The US industrial policy horizon is shadowed by dark clouds

Reimagined Industrial Policy Article

The Return of Industrial Policy in Washington, D.C.

American Manufacturing “Boom”

Industrial policy has made a comeback in Washington, D.C., with its advocates hailing it for sparking an American manufacturing resurgence.

Government Subsidies Impact

Following the authorization of trillions of dollars in federal subsidies for renewable energy and semiconductors under the Inflation Reduction Act and the CHIPS and Science Act, there has been a notable increase in U.S. manufacturing investment and construction.

Context of Manufacturing Investment

Prior to the enactment of the CHIPS Act and Inflation Reduction Act, market forces were already prompting companies to reassess semiconductor supply chains and invest in green energy. It remains uncertain how much of the recent manufacturing spending is a direct result of the new industrial policies.

Industrial Spending Analysis

While there has been a rise in industrial spending, it still represents a small fraction of total private investment, accounting for only 3.6% of private investment in the first quarter of 2024 and 0.6% of the U.S. GDP.

Impact on U.S. Manufacturing Performance

Despite claims of a manufacturing “boom,” actual U.S. manufacturing performance has remained stagnant. Projections for 2024 are showing signs of softening, raising doubts about the long-term sustainability of the current industrial policies.

Return on Government Investments

Questions loom over the effectiveness of government support in generating innovative American factories and fostering a robust U.S. economy. Concerns arise about potential failures and industries reliant on continuous government assistance.

Challenges of Industrial Policies

Political interference, rising costs, and unforeseen delays are hindering the successful implementation of industrial policies. The risk of small benefits at a substantial cost to taxpayers and resources is a growing concern.

Global Subsidy Race

Domestic subsidies are fueling a global competition among countries to offer their own subsidies, potentially leading to trade wars and economic disruptions. Developing nations and the environment could suffer as a result.

Call to Action

It is crucial to reevaluate industrial policies and prioritize proven reforms to enhance strategic industries and address economic challenges. Subsidies and protectionism should be excluded from the reform agenda.

About the Author

Scott Lincicome is the vice president of general economics and Cato’s Herbert A. Stiefel Center for Trade Policy Studies.

Read More of this Story at – 2024-07-05 10:40:15

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