Business and Economy

Biden May Team Up With Putin to Rebuild US Economy

The Grind:
US President Biden is to meet Russian President Putin in Geneva on 15 June to try to reset relations. This is a U-turn from the Democrats’ Russia obsession… the latter came a few days after the US allowed Russia to complete the Nord Stream 2 gas pipeline to Germany, despite experts saying is not in its long-run interests….

Geostrategically, this summit is a logical attempt at a ‘reverse Nixon’ to move Russia away from China, which is clearly seen as the #1 problem for the US…

As part of the US China-centric Cold War approach, Congress is deliberating a $52bil package that could, according to the Commerce Secretary, build 7-10 new semiconductor plants in the US. This is the kind of hi-tech on-shoring required for ‘resilience’- but it’s small beer compared to what South Korea has planned, and they are still located next door to China and Russia. Moreover, where are the critical components to build the US semiconductors going to come from? These key inputs are increasingly located in territories or facilities friendly, owned, or in China and/or Russia, which are both rapidly expanding their geopolitical footprints. The same is true for green tech inputs, from solar panels to electric car batteries.

The Details:
There is broad recognition in the US of the need to address deep-rooted inequality, expressed via ‘Buy American’, which Covid-19 has also shown is essential for vaccines, medicines, and medical equipment. However, the entire supply chain may need to shift, from raw materials to components, in order to be able to achieve this political and geostrategic goal. Private businesses are not going to front-run such a disruptive, expensive process unless the state lays down guidelines they can see are going to last. This means new trade relationships and/or physical infrastructure.

Think of China’s Belt and Road: is there any doubt in the mind of anyone involved that China means long-term business with the logistics that allow it to lock in physical supplies of key commodities in a hub-and-spokes model? And if it has the bulk of supply of critical inputs, how can it not then have the bulk of the manufacturing capacity too? Where does that leave US, EU, and UK hopes to ride green tech to a more self-reliant, more socially-equal future?

This requires abandoning parts of the neoliberal international economic consensus to onshore more production and jobs. Here too we have broad agreement. That requires making supply chains more ‘resilient’. Again, there is consensus here. However, in a Cold War environment where everyone wants to do the same thing, this means forcing an entire nexus of supply chains to come home; and the raw materials at the end of it; and the physical infrastructure to get it there safely. There is little recognition of this uncomfortable mercantilist truth – yet. But if you don’t do the above, then dealing with inequality via more stimulus can only end up in supply-push inflation that kills consumer demand and worsens inequality; or at least in a larger trade deficit that worsens inequality.

Of course, building that infrastructure and directing/controlling supply chains involves a lot more than polite committees passing resolutions. Or guano. It’s raw realpolitik. And it’s expensive. But then again, so are endless stimulus packages, and getting this big picture view wrong. Read more…

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