US continues down path toward state intervention

By He Zili Source:Global Times Published: 2018/7/8 21:18:40

Illustration: Luo Xuan/GT

Despite US President Donald Trump's capricious personal style, one thing is certain: The trend toward strengthened state intervention will not change anytime soon.

Since the early 1970s, neoliberal policies have been promoted by the US around the world. The idea was to dissolve the state-owned economy, weaken state intervention, strengthen the private economy and reinforce market mechanisms.

This theory quickly spread in the capitalist world and was imitated by numerous developing countries and even the Soviet Union. However, the outbreak of the global financial crisis in 2008 dealt a blow to this philosophy.

In the post-crisis era, the whole world has been reevaluating neoliberalism, including the US. Now, people are calling for the state to do more work. When former US president Barack Obama came to power in 2009, the financial crisis was in full flow. In response, he implemented a series of economic policies to strengthen state intervention, such as a $700 billion bailout for banks and re-industrialization strategies. These policies proved effective to a certain extent. Then Trump came to power with his "America First" policy, continuing Obama's state intervention policy, and even taking it to a new level.

It appears that the strong state intervention the Trump administration pushed has been changing the trajectory of US market mechanisms and economic operations.

First, the traditional norms of the US market economy are changing. Since Trump took office, he has asked private capital to make investment decisions based on the national interest. Large-scale tax cuts encouraged inbound investment and limited outbound investment.

Private businesses' decision-making in the US is increasingly checked and regulated by the government. The country's market economy now relies less on individualism and spontaneous market coordination.

Second, the US government is constantly expanding its economic functions by seizing the high ground in high-tech innovation, conducting re-industrialization, exerting strict control over financial capital, implementing large-scale tax cuts, giving protection to high-tech industries and increasing government support for infrastructure construction.

Third, the US market economic system has become increasingly closed. The US government believes that liberalization of finance, investment and trade is the institutional reason why private capital and manufacturing businesses have moved overseas through investment and outsourcing.

Giving the private sector too much freedom has also been blamed for the withering of US industry and the country's huge trade deficit. Trump's withdrawal from the Trans-Pacific Partnership Agreement, restrictions on foreign investment in the US high-tech industry, pressure on domestic companies to move their operations back to the US, and provocation of trade wars with a large number of countries mean that the US has abandoned its traditional enthusiasm for financial, investment and trade liberalization and is moving toward protectionism instead.

Fourth, the US has become the main driver of anti-globalization. With the decline of US economic strength, its ability to control the international order cannot match its ambition. Therefore, abandoning responsibility or even undermining international rules seem inevitable. This will bring great uncertainties for the recovery and development of the global economy.

In particular, the US' purpose in undermining international rules is to conduct unilateral policies that serve its own interests. This poses a significant threat for peace and stability worldwide.

The US' abandonment of traditional market mechanisms and its strengthening of state intervention is not just expediency but a result of the intricate web of domestic conflicts at home and abroad. A profound understanding of the transformation of the US market mechanism is necessary in order to see the direction in which the US economy is heading.

The author is a research fellow with the Collaborative Innovation Center for China Economy at Nankai University.


blog comments powered by Disqus