As Prepared for Delivery

I was asked to share a few thoughts about how we in the Biden admin think about international economic leadership. First let me say that CFR has done some of the most thoughtful work in this space. One of the most valuable and consistent attributes of your work, as I read it–as I have for decades–is that no matter how deep you go into the policy weeds, questions around international leadership pervade the work. So, I’m pleased to be in your company to plumb this issue at this especially sensitive time in political economics, a time when starkly different approaches to both domestic and international leadership are on offer.

An administration’s leadership agenda stems directly from the values and vision of the president. It has been my great privilege to work on economic policy with President Biden for many years, and his values and vision are shaped by the view that if you’re helping to bake the economic pie, you deserve a fair slice. That leads us to a worker-centered agenda that is deeply embedded in our domestic policy and carries through to our international work as well.

To be clear from the outset, building a strong, resilient, inclusive economy that grows from the middle-out and bottom up cannot occur in a global vacuum. This president’s project to reestablish the U.S. as a global partner to our many friends in pursuit of our joint, geopolitical goals, began day one and is ongoing. When it comes to international trade, we’ve been explicit about ways in which our trade policy differs from those of previous administrations, a point which I’ll unpack in a moment. But any ideas that we favor autarky or devalue the importance of robust trade flows are unfounded.

So, what is a worker-centered agenda, both in the domestic and international space?

Domestically, it elevates the importance of worker empowerment or bargaining power, which in policy terms translates into full employment as a central macroeconomic goal, supporting unions, and ensuring workers from all walks of life have the opportunities, including educational and training opportunities, to achieve their economic potential.

As I stressed in a talk last week at the Peterson Institute, in one of his first economic speeches, the President stressed the importance of getting the job market back to full employment, mentioning the phrase five times. I haven’t checked, but my guess is that you’d have to go back decades to find another president with that emphasis, one that is so fundamental to our inclusive-growth agenda. And as anyone who tracks the numbers knows, this isn’t just rhetoric.

Not only has the unemployment rate been below 4% for over two years amidst historically strong job creation, but we’ve seen inflation come down two-thirds from its peak over that same period. To be clear, our work on lower prices is far from done, and we have an aggressive cost-cutting agenda that I’m happy to discuss.

Prominent economists assured us we couldn’t achieve this much disinflation without giving up numerous points of unemployment and growth. But worker-centered policy implies that we don’t lower inflation on the backs of working people. Instead, we’ve helped to both unsnarl and build out the economy’s supply-side. CEA analysis of the last nearly two years of disinflation found that supply-side improvement of supply chains was the crucial ingredient to bringing down price pressures while maintaining above-trend growth and full employment labor markets.

When it comes to another key ingredient of worker-centered growth, this president doesn’t just talk the talk on unions. He walks the walk, and unlike any of his predecessors, he does so on the picket line.

But of particular interest to this audience is how we map our worker-centered agenda onto international trade. Let me give you a few examples.

Americans are not just consumers, they’re also workers, and our communities are centered around and identified with productive work. In this regard, a community that gets hollowed out due to competition with low-wage, low-price exporters—think of the China shock—is a huge, lasting body blow to our body politic. And the old economists’ adage that “don’t worry, people can just relocate to places with more economic activity” is now being seen for the insult that it is. That’s one reason for our elevation of place-based policies and our intention to make sure that the domestic industries we’re helping to stand up are geographically dispersed.

Our trade deals and trade frameworks should embody worker-centered values and thereby promote international labor rights. Consider, for example, the USMCA’s Rapid Response Labor Mechanism. Since 2021, the United States has invoked the mechanism 18 times to seek Mexico’s review at numerous different workplaces. As a result, the United States has achieved improved outcomes for thousands of Mexican workers—millions of dollars have been paid to them, more workers are represented by independent unions, there have been more free and fair union elections, and unions have successfully negotiated for higher wages and improved policies at facilities.

Along with worker-centered trade, there are key areas where we must work with our international friends to achieve more resilient supply chains and to mount a joint-force attack on climate change.

The pandemic taught anyone who was paying attention of the need to achieve far better supply chain resilience, a goal that requires both domestic investment and global cooperation. Given the risk posed by China in this regard, the ongoing reallocation of trade flows away from China and more towards Mexico and Vietnam, for example, has been welcome, though of course we must be mindful of China’s increased production in those countries.

The fight against climate change is a particularly important area of global cooperation, and our administration has a suite of bilateral agreements and frameworks to promote climate goals between the United States and partner countries.  The U.S.-Japan Critical Minerals Agreement enables the countries to develop and strengthen critical minerals supply chains using best practices in labor and environmental standards; the Australia-United States Climate, Critical Minerals, and Clean Energy Transformation Compact is designed to coordinate on several issues vital to clean energy and critical minerals supply chains; and the Minerals Security Partnership, with 13 countries, targets financial and diplomatic support for projects along the minerals supply chain.

In closing, let me stress one last area wherein global economic leadership is so important to this president and to this nation. Like it or not, we now face the task of defending democracy against the growing threat of authoritarianism. While the geopolitical threat engendered by this conflict has long played out in terrible and violent ways, let me stay in my economics lane, and say a few words about why preserving democratic rights, values, and institutions is so important to just and fair economic outcomes.

There is a deep and compelling literature documenting the negative relationship between on the one hand, rising threats to civil liberties, rule of law, fair elections, and peaceful transfers of power, and on the other, economic outcomes.

First, democracies tend to have political institutions that credibly commit to act as promised and enable stronger enforcement of basic ownership rights that enhance innovation and risk-taking. Because of their checks and balances on the government’s ability to expropriate private gains, our institutions are growth-enhancing because they make it safer to invest.

Another critically important institution at great risk in authoritarian regimes is an independent central bank. History is replete with examples of economies brought to their knees because the independence of the central bank was violated to pump up near-term growth with no regard for longer-term damages.

Finally, democratic governance yields pro-growth social outcomes. Relative to authoritarian regimes, democracies are more likely to invest in human capital, with positive long-term effects on productivity and upward mobility. And where there is more electoral accountability, societies are more likely to have economic policies that benefit a broad cross-section of regions and industrial sectors. Such policies improve broad-based growth outcomes over those wherein policies are more likely to favor a small subset of industries with ties to the regime.

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