A U.S. Foreign Policy for the Middle Class

Over the past two decades, the American middle class has faced a surge of import competition, a revolution in information technology, costly and disappointing wars abroad, a boom-bust cycle in the housing market, a slow slog back to full employment, and political dysfunction at home. Middle-class jobs, incomes, and wealth have all suffered, as has public investment, public finances, and public trust. Economic inequality has worsened. And that was before the coronavirus dealt the sharpest blow to the U.S. economy in generations and caused whole communities to fold in on themselves. The pandemic also accentuated long-standing economic and racial inequities in healthcare, employment, housing, infrastructure, and social safety nets.

The health of the middle class is a prerequisite to the strength and stability of the United States.

The health of the middle class is a prerequisite to the strength and stability of the United States. A 2019 study by the Organization for Economic Cooperation and Development affirmed the long-standing premise that countries with a healthy middle class have higher social cohesion, higher levels of public trust, lower crime rates, greater political stability, and better overall governance. Without a large and vital middle class, the United States risks growing economic insecurity at home that calls into question the value of U.S. leadership in world affairs.

The Carnegie Endowment for International Peace’s recent studies from Colorado, Nebraska, and Ohio revealed that middle-class Americans feel the effects of foreign policy choices, are frustrated with years of policy inertia, and want the government to do more to advance their interests. (The task force Carnegie convened on the topic will release its final report, “Making U.S. Foreign Policy Work Better for the Middle Class,” in early fall 2020.) The current economic crisis needs to push the U.S. foreign policy community toward a new agenda that increases its accountability to middle-class communities and contributes to economic renewal at home.

These twin goals require a robust and active foreign policy. Efforts to jump-start global growth and trade in the short term must go hand in hand with long-term initiatives to address the distributional impacts of globalization. U.S. trade policy needs sharpened objectives—such as pursuing narrower agreements that offer tangible benefits but carry lower adjustment costs—and a firmer commitment to enforcing trade rules and punishing unfair practices. It needs to pull down the arbitrary barriers between foreign and domestic agencies and use all instruments of national power to help middle-class communities compete in the global economy. Military, diplomatic, intelligence, and research budgets must more creatively tap the latent adaptive powers of the American people. Finally, global supply chains and strategic industries need to be made more resilient through arrangements that strengthen ties with trusted partners and reduce costs.

A Struggling Middle Class Enters the COVID-19 Era

Since the early 2000s, middle-class incomes have grown slowly compared to the steeply increasing costs of healthcare, housing, education, and childcare. Millions of manufacturing jobs—the economic underpinning of many middle-class communities—have disappeared due to a combination of automation, offshoring, outsourcing, and import competition from China. Narrow, underfunded programs for trade adjustment assistance have failed to offset the blow. Calls for major public investments in human capital, infrastructure, and research and development—which would boost productivity and wages—have gone unheeded.

Then, in early 2020, the coronavirus pandemic dealt a swift end to an economic expansion that had finally delivered low unemployment and solid wage gains. U.S. businesses reported 12.9 million fewer jobs in July than they had in February. Six months on, millions of Americans had been infected and nearly 200,000 had died.

The coronavirus pandemic dealt a swift end to an economic expansion that had finally delivered low unemployment and solid wage gains.

The rapid and steep decrease in economic activity has brought uncertainty about future income and dragged down consumer confidence. Those who lost employer-based insurance face the prospect of higher healthcare costs while also confronting the increased risk of illness and a strained medical system. Many have depleted savings to cope with routine expenses and taken on more debt to carry them through layoffs and pay cuts. Meanwhile, the disparities between the nation’s top earners and everyone else—especially people of color—have grown starker. As upper-income and well-educated households more easily telework and remain socially distanced, lower-income families are experiencing higher levels of unemployment, higher infection rates, and poorer access to reliable healthcare and broadband connectivity.

Despite the trillions of dollars the United States has spent on national security in the past two decades, it was not prepared to combat this wholly predictable threat. Its emergency response was challenged by a heavy reliance on foreign medical equipment and highly interdependent supply chains. The pandemic may now leave American middle-class households more disillusioned with globalization and less willing to pick up the costs of military and diplomatic engagements, obligations to international organizations, and new trade and investment deals. At the same time, a federal government saddled with staggering new debt loads may be less able to manage the next shock.

The pandemic may now leave American middle-class households more disillusioned with globalization.

Toward a New Agenda

For decades, the national security and business communities—the two dominant forces in the foreign policy arena—presided over a growing disconnect between U.S. ambitions abroad and disappointments at home, which culminated in the public’s repudiation of the political status quo in the 2016 presidential election. With his mandate, President Donald Trump shifted the focus of U.S. foreign policy to the concerns of American workers and families—a welcome development, in theory. But, in practice, Trump’s America First vision has meant undermined alliances, drastic cuts to foreign aid and diplomacy, withheld contributions to international organizations, and reckless trade wars with friends and foes alike—measures that have decreased U.S. security without driving domestic economic renewal.

Social progressives offer an alternative vision: ending neoliberal economic policies, cutting defense spending to free up resources for public investments, and elevating the fight against climate change. However, they tend to downplay traditional security concerns, including the possibility of opportunistic actors taking advantage of U.S. retrenchment. While their platform promises to create millions of “green” middle-class jobs, it also risks harming communities reliant on the defense and fossil fuel industries.

Withdrawing from the world stage offers few advantages, as the U.S. coronavirus response has made clear.

A better approach would fully leverage U.S. power abroad to promote the country’s long-term prosperity and security and to advance middle-class interests, while also alleviating the burdens placed on U.S. communities by past policies. The middle class benefits from U.S. alliances, a free international economic system, flexible global capital markets, and continued economic development around the world. Withdrawing from the world stage offers few advantages, as the U.S. coronavirus response has made clear.

Fortifying the Industrial Supply Chain

COVID-19 has revealed the fragility of U.S. access to vital resources, ranging from personal protective equipment to basic consumable necessities. To protect itself from global supply shocks, the United States should have a strategy that combines targeted reshoring and strategic stockpiling. Domestic production should be revived for critical goods whose foreign suppliers are few and for which storage is difficult or production requires long lead times. These include certain medicines, seed banks, critical components for power production, and elements of the defense supply chain. Increased domestic production would also create a modest number of new middle-class jobs.

At the same time, the United States should avoid reshoring widely produced and noncritical goods, like clothing and consumer durables, or easily stockpiled goods that would impose new costs on middle-class households. For example, trying to meet all U.S. demand for N95 respirators through domestic production would likely make them unaffordable for local and regional hospitals. A better approach is to increase the size of national stockpiles, so that supplies can meet demand while supplemental domestic production ramps up.

A multifaceted strategy for resilient supply chains must also improve disaster assistance to allies and partners serving as global production hubs. The Fukushima disaster in Japan that followed the 2011 earthquake and tsunami severely disrupted the production of auto parts, for example. The uneven U.S. response sowed doubts about its ability to protect supply chains in an emergency. Concerns about the security of undersea cables and international financial clearing hubs raise similar questions.

To correct for overreliance on Chinese production, the United States should work with allies to diversify production capacity and diminish total reliance on any particular source, as in the case of Huawei and 5G. Overall, the United States needs to invest in redundancy and regenerative capacity to fortify complex logistics systems, operations that depend on continuous connectivity, and activities that need high levels of data integrity, such as satellite-enabled date stamping of financial transactions and precise geo-locating for shipping and aviation.

Managing Diverse Threats Through Better Warning

Intelligence analysts and security experts have flagged a range of unconventional threats to the United States’ economic well-being: cyber attacks, terrorist deployments of emerging technologies, cross-species animal diseases, threats to the global food supply, geopolitical hostilities that block commercial shipping, misinformation campaigns that roil markets, and many others. The community has also warned consistently about the likelihood of a devastating global pandemic.

While the risk of these events coming to pass is low, any one of them could paralyze the U.S. economy and imperil millions of jobs. Yet warnings go unheeded. The necessary expertise tends to fall outside traditional security silos, the projects compete for funds with military systems and operations, and the political rewards of preventing a crisis are few.

Continued failure to preempt disaster is irresponsible.

But middle-class Americans cannot compete in a global economy if these grave risks are not addressed. When threat information is siloed in security channels, vital time is lost warning and preparing the public. Continued failure to preempt disaster is irresponsible, particularly when the costs of mitigation fall far below what is spent annually on conventional defense.

Supporting Economic Adjustments

As the United States prepares for unconventional threats, it must likewise build resilience in communities economically vulnerable to its foreign policy decisions. Past agreements and policies on trade have left some industrial towns reeling from plant closures, job losses, and lower tax revenues. Trade will always have distributional consequences at home, of course; that is unavoidable. But too often, trade policy has run ahead of the capacity of local economies and American businesses to adapt. For example, China’s accession to the World Trade Organization (WTO) allowed it to rapidly outcompete many U.S. manufacturers, causing them and their suppliers to close or relocate in search of lower production costs. The North American Free Trade Agreement pushed many U.S. corporations across the border to Mexico, where labor rules were weakly enforced.

Too often, trade policy has run ahead of the capacity of local economies and American businesses to adapt.

This is not to argue that distributional side concerns preclude important foreign policy initiatives. But even the soundest foreign policies have consequences at home, and the downsides have to be managed. The federal government should strengthen programs for economic adjustment assistance, which have historically offered too little, too late. Investments in local workforce development and infrastructure should be made as early as possible, affording communities enough time to diversify and attract new businesses.

The United States can also maximize the benefits of national security spending by taking a big-picture view of the country’s long-term security needs. For example, the Cyberspace Solarium Commission, co-chaired by Senator Angus King (I-ME) and Representative Mike Gallagher (R-WI), notes that there are 470,000 cybersecurity job vacancies in the private sector and more than 33,000 in the public sector. Many areas most susceptible to the closure of military bases or weapons production facilities could potentially host new institutes and training facilities for the cybersecurity workforce.

Correcting Course on China

In the wake of the pandemic, the American public is registering much more concern about China. Yet many Americans also remain fearful of major economic conflict with the country. These views reflect the duality at the heart of the U.S.-China relationship and the need for a clearer U.S. strategy that regards China as both a chief source of future shocks and an essential player in heading them off.

To counter Chinese influence, the United States must continue to deter Chinese machinations abroad, including its abuse of economic leverage, export of surveillance technologies, and efforts to purloin intellectual property. Given its history of successful suits against China, the United States should push for a reboot at the WTO to address the worst offenses. Simultaneously updating U.S. trade laws could allow for faster rebuttals to China’s counter-competitive trade strategies.

But the costs of confrontation—including retaliation, escalation, and volatility—need to be carefully weighed. Severe trade tensions eventually hit middle-income workers and consumers as well as U.S. businesses and investors. At a minimum, the United States needs to maintain solid lines of communication with China to ensure global financial stability, improve conflict resolution around trade and direct investment, and coordinate on global issues such as climate change.

Cooperating Internationally

The coronavirus pandemic and the risks of future shocks make clear that the United States cannot turn inward. Robust diplomatic relations foster trust during times of crisis and reduce the chance of policy errors. Multilateral agencies bring the full range of international perspectives to an issue, pool resources, and offer an institutional home for technical experts on global finance, health, infrastructure, education, and more.

The United States should not tolerate inefficient, unaccountable, or corrupt bureaucracies, but it needs a seat at the table. It must participate constructively and strategically in international organizations—such as the United Nations system, multilateral development banks, and specialized agencies with universal membership. The U.S. withdrawal from the World Health Organization, for example, will leave American medical professionals without access to important information and hamper the country’s response to public health crises.

In terms of baseline capabilities, the United States needs to invest in a strong and effective State Department. Diplomats monitor, interpret, and shape events, acting as a first line of defense against global shocks and reducing the need for expensive and risky military solutions. But the State Department can better represent the interests of American middle-class communities. The country also needs to invest more in foreign aid and direct investment programs. Agencies like U.S. Agency for International Development and the U.S. International Development Finance Corporation promote development in places where instability could threaten U.S. interests and help counter Chinese economic influence that could erode U.S. export markets and commercial interests.

In short, it is self-defeating to reduce funding for these activities—already less than 1 percent of all federal spending—as the Trump administration has proposed in multiple budgets. But the United States does need to pledge that more robust spending on diplomacy will be tied to making the global economy work better for middle-class Americans.

Finding New Common Ground

A prosperous, healthy, and secure American middle class is the engine of economic mobility and opportunity. It drives the economy through consumption spending and tax payments that support social insurance programs, the military, and infrastructure. And a strong middle class reduces crime rates, promotes social cohesion, and fosters good governance.

For these reasons, U.S. foreign policy must ask what it can do to nurture a large, diverse, and accessible middle class. It must work more closely with domestic agencies to shape new public investments that make the country more prosperous, competitive, and resilient.

Bolstering the American middle class can help forge a new consensus among the foreign policy establishment, economic nationalists, and social progressives.

In a post-pandemic era—when the costs of divisiveness and policy dysfunction have become disturbingly evident—bolstering the American middle class can help forge a new consensus among the foreign policy establishment, economic nationalists, and social progressives. Such a consensus would benefit not only the United States but also a world desperate for its most powerful nation to demonstrate how accountable and democratic government can respond to the needs of its people, overcome challenges, and promote peace and security.