Top Biden Aide Says U.S. Subsidies Will Help, Not Hurt, Relationships With Allies

Many close allies in Europe and Asia have said the Biden administration’s subsidies are unfair and could harm their economies, while other countries have sought easier access to the U.S. market. 

“The idea that a new Washington Consensus, as some people have referred to it, is somehow America alone or America and the West to the exclusion of others is just flat wrong,” Mr. Sullivan said. “This strategy will build a fairer, more durable international economic order for the benefit of ourselves and for people everywhere.”

With the speech, Mr. Sullivan sought to offer a unified theory for how the U.S. can revivify its economy and make it less dependent on China, while aiming to placate foreign partners and lawmakers on Capitol Hill who are often at odds with each other on trade issues.

Congress last year passed two laws, the Inflation Reduction Act and the Chips Act, that showered subsidies on firms in hopes of building up U.S. manufacturing capacity and reducing its reliance on China for key parts and materials. The product of months of wrangling with lawmakers, the IRA in particular prompted outcry from European officials who warned the American policies would suck investment out of the continent. 

The Biden administration has since tried to patch over some of those complaints, working on novel new trade deals to expand eligibility for electric-vehicle incentives and launching talks to avoid a global competition to offer the most incentives.

Mr. Sullivan said the U.S. and its allies were considering the creation of a buyers club for minerals such as lithium that are essential to clean-energy technologies. China is currently a dominant supplier of many such minerals, raising concerns in many Western capitals that Beijing could cut off their supply if tensions mounted.

“This is how we will turn the IRA from a source of friction into a source of strength and reliability,” Mr. Sullivan said. “We are coordinating our industrial strategies to complement one another and avert a race to the bottom by all competing for the same targets.”

Some of those steps aimed at appeasing allies, though, have in turn spurred complaints from Democratic lawmakers that the White House has sidestepped the intent behind the law. They have criticized the Biden administration’s new trade deal with Japan on critical minerals. 

“I am increasingly concerned about the administration’s decision to ignore Congress and go it alone when it comes to trade deals,” said Sen. Ron Wyden (D., Ore.), chairman of the Senate Finance Committee, which oversees trade policy.

Finding a balance between international goals and domestic demands is at the center of the Biden administration’s attempts to put together a strategy for approaching China, the world’s second-largest economy. 

Aversion to globalization and open trade among some in Congress has helped prod the Biden administration away from easing tariffs or striking free-trade agreements with countries in Asia. 

Some experts say offering countries such as Indonesia and Vietnam more access to the U.S. market would be a more effective way to counter China’s economic influence in the region. And some officials within the Biden administration, including Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo, have advocated easing tariffs on imports from China. 

Mr. Sullivan criticized previous efforts to reduce trade barriers, saying they hollowed out American industry and didn’t persuade Beijing or Moscow to more closely align with Western values. 

“America didn’t just lose manufacturing, we eroded our competitiveness in critical technologies that would define the future,” he said. “Economic integration didn’t stop China from expanding its military ambitions in the region or stop Russia from invading its democratic neighbors.”

“Simply put, in today’s world, trade policy needs to be about more than tariff reduction,” he added. 

Mr. Sullivan, echoing statements from Ms. Yellen and other administration officials, said that the U.S. wasn’t seeking to slow China’s economic growth. He said export controls on advanced semiconductor technology, as well as coming restrictions on U.S. investment in China, were focused narrowly on protecting national-security concerns. 

He also acknowledged the difficulty of distinguishing technologies that Beijing could use for military purposes from those needed for broad commercial purposes.

“This is fundamentally a challenge, from our perspective. We believe that we can, by being very precise and methodical and detailed, actually, effectively draw lines,” he said. 

Write to Andrew Duehren at [email protected]