The Biden administration plans a fundamental transformation of American economic policy at home and abroad. That’s the takeaway from national security adviser Jake Sullivan’s speech at the Brookings Institution last week. Initial press coverage focused on the nuances of China policy—“derisking” is in, “decoupling” is out—but to stop there is to miss the point. This was a big speech about major policy changes, and those who want to understand the direction of American policy in a second Biden term would be unwise to overlook it.

The break with post-Cold War Democratic trade and economic policy is radical. Gone are the emphases on trade liberalization, growth and market-oriented reform. Those misguided policies, in the administration’s view, are responsible for many of the ills afflicting humanity today. China’s ascent, the erosion of the American middle class, the rise of populism, climate change and financial instability are the consequences of the flawed economic policies promoted by, among others, President Bill Clinton and his Treasury secretaries, Robert Rubin and Larry Summers.

So much for the old Washington consensus, as this policy mix was called in its heyday. What Mr. Sullivan proposes to take its place focuses on shaping industrial policy, protecting against China, defending American labor from foreign low-wage competition, and using tools ranging from tariffs to international financial institutions to push countries in the Global South to meet climate-change goals. Governments would do much more to direct capital toward the industries and outcomes bureaucrats and elected officials prefer.

Politically, Mr. Sullivan’s new Washington consensus reflects the convergence of three elements of Democratic politics. Labor unions hated Clinton-era trade policy, opposing the North American Free Trade Agreement, the formation of the World Trade Organization and China’s admission into it. In their view, allowing developing countries to compete in American markets with low-wage labor constitutes a “race to the bottom”—something Mr. Sullivan explicitly says the new policy is designed to avoid.