Peter Morici: Biden leaves an impressive legacy — and a pile of budget and security challenges

Only a handful of U.S. presidents could boast Joe Biden’s range of legislative and foreign policy accomplishments. The Chips and Science Act and the Inflation Reduction Act, for example, steered the U.S. economy in a much-needed new direction.

But the 46th U.S. president will leave his successor with tough federal budget and national-security challenges.

Since his election in November 2020, Biden’s governing agenda and the Democratic party’s platform have largely reflected the identity politics of the party’s progressive wing. The Biden administration has shown indifference to large budget deficits and modern monetary policy, as well as reluctance to devote more resources to national defense. Notably, Biden’s Cabinet lacks adequate business representation.

Biden added to former President Donald Trump’s tariffs on Chinese imports, but also countered China’s subsidies to manufacturing with industrial policies to boost America’s semiconductor, electric-vehicle, battery and other green and strategically important industries.

In formulating these programs, Biden sought to spread employment benefits more broadly with minorities, women and unions, but these add costs to programs. Yet after the U.S. Supreme Court decision striking down racial preferences in higher education, the next president may face constitutional challenges to continue these.

Between Trump’s covid-19 spending and Biden’s initiatives — including student-debt forgiveness, aid to Ukraine and Taiwan and additional subsidies for health care — the Federal Reserve printed almost $5 trillion in new money. The U.S. federal budget deficit is now about 7% of GDP — the highest peacetime level other than during the covid-19 and global financial-crisis recessions.

Going forward, federal borrowing pressure on capital markets will either raise interest rates or require additional doses of accommodative monetary policy that pushes inflation above the Fed’s target.

Biden also lacked the energy and vision to tackle some of the country’s most intractable problems — a national housing shortage and the eroding quality of education — that the next U.S. president will face.

Biden also leaves his successor a military that is inadequately resourced to defend American allies against the rapidly solidifying “Axis of Autocracies”— Russia, China, North Korea and Iran — if called upon in simultaneous conflicts in the Pacific and Eastern Europe or the Middle East. The Pentagon likely needs a boost equal to 2% of GDP to address these challenges.

The Biden administration has not adequately prioritized defense. On paper, Biden established and strengthened an impressive network of alliances in Asia with Australia, Japan, South Korea and others, and added Sweden and Finland to NATO. But the administration has been timid in response to aggression.

For example, in confronting Iranian-sponsored terrorism in the Red Sea, underarming Ukraine and limiting the use of American weapons inside Russia in response to Moscow’s wanton aggression.

These examples, along with the Biden administration’s disastrous withdrawal from Afghanistan, show why U.S. allies cannot be blamed for questioning whether an adequate American military would be willing or able to save the Baltic states from Russia or to protect Taiwan and the Philippines from China.

Taiwan is particularly vulnerable. A recent Rand analysis concluded that Japan, Australia, the U.K. and Canada likely would not risk their armed forces to aid U.S. forces if China invaded or blockaded Taiwan. India and South Korea have indicated they also are disinclined.

This is poor judgment from the West, because the disruption or loss of Taiwan’s chip foundries would have devastating global economic consequences.

Biden bequeaths to his successor an America that is in tough fiscal condition, not strong enough against China, Russia and Iran, and perhaps standing alone.

Now it’s up to Vice President Kamala Harris and Trump — in their respective campaigns for the presidency — to explain to the American people how they propose to fix the nation’s finances, encourage U.S. states to address challenges in housing and education, better secure U.S. vital foreign interests, and reassure America’s allies of its resolve.