The last four years have demonstrated that Washington cannot sustain its leadership role in the world without popular support for that ambition at home. In fact, the election of U.S. President Donald Trump has often been read as a protest by the U.S. middle class against the burdens of global leadership. The United States’ unparalleled ability to shape global affairs in recent decades allowed its leaders to promote globalization and trumpet its accompanying gains, but they were too inattentive to the costs borne by key constituencies at home. Stagnant household incomes for the American middle class attest to this: over the first decade and a half of this century, middle-class household incomes grew only from $78,056 in 2000 to $78,442 by 2016. These worrisome trends predated the onset of the coronavirus pandemic, which has clearly made things worse.
Asking the Right Questions
While Trump’s disregard for U.S. global leadership is lamentable, it will be difficult even for a new administration to recover influence abroad if it does not do far more to support its middle class at home. In 2017, in an effort to decipher what a middle class–focused foreign policy might look like, the Carnegie Endowment for International Peace convened a task force of former officials from both Republican and Democratic administrations. The effort included hundreds of interviews and in-depth surveys of three representative states: Ohio, Colorado, and Nebraska.
The message was unambiguous—and contradictory to the “America First” policies of recent years: the American middle class does not reject U.S. global leadership. On the contrary, it supports active international engagement and recognizes the security and economic benefits that have flowed from U.S. primacy. But in our view, administrations of both parties have not done enough to adapt to the changing needs of—and stresses on—the middle class. What the American public seems to want more than anything else is enlightened international leadership by Washington that is anchored by more and smarter investments at home and a domestic economy that provides more Americans with opportunity and hope for a better future.
When Good Trade Goes Bad
Throughout the twentieth century, U.S. innovation drove the greatest economic expansion that the world had ever seen. All Americans benefited from higher wages, better living standards, greater opportunities, and longer lives. Unfortunately, that story tapered off. Today, the middle class has been hollowed out, and the benefits of global engagement are too concentrated in cities and among the highly educated. For several years now, there has been a national debate about what went wrong. Were American workers and communities left behind due to trade liberalization and the China shock, or was it the rapid pace of technological change and automation? The answer turns out to be both.
As the world globalized, the United States traded more—perhaps not as much as some other countries, but still significantly more than it had historically. Growing interdependence brought many benefits, like reduced consumer prices, but lower-cost competition in foreign countries also imposed real and concentrated costs on many Americans.
The resulting dislocations should not have been a surprise. In the early 1970s, Pete Peterson wrote a remarkably prescient memo to then president Richard Nixon. As described by Edward Alden in a recent book, Peterson’s memo set out the realities of globalization and warned of its consequences if the government did not prepare the country for greater competition. Peterson was a staunch supporter of free trade and open global markets, but he knew that the changing landscape would require domestic adaptation. Yet policymakers across administrations failed to do just that. That failure to adapt to a globalized economy eroded our foreign policy consensus and represents the core strategic challenge today: how does the United States reignite its competitiveness given the dangers of autarky?
How to Fix Things
After more than two years of work, the Carnegie task force concluded that competitiveness and resiliency at home are in fact the essential pillars for restoring U.S. leadership abroad. To be clear, there is little support for the United States to mirror China’s attempt to dominate the global economy through massive statist programs like Made in China 2025. Rather, in the United States, a twenty-first-century vision for competitiveness must ensure that U.S. companies are able to successfully compete in the global marketplace while simultaneously enabling more Americans to enjoy a rising standard of living.
In an effort to avoid a dangerous race to the bottom, U.S. administrations have long pushed other nations to enhance their labor and environmental standards to more closely align with U.S. rules and regulations. That approach was insufficient and too often ineffective. Greater investments at home in training, technology, and infrastructure are necessary. The federal government needs to play a more active enabling role than it has in recent decades because competitiveness flows directly from the quality of a country’s national innovation infrastructure, which demands critical investments and support for public goods that the private sector is unlikely to fund.
Consequently, the task force argues for significantly scaling up public investment in science, worker training, and research and development, and we believe that the nation also needs a National Competitiveness Strategy, reviewed and refined every four years (much like our Quadrennial Defense Review does in the military arena) to coordinate and execute these investments. All administrations obviously want to enhance U.S. competitiveness, but the numerous issues involved has made tangible progress challenging. Fiscal, monetary, tax, trade, labor, education, and immigration policies are all highly relevant, but unlike foreign or defense policy, no single agency is responsible for overseeing competitiveness. That needs to change.
Mending Broken Fences
This is an area ripe for policy experimentation and governmental innovation. The federal government needs to: (1) lead a coordinated strategy and align resources across federal, state, and local governments; (2) chart the overarching policy direction, including updating the strategy every four years; and (3) reignite the partnership among governments, universities, and private companies that drove so much U.S. innovation in the twentieth century. A reconfigured Department of Commerce could become the nodal agency tasked with leading this mission. The secretary of this retooled agency would serve as the agent of the government’s commitment to competitiveness and would be responsible for coordinating all efforts to improve business climate, trade conditions, tax and regulatory policy, and the innovation environment.
The solution to sustaining U.S. technology leadership does not lie in comprehensive decoupling from China or the world, but rather in creating the conditions and making the investments necessary to spur innovations that expand the country’s economy, provide gainful employment for middle-class Americans, and sustain support for an open and rules-based trading system that promotes broadly shared prosperity even beyond U.S. frontiers. The American middle class not only demands such a trajectory but will enthusiastically support U.S. global leadership toward that end.