The paradox of Biden’s economic approach
Joe Biden’s recent Executive Order supporting greater competition in the American economy rightly states that a more competitive marketplace creates jobs, lowers prices and provides more choices for consumers.
The policy states that “over the last several decades, as industries have consolidated, competition has weakened in too many markets, denying Americans the benefits of an open economy, and widening racial, income, and wealth inequality. Federal Government inaction has contributed to these problems, with workers, farmers, small businesses, and consumers paying the price.”
The Biden administration estimates that in total, higher prices and lower wages caused by lack of competition costs the average American household $5,000 per year.
Several sectors are highlighted where this is a problem including agriculture, telecommunications, and pharmaceuticals. The plan calls for aggressive legislation that will entrench robust competition across leading economic sectors in a way that restricts consolidation, monopolies and other practice that impede competition. Additionally, a White House Competition Council will be struck as pro-competition policies are implemented across the board.
The plan promises numerous benefits including lower internet bills, more consumer-friendly policies regarding airline fees (e.g. making it easier to get refunds), reforms that make it easier for people to switch banks and lower healthcare costs.
Meanwhile, another Executive Order is already on the books that calls for a strengthened protectionist policy known as Buy American. This policy decrees that the U.S. government “will procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”
The media statement states that under this order, “President Biden is ensuring that when the federal government spends taxpayer dollars they are spent on American made goods by American workers and with American-made component parts. This Executive Order fulfills President Biden’s promise to make Buy American real and close loopholes that allow companies to offshore production and jobs while still qualifying for domestic preferences.”
So it is clear: Competition is needed to create jobs, boost the take-home pay of Americans, and to provide them with more choice and cheaper goods and services. Yet, American companies will be protected from foreign competition when it comes to U.S. federal government procurement. Even U.S. companies wishing to tap into federal government economic recovery programs are required to favour American firms if they want the cash.
The arguments the Biden administration is correctly making about the benefits of competition are precisely what pro-trade proponents say when they are arguing against protectionism.
When we trade, goods become cheaper, consumers have more choice, jobs are created, and workers get better wages. Similarly, businesses diversify their risk by finding new markets and they become more innovative and increase their competitiveness.
Herein lies the ultimate irony of the two executive order policies. While they may not directly cancel each other out, they do demonstrate an understanding of the power of free markets (via the pro-competition policy) and how it is limited by the power of politics (via the protectionist Buy American policy).
While no one should expect government decision-makers in any country to be puritans on any public policy, it does confirm yet again the American retreat from championing trade liberalization and essentially ignores generations of proof that free trade is a powerful tool for economic growth, poverty reduction and improved social welfare around the world.
And in a post-pandemic recovery that could use a shot in the arm, the rejection of such a time-tested tonic like free and open global markets may end up being a costly mistake.