Biden Administration’s approach rests on its assessment of four fundamental challenges:

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