The failure of Biden’s industrial policy | AER
“I will not apologize for what we are investing to make America strong. Invest in American innovation, industries that will define the future and that the Chinese government intends to dominate,” said President Joe Biden at his State of the Union address earlier this month. For a president who campaigned as the antithesis of Trump, I can’t think of a better quote that captures both politicians’ mutual views of a protectionist America.
While Trump has sought to revitalize America’s declining manufacturing sector under the slogan of national conservatism, Biden is seeking to do the same, but to advance labor and environmental standards. Like James Bacchus notesBiden engages in “polite protectionism,” a trade policy that is just as restrictive but with a noble attitude.
Since taking office, the Biden administration has already poured hundreds of billions to support domestic production semiconductorselectric Vehicles, heat pumps, batteries, and yes, even electric stoves and appliances. The Left hopes that by stimulating these industries, America will become economically self-sufficient while fighting climate change.
But Biden’s industrial onslaught will quickly undermine his party’s lofty goals, leaving the rest of us to fix the broken economy. Just as Trump’s protectionist policies hurt American consumers, Biden’s turn into the fray will be just as, if not more damaging to the American economy.
When Japan began subsidizing its own high-tech industries in the late 1970s, the new wing of the Democratic Party, the “new democrats” as they were called, defended for policies that they believed would promote domestic industry to prevent Japan and other fast-growing nations such as China and West Germany from outpacing American industrial preeminence.
In their 1982 manifesto, these new Democrats argued that Reagan’s emphasis on military spending should be redirected to domestic industry. Fears of low employment and economic obsolescence in the era of globalization have fueled efforts to implement tighter industrial policies.
In their view, governments really needed to identify new industries with huge potential and then pump public money into them. But how can government trade officials, or any individual or small group of industry leaders, for that matter, have all the information to effectively control an economy as complex as ours? The problems that plagued protectionist Democrats in the 1980s are the same today as those who campaign for an America First agenda.
Contrary to the grim fears of the new Democrats in the 1980s, American production grew, peaking in 1990. Rose almost 19 million between 1980 and 1990. If anything, employment and economic prosperity grew despite the push of industry, not because of it.
Market forces so ridiculed by protectionists such as President Biden are the very factors that drive economic growth. Without markets free from government intervention, it is simply not possible for individuals, let alone enlightened trade officials, to allocate resources to industries with the highest potential to meet consumer needs.
Even if planning agencies can identify “rising industries,” US manufacturers are still unlikely to be able to compete with more creative and efficient foreign firms. During the Obama administration, ambitious attempts were made invigorate American manufacturer of solar panels. These attempts quickly failed.
For example, under the Obama Recovery and Reinvestment Act in 2009, the government provided a $535 million loan guarantee to the US firm Solyndra, Inc., considered the next big manufacturer of high-quality commercial solar panels. “It’s time to accelerate America’s innovation machine and regain leadership in clean energy,” said former U.S. Secretary of Energy Steven Chu. Sounds familiar?
Two years later, in August 2011, after struggling to stay afloat, Solyndra filed for bankruptcy. How could the government, you ask, fail so blatantly? As with most industrial planning, politics and knowledge problems severely limited the Obama administration’s ability to spearhead industrial development. The same applies to Biden’s industrial initiative.
The political game is another consequence of the government’s attempts to design the future of American industry. One report quotes that over 15 years, two-thirds of federal subsidies and tax credits went to the largest US corporations, including Boeing ($13.4 billion), Intel ($5.9 billion), Alcoa ($5.6 billion) and General Motors ($3.7 billion). billion dollars). Industrial policy requires picking winners and losers, which usually means existing producers benefit at the expense of smaller, more innovative ones. Goliath always wins.
Protectionism also makes goods more expensive. Last year the Department of Commerce doubled a Canadian lumber tariff that has almost tripled the price of lumber since the pandemic. According to National Association of Home Builders, rising lumber costs add $36,000 to new home prices. The last thing we need is more protectionism, especially with inflation staring us in the face and the economy teetering on the brink of recession.
As early as 1981, Senator Joe Biden was closely associated with the biggest players setting the new Democrats’ agenda. If the past is any indication of the future, then this is America, Inc.’s latest performance. collapse under its own weight, as it did thirty years ago. Instead of “rebuilding better,” Biden’s industrial failure will undermine entrepreneurial activity and slow down the American economy. We must learn from the past and admit once and for all that industrial policy does not work, however much we would like it to.