What Is America’s Proper Place in the Global Economy?

In an interview, Treasury Secretary Jacob Lew says “it’s not hard to understand” why voters are uneasy.

A statue of Alexander Hamilton, the first Secretary of the Treasury, in front of the Treasury Department in Washington (Evan Vucci / AP)

What would “a bastard, orphan, son of a whore and a Scotsman, dropped in the middle of a forgotten spot in the Caribbean by Providence, impoverished, in squalor … the 10-dollar Founding Father without a father” think about Bernie? About Trump? About manufacturing vs. finance, main street vs. Wall Street? About China?

Alexander Hamilton, America’s first treasury secretary and now the protagonist of an insanely popular Broadway musical, remains an embodiment of the tensions characterizing the American political debate some 240 years after the events depicted in Hamilton. He is somehow, simultaneously, patron saint both to American protectionists and Wall Street financiers. His plan to invest in and protect American manufacturing in its infancy arguably helped the U.S. become the industrial giant that gave the eventual global superpower its backbone. At the birth of the nation, Hamilton also helped institute trading in credit and debt, and helped establish capital markets as the lynchpin of America’s eventual dominance of the global economy.

But today and throughout America’s history, there has been a palpable ambivalence about the country’s global engagement, whether military, diplomatic, or economic. As America’s current treasury secretary, Jacob Lew, wrote recently in Foreign Affairs, this ambivalence is evident “from George Washington’s Farewell Address [written, incidentally, with an assist from Hamilton], to the Senate’s rejection of the League of Nations after World War I, to the initial reluctance of the United States to enter World War II, and to the difficult process of winning congressional support for the postwar economic system itself.”

In the economic realm, there is clearly a tension between what many Americans feel they are getting from the international system—or better yet, not getting—and commitments to free trade and institutions like the International Monetary Fund. An awful lot of Americans in both political parties are frustrated that they are getting gut-punched, not helped up, by such commitments. And American candidates across the spectrum reflect this feeling; modern populists like Donald Trump and Bernie Sanders tend to portray trade deals like the Trans-Pacific Partnership (TPP)—a massive, multi-country agreement shepherded by the Obama administration—as gutting the muscle and heart out of America. Hillary Clinton, too, has opposed it.

The political pendulum is swinging toward protectionist Hamilton and away from high-finance Hamilton; in a recent interview with me, Lew, who now occupies the office of the 10-dollar Founding Father, was evidently concerned. (We also briefly discussed the vexed issue of Lew’s planned currency redesign—the secretary has assured Hamilton creator and star Lin-Manuel Miranda that the founder will keep some role on the bill, though a woman is likely to take starring spot on the 10’s face.) Lew’s Foreign Affairs article advocates for continued American leadership in the global economy. “History has shown,” he writes, “that U.S. economic leadership is vital to the well-being of American workers and families, as well as to the ability of the United States to project its values and achieve its larger foreign policy objectives. ... International economic cooperation has delivered benefits to the United States and other countries that would have been impossible to attain otherwise.”

Yet he acknowledges that making this case is “not always easy.” To take just one example: It took five years of debate and disaffection in Congress to approve reforms to the IMF that the Obama administration helped negotiate in 2010. Those reforms, which aim to bolster the IMF’s resources to deal with financial crises and to increase the voting shares of developing countries like China, Brazil, and India, in Lew’s words “illustrated a distinctive feature of how the United States has exercised economic leadership by expanding the number of nations with an ever-greater stake in the success of a rules based global system that benefits all.”

Here are highlights from our conversation, which has been edited for clarity and condensed for length.

Steve Clemons: If there was no IMF during the 2008-2009 financial crisis, what would it matter?

Jacob Lew: If we didn’t have these institutions that we now take for granted and we had a moment of crisis, you’d have to create them as a place to talk to each other. [Former Federal Reserve Chairman] Alan Greenspan once asked me, why do you do all the meetings you do? Is it because of the communiqués? Is it because of the specifics? It’s [so that] at a moment of crisis, you all know each other. So leaving aside the money that is moving through these institutions, do you or don’t you have the relationships to put together a solution? The human piece of this matters. The bilateral and multilateral diplomatic piece of this matters.

Now, there is a lot of money too. In a financial crisis, you need to stack up money in the window, because that will stop a run on the banks [if people feel their deposits are covered]. Well, the IMF is the international stack of money in the window.

Clemons: China’s proportion of [voting] shares went up [under the recent reform], surpassing and irritating Japan, but some tell me that the tug-of-war is really between the U.S. and Europe in the IMF?

Lew: If you want to just look at whose shares moved, Europe, not the United States, gave up quota [of required contributions to the institution] to emerging economies, because the United States [remains a] powerful economy, and Europe has not been as much so.

But I think everybody understands. Do you want the emerging countries—China’s obviously the biggest but it’s not the only one—do you want to have China, India, Brazil feeling a deep connection to the rules-based system and the values-driven system that we’ve built up? Or do you want them feeling like they’ve got to go out to other places to express themselves? You want them at the table. That’s your way to project the things that you value and you believe in for the next century. We can’t pretend we’re in the post-World War II world, when the only source of hard currency and the only source of manufactured goods was the United States.

Clemons: In your article, you mentioned a lot of significant international achievements by the Obama administration—the climate deal, the Iran negotiation, Trade Promotion Authority, reauthorizing the Export-Import Bank, signing TPP, and more. Are you worried that these measures didn’t pass with full-throated bipartisan support?

Lew: The Washington Farewell Address is real—resisting foreign entanglement is a pretty basic American creed. We’ve seen on the military side an exhaustion with the amount and sustained nature of military engagement in recent years. We’re seeing the economic tools more and more are being turned to as ways to project our policy objective internationally. So I talk about sanctions, about the need to pull countries together so you can work to get an Iran deal, so you can put that kind of crushing pressure on Iran’s economy, which is why they came to the table [to negotiate over their nuclear program].

The fact that China worked with us in the UN on the North Korea sanctions is huge. The North Korean people would starve if they weren’t getting food from China. It is a much more fundamental economic relationship than any they have in the world. So if China really implements, it gives you the ability to be effective when otherwise, we all have such minimal contact, it’s not that effective.

Clemons: Many Americans feel that the quid pro quo—of them sacrificing and serving as the world’s ultimate security guarantor and global cop, and having in return better jobs and economic conditions—feels broken. This is in part what is driving some of the support for Donald Trump and Bernie Sanders. Are they wrong?

Lew: Certainly the political environment is not one today that’s hospitable to a lot of the basic ideas that I’m describing. It’s why I think TPP is so good and so important, because it’s yet another way of protecting our values. That’s certainly not the way it’s being approached in the political arena this year. I think we have to continue to make the case for why these things matter.

I don’t find it hard to understand how eight years after the worst recession since the Great Depression there is an unusually high level of anxiety and anger in the American population. The fact that we’ve created 14.5 million new jobs, the fact that we have a sustained recovery that’s better than [that of] any of the other industrialized countries, the fact that consumer demand remains very strong, should suggest people would feel better. Why don’t they? You can say it’s because other people stole our jobs through trade agreements, and people respond to that. I don’t know if that’s really the explanation, but it’s certainly not the answer to the future. Because in the future, the growing markets are not here. Population growth and growth of the middle class is in all these other markets we want to be part of.

Look at the Great Recession. Think about people our age. I would have been 50, 52 when the economy went south. If you lost your job and you were 50 years old and you couldn’t find the right next job for a couple years, you’re probably a step down from where you were.

Now think about somebody who graduated high school or college during the recession. They didn’t get work right away. They saw other kids coming out after them getting started before them. They’re trying to catch up. And we know it’s really hard to catch up. So there are things coming out of the recession that are contributory factors. I would think that there are answers that are much more constructive than a lot of what we’re hearing in the debate this year. But it’s not hard to understand why there is uneasiness out there.

Clemons: One of the interesting things about your essay to me is that it argues for U.S. leadership in the global economy—but not from the traditional stance of many of your predecessors, that is, from a neoliberal economic frame [which promotes unfettered free trade, no constraints on capital movements, and is uber laissez-faire]. Does an ad hoc approach make it harder for the U.S. to lead? What is your North Star in all this?

Lew: I wouldn’t put the label neoliberal or neoconservative on it. I do try to be pragmatic. I feel perfectly comfortable adopting some things and challenging others. In the 21st century, the world needs the United States to be a North Star. The world wants us to be the North Star. I really do believe that. I am amazed at how other countries want to hear our advice and what we think makes sense. Sometimes we may have the habit of lecturing too much. We have to be careful not to do that. But I’ve had prime ministers from other countries thank me for having helped influence decisions and [creating] a policy environment where they can do what they needed to do. There is no other country in the world that has the ability, in that way, to do that.

Clemons: You warn U.S. policymakers not to take U.S. dominance of the global economy for granted, not to take the reserve currency status of the dollar for granted. What would happen if they do take these things for granted?

Lew: I don’t think that there is any other currency that could replace the dollar right now. But it is not a static world. If countries do what they should do—if China goes through its reforms and emerges as a healthy economy; if Japan gets its act together after decades of very bad performance; and if Europe gets over this demographic hump—you can’t assume the world 20 or 30 years from now will be where it is today.

Putting in place U.S. policies that we require other countries to participate in is just something we have to be very careful about. If we are doing sanctions together, then it’s a powerful tool that can have great effect. If you start to use sanctions where some of the world but not most of it agrees with us, it gets harder and harder. A reality is there are other banking sectors in the world—you could see slow migration of economic activity to places [that] don’t touch the U.S. financial system, and we shouldn’t want that. We shouldn’t want that economically, because it’s a source of economic strength. We shouldn’t want it in terms of our leadership role, because the enormous power we have because our economy is the dominant economy that everyone touches, gives us the ability to use these tools. So it just behooves us to be judicious.

I would never say we should swear off the right to independent action. We have to reserve the right to act independently to protect [the] U.S. interest. But it should be a rare occurrence. For years I’ve sat in meetings in the [Situation] Room, where the military always put out in very clear terms the cost, both in dollars and casualties, [of] what happens if you use force. People who advocate using sanctions have to treat them as powerful tools that have real costs as well as benefits. And using them judiciously, treating them with the respect they deserve, doesn’t mean not using them. Just like it doesn’t mean not using force. But we don’t escalate to the highest level of force hardly ever.

Clemons: I don’t know if you may have read Jeffrey Goldberg’s Atlantic piece on the Obama doctrine

Lew: I skimmed it. I didn’t read it word for word. It’s sitting right over there.

Clemons: Well, what Goldberg surfaces is the president’s realist take on a lot of international issues, careful cost-benefit analysis before engagement, and a critique of free-riding allies who the president feels need to invest and commit more in international matters than they are doing. Thoughts?

Lew: The president and I tend to be very like-minded on the realist approach. If you look at something like Ukraine, in putting together support for [the government there following the country’s 2014 revolution]. The anchor was an IMF program [of $17 billion in urgent support]. It also needed to work with the Europeans [to] put in a significant amount, because [Europe] was right there. But then we went around the world, and we got countries that don’t have immediate exposure to Ukraine or Russia, [including] Canada and Japan. We put together a global effort so that with our loan guarantees, the IMF package, European support and contributions from other countries around the world, we actually helped Ukraine.

I think it gets harder and harder because everyone is feeling fiscal constraints. But I think we have a very powerful ability to cross that moral threshold, where countries know they should [contribute], and then it becomes a budget question of how much you can get them to do. Could we have put together a $25 billion package, or $20 billion [for Ukraine]? We couldn’t. But you put it all together, and it’s the world telling Russia that Ukraine will have a long enough runway to get back on its feet. That’s geopolitically of great significance.

Clemons: Many wonder whether as China grows, particularly in international institutions, whether it will adopt our norms and values or will just fake it until they are in more of a controlling position.

Lew: I think that we have to recognize there are going to be areas where we have overlapping interests; there are areas where [we’re] going to have differences. We’re going to have to make progress in the space where we agree, but [we also have to] put down really hard markers, whether it’s over [the] South China Sea or cyber theft—we can’t just gloss over those issues.

One of the things I have found in my engagements with the Chinese is that they respect the directness of that. It’s not on its face offensive to say, “You do these things that we find unacceptable.” We shouldn’t kid ourselves that just by saying it they will change. We are pulling them along as a global community to a better place. [China’s current economic transition] is one of the hardest economic transitions that any country has ever undertaken; [it’s] one of the biggest economies in the history of the world shifting from a centrally controlled, non-market, top-down structure to something that is more market-driven.

The question is not whether they intellectually understand the importance of that transition. They all understand what they need to do. Are they prepared to live with the bumps that come with making that transition? They are not small bumps. You dislocate millions of people from their manufacturing jobs. You either reposition them in different jobs in different places or provide some support because they are no longer working. Those are huge things to do.

They say the right things, but the proof of pudding is in the eating, and it’s hard. I don’t say that in a condescending way at all. If you asked me to relocate 1.5 million American workers, that would be very hard. But they have no choice because of where their economy was, and where it has to go.

They value the relationship with us. You know this whole communication thing, it’s not natural to them. Being open and transparent is new to them. They don’t intuitively know when they need to communicate. When I get on the phone with some of my counterparts and say, “You can’t surprise the world by doing something like this,” they try actually to do better going forward. But you can see from the way they have moved in the last few months that the learning curve is steep.