Very good post. I especially like the points about government prompting, working the kinks out of new industrial policies, and the impact on Chinese industry.
One question, though, re: "Barack Obama never seemed to recognize how big of a deal this was." Didn't Obama try to pivot to Asia (i.e., against China) from the start, shifting military assets into the region, building anti-China alliances, the TPP, etc? Some of Biden's anti-China policy drew on this, no?
In the military/alliance realm, there was a *slight* movement in the right direction. But in terms of countering China's industrial strength, it was basically only the TPP. Biden's economic policies with regards to China didn't draw on the TPP as a model -- in fact, lack of trade coordination is the biggest gap in Biden's policies, for precisely this reason.
True on the military front - although, to be fair, Obama was shifting from the massive US military position in the Middle East.
Obama did invest a lot of political capital in TPP and, as far as I recall) unusually won some GOP support while losing some Dem backing, so it had a chance of becoming bipartisan policy.
Agreed on the different strategy Biden pursued, but he did follow the broader anti-China orientation.
This is a wonderful post! This is exactly why I subscribe to Noah's blog. Without something like this, I would have no way of knowing if Biden's industrial strategy was working or not. This makes me feel better about our trajectory. I can only hope that if Harris wins she will continue with this strategy and maybe even double down on it. The only thing that should also be mentioned is that one of the reasons tariffs and "buy American" provisions in the legislation are important is to prevent leakage of the benefits of the funding to China.
Excellent overview of industrial and foreign policy.
As a long-term ASML investor I’m all for rescinding its service/maintenance contracts in China. In fact, it might also be worth considering putting similar restriction on ASML’s trailing-edge chip lithography machines. This would handicap China’s effort to seek domination in the very important trailing-edge chips, which have implications for smart weapons, automobiles, appliances, etc. ASML can and will adjust to these new realities. The demand for chips, especially for the ascension of AI, looks to experience exponential growth for the next 6-10 years. But the government should emphasize more the creation of trailing-edge fabs as a national security priority. Clearly, INTL’s culture is not well-suited to being a leading-edge chip fabricator. 3nm shouldn’t be a first step into the chip-fab business for any corporation. I hope I’m wrong, but I think INTL will hemorrhage money for the next 3-5 years, if not longer.
I would appreciate a little more acknowledgement of the economic effects of all of this, seeing as this is supposed to be a primarily an economic blog. And the acknowledgement needs to be up front: all of this is bad from an economic perspective. Tariffs, taxpayer subsidies, government direction of investment, etc., is all terrible! Maybe it's worth it for key industries for national security reasons or to build up a manufacturing base that can be leveraged for war, but all of this is an economic COST, not a BENEFIT.
There are certainly costs, but potentially some technological and public goods benefits that could at least defray those costs. America's participation in WW2 drove us to build a research apparatus and infrastructure that served our growth very well in the postwar years. And we.developed many technologies for the war itself that ended up being incredibly valuable after the war. So there are costs, yes, but some opportunities here too.
The IRA has been a boon to China. Where do the battery components come from when we pay rich people to buy EVs? Where does the battery IP come from? Do we think big multinationals don’t know how to arbitrage content rules? Biden wants union assembly jobs and we’ll get that (Mexico will get assembly jobs, too)….for Chinese parts,
The CHIPs act is sensible but was started as a bipartisan effort in Congress during the Trump years (not by Trump himself, nor by anyone in the Biden admin). Pelosi made sure the CHIPs act and an infrastructure bill went nowhere in the House during the 2020 recession, allowing Biden to get credit (and allowing Dems to restructure the bills to help their constituencies a bit more). Even so, both got bipartisan support, but that could have easily been as true in 2020. Nothing in particular to do with Biden- just a feature of the Dem House wanting a bill to pass.
Export controls are something I can definitely credit the Biden admin for. Of course, they won’t work and will only stimulate Chinese competition and theft, but they are perhaps better than nothing. Corporations cannot be trusted. Look at Russian sanctions - suddenly every companies sales to Kazakhstan, Turkmenistan, Azerbaijan, etc have tripled. Funny that. Of course NVDA is selling chips to Chinese buyers - not deliberately or directly - what companies instead do deliberately is to ignore when new buyers emerge from unexpected places.
Agree though that most of the above are positive developments
I wonder if retro-fitting idle factories is cost-effective and gets factories functioning faster. Is there any data on this. Why demo a factory building if it can accommodate new manufacturing? I helped a friend retro-fit an old light-industrial building. It was both cost-effective and fast and was purchased by a manufacturer three months after we finished the work.
I think it pretty silly to lump together disparate reasons for supporting an activity -- defense/security, infant exporter, or CO2 reduction and call it "industrial policy. It is even sillier to believe that the reason these activities have not been supported in the past was some mysterious "neo-liberalism."
The problem with lumping is that it can lead to policy misalignment. Maybe strategic goods SHOUL be encourages with investment subsidies, but CO2 emissions should be encouraged by taxing the net emissions, and infant exporters should be mainly with deficit reduction/weaker dollar
Hey Noah, As Ronald Reagan would say, "There you go again." Citing facts, data, economic trends, and the actual effects of national policies on everyday Americans. Don't you know that in the MAGAverse, none of that matters!
In the bizarro world of MAGA (Make America White Again), this is the reality: Democrat (they never say Democratic) policies always hurt "Real Americans" and Republican policies always help them. Lowering taxes on the very wealthiest always improves the prosperity of the (white) middle classes. Cutting regulations always leads to more (white) middle class jobs. Cutting food and medical assistance to "those people" stops them from ripping "us" off. America needs to be returned to the country it was in the 1950s (or for some, the 1850s).
=====
As Democrats, we tend to think that because we live in a world of facts, logic, reason, science, and evidence and want to work towards greater justice and equality for all Americans, that we can just "get the facts out" and people will vote accordingly (for us). But what Trump continually reminds us: there is a very old and dark underside of America that works feverishly to establish and maintain a race-based, patriarchal, cruel conservative Christian society. This is the world Margaret Atwood described in "The Handmaid's Tale", the world that Project 2025 seeks to create should Trump regain power. And if Harris/Walz don't win enough "still undecideds" in PA and GA, this is the country we will be stuck with for a long time.
“Frustratingly, this progress has been mostly ignored by the national political conversation, even though it’s one of the most important things that the American government is doing.”
As LBJ said: “Any jackass can knock down a barn.” Build a barn and it’s not news. In this remote, one-stoplight County, curbing and sidewalks are being repaired in the small towns. These towns will look and work much better for the stream of tourists during the months of May-September. It’s all IRA-funded. Not a single Republican voted for the IRA but they have 100% attendance on Photo Day. This in itself is a news story, but it will likely receive little coverage. Internet infrastructure is also being improved. But it’s a slow news season because a jackass hasn’t kicked down a barn.
With the "Tax Cuts for the Rich and Deficits Act of 2017" Trump did far less than "nothing" about US manufacturing. An Biden did not address deficit reduction, either. US manufacturing need to be export oriented and that means low inters rates and a weaker dollar, impossible without major revenue increases, especially revenue from taxing consumption: VAT for wage tax, progressive consumption tax for income tax, tax on net emissions of CO2.
"Protection" for EV manufacture of vehicles to be sold only in the US is not the ticket. Support for chips manufacturing tied to other objectives ("good jobs") and without tackling the regulatory kludge that prevents building ANYTHING is not the ticket.
This piece overstates Biden's impacts when it comes to US industry. Biden's policies have done a tremendous job in mitigating the security concerns of critical supply chains with regards to China. What they haven't done is seen a full rebasing of US supply and demand back to the North America region. To do this, you will likely need stronger tariffs and capital controls similar to what Michael Pettis advocates for, (https://www.phenomenalworld.org/analysis/trade-and-the-manufacturing-share/), yet despite the justification for this in reinvigorating US industry (and stopping China leeching off everyone else rather than stimulating their own bloody demand), there is little chance a Harris administration would do this.
Biden may have done a good job in re-stimulating the economy post COVID and in shoring up US security supply chains, but if you want a President capable of addressing US industrial weakness, you will need a Trump presidency.
The same Trump that couldn't get Infrastructure week done? Come on mate, you are making a bad faith argument and you know it. Trump didn't advocate or push for this stuff while he was in office before. Like Noah said, he brought an attitude adjustment on it that was a couple decades overdue but it was all bluster without substance.
Trump is the best Republican president for Democrats (albeit, terrible for the country as a whole). He accomplishes very little because he is incompetent and spends most of his time golfing.
If someone wanted to tell the story that the AI boom, and not Industrial Policy, drove these investment increases, how could you tell the difference between that story and yours?
The charts showing the manufacturing construction spending -- assuming there's a relationship between the Manufacturing Spending charts and the Announced Long-Term Investments charts -- point to AI. SK Hynix's plans are directly linked to AI (https://siliconangle.com/2024/06/30/sk-hynix-announces-75b-investment-boost-ai-chipmaking-business/) and a brief search on some of the others suggests AI is at least a partial motivation for the new investment. (Though SK Hynix seems mostly to be investing in Korea so the relationship between the two graphs may not be great).
Looking at clean energy and batteries, that looks a lot like an exponential growth curve that was starting pre-IRA.
The best 'causal' connection seems to be in the Motor Vehicle and Parts employment.
I'm certainly not opposed to these policies--in fact I think they're mostly good. But it feels a little bit like giving Biden credit for a ship setting sail because he hit it with a bottle of champagne before it started moving.
I think it's fairer to say, on the AI side of things, that the investment would be taking place regardless of Biden, but that Biden's policies seem to have directed a greater portion of that investment into the US. The investments in clean energy and batteries would also have been there, but again a bit more is in the US. (Alternatively, you could argue that manufacturers took Biden's election as a signal that they wouldn't face an industrial policy hostile to them like Trump II would have). I want to give Biden credit for good policies, and the fact that the policies were targeted at industries currently making investment decisions is obviously the right way to do it, but I also don't want to overestimate the power of Industrial Policy.
Climate denial recieves so much support from the U.S. fossil fuel industry and allied anti-government ideologies that a huge future problem doesn't get much attention. At some future date, China's energy will come mostly from the sun, which is cheaper (or will be) and inexhausible. America will be sucking salt water in oil and gas wells that get more expensive and less productive. That will shift the balance of power bigtime.
Donald Trump served the purpose of disruption of the elite, neo-liberal consensus. He triggered a queued up partisan realignment involving working class voters. He made it possible to talk about things like tariffs and on industrial policy and insourcing.
Many of us who have supported him in 2016 and 2020 (and will do so in 2024) are very doubtful he has the attention span to drive the change he opened the door for. Some of us supported Ron DeSantis (or others) for exactly that reason: we want Trumpism without Trump. But we lost, and we got Trump again. If he wins in Nov, hopefully he will have better staff around him this time.
It's weird that both candidates are essentially running as figureheads. What we're electing is a partisan team that will implement a set of policies. In that sense, we're behaving more and more like a parliamentary democracy.
Very good post. I especially like the points about government prompting, working the kinks out of new industrial policies, and the impact on Chinese industry.
One question, though, re: "Barack Obama never seemed to recognize how big of a deal this was." Didn't Obama try to pivot to Asia (i.e., against China) from the start, shifting military assets into the region, building anti-China alliances, the TPP, etc? Some of Biden's anti-China policy drew on this, no?
Thanks! :-)
In the military/alliance realm, there was a *slight* movement in the right direction. But in terms of countering China's industrial strength, it was basically only the TPP. Biden's economic policies with regards to China didn't draw on the TPP as a model -- in fact, lack of trade coordination is the biggest gap in Biden's policies, for precisely this reason.
True on the military front - although, to be fair, Obama was shifting from the massive US military position in the Middle East.
Obama did invest a lot of political capital in TPP and, as far as I recall) unusually won some GOP support while losing some Dem backing, so it had a chance of becoming bipartisan policy.
Agreed on the different strategy Biden pursued, but he did follow the broader anti-China orientation.
This is a wonderful post! This is exactly why I subscribe to Noah's blog. Without something like this, I would have no way of knowing if Biden's industrial strategy was working or not. This makes me feel better about our trajectory. I can only hope that if Harris wins she will continue with this strategy and maybe even double down on it. The only thing that should also be mentioned is that one of the reasons tariffs and "buy American" provisions in the legislation are important is to prevent leakage of the benefits of the funding to China.
Great article. Hope you had some delicious food in Poland. We loved our visit there!
Excellent overview of industrial and foreign policy.
As a long-term ASML investor I’m all for rescinding its service/maintenance contracts in China. In fact, it might also be worth considering putting similar restriction on ASML’s trailing-edge chip lithography machines. This would handicap China’s effort to seek domination in the very important trailing-edge chips, which have implications for smart weapons, automobiles, appliances, etc. ASML can and will adjust to these new realities. The demand for chips, especially for the ascension of AI, looks to experience exponential growth for the next 6-10 years. But the government should emphasize more the creation of trailing-edge fabs as a national security priority. Clearly, INTL’s culture is not well-suited to being a leading-edge chip fabricator. 3nm shouldn’t be a first step into the chip-fab business for any corporation. I hope I’m wrong, but I think INTL will hemorrhage money for the next 3-5 years, if not longer.
I would appreciate a little more acknowledgement of the economic effects of all of this, seeing as this is supposed to be a primarily an economic blog. And the acknowledgement needs to be up front: all of this is bad from an economic perspective. Tariffs, taxpayer subsidies, government direction of investment, etc., is all terrible! Maybe it's worth it for key industries for national security reasons or to build up a manufacturing base that can be leveraged for war, but all of this is an economic COST, not a BENEFIT.
There are certainly costs, but potentially some technological and public goods benefits that could at least defray those costs. America's participation in WW2 drove us to build a research apparatus and infrastructure that served our growth very well in the postwar years. And we.developed many technologies for the war itself that ended up being incredibly valuable after the war. So there are costs, yes, but some opportunities here too.
The IRA has been a boon to China. Where do the battery components come from when we pay rich people to buy EVs? Where does the battery IP come from? Do we think big multinationals don’t know how to arbitrage content rules? Biden wants union assembly jobs and we’ll get that (Mexico will get assembly jobs, too)….for Chinese parts,
The CHIPs act is sensible but was started as a bipartisan effort in Congress during the Trump years (not by Trump himself, nor by anyone in the Biden admin). Pelosi made sure the CHIPs act and an infrastructure bill went nowhere in the House during the 2020 recession, allowing Biden to get credit (and allowing Dems to restructure the bills to help their constituencies a bit more). Even so, both got bipartisan support, but that could have easily been as true in 2020. Nothing in particular to do with Biden- just a feature of the Dem House wanting a bill to pass.
Export controls are something I can definitely credit the Biden admin for. Of course, they won’t work and will only stimulate Chinese competition and theft, but they are perhaps better than nothing. Corporations cannot be trusted. Look at Russian sanctions - suddenly every companies sales to Kazakhstan, Turkmenistan, Azerbaijan, etc have tripled. Funny that. Of course NVDA is selling chips to Chinese buyers - not deliberately or directly - what companies instead do deliberately is to ignore when new buyers emerge from unexpected places.
Agree though that most of the above are positive developments
I wonder if retro-fitting idle factories is cost-effective and gets factories functioning faster. Is there any data on this. Why demo a factory building if it can accommodate new manufacturing? I helped a friend retro-fit an old light-industrial building. It was both cost-effective and fast and was purchased by a manufacturer three months after we finished the work.
I think it pretty silly to lump together disparate reasons for supporting an activity -- defense/security, infant exporter, or CO2 reduction and call it "industrial policy. It is even sillier to believe that the reason these activities have not been supported in the past was some mysterious "neo-liberalism."
The problem with lumping is that it can lead to policy misalignment. Maybe strategic goods SHOUL be encourages with investment subsidies, but CO2 emissions should be encouraged by taxing the net emissions, and infant exporters should be mainly with deficit reduction/weaker dollar
On the contrary. When one policy can accomplish multiple objectives at once, that policy should be your first priority.
Hey Noah, As Ronald Reagan would say, "There you go again." Citing facts, data, economic trends, and the actual effects of national policies on everyday Americans. Don't you know that in the MAGAverse, none of that matters!
In the bizarro world of MAGA (Make America White Again), this is the reality: Democrat (they never say Democratic) policies always hurt "Real Americans" and Republican policies always help them. Lowering taxes on the very wealthiest always improves the prosperity of the (white) middle classes. Cutting regulations always leads to more (white) middle class jobs. Cutting food and medical assistance to "those people" stops them from ripping "us" off. America needs to be returned to the country it was in the 1950s (or for some, the 1850s).
=====
As Democrats, we tend to think that because we live in a world of facts, logic, reason, science, and evidence and want to work towards greater justice and equality for all Americans, that we can just "get the facts out" and people will vote accordingly (for us). But what Trump continually reminds us: there is a very old and dark underside of America that works feverishly to establish and maintain a race-based, patriarchal, cruel conservative Christian society. This is the world Margaret Atwood described in "The Handmaid's Tale", the world that Project 2025 seeks to create should Trump regain power. And if Harris/Walz don't win enough "still undecideds" in PA and GA, this is the country we will be stuck with for a long time.
“Frustratingly, this progress has been mostly ignored by the national political conversation, even though it’s one of the most important things that the American government is doing.”
As LBJ said: “Any jackass can knock down a barn.” Build a barn and it’s not news. In this remote, one-stoplight County, curbing and sidewalks are being repaired in the small towns. These towns will look and work much better for the stream of tourists during the months of May-September. It’s all IRA-funded. Not a single Republican voted for the IRA but they have 100% attendance on Photo Day. This in itself is a news story, but it will likely receive little coverage. Internet infrastructure is also being improved. But it’s a slow news season because a jackass hasn’t kicked down a barn.
With the "Tax Cuts for the Rich and Deficits Act of 2017" Trump did far less than "nothing" about US manufacturing. An Biden did not address deficit reduction, either. US manufacturing need to be export oriented and that means low inters rates and a weaker dollar, impossible without major revenue increases, especially revenue from taxing consumption: VAT for wage tax, progressive consumption tax for income tax, tax on net emissions of CO2.
"Protection" for EV manufacture of vehicles to be sold only in the US is not the ticket. Support for chips manufacturing tied to other objectives ("good jobs") and without tackling the regulatory kludge that prevents building ANYTHING is not the ticket.
This piece overstates Biden's impacts when it comes to US industry. Biden's policies have done a tremendous job in mitigating the security concerns of critical supply chains with regards to China. What they haven't done is seen a full rebasing of US supply and demand back to the North America region. To do this, you will likely need stronger tariffs and capital controls similar to what Michael Pettis advocates for, (https://www.phenomenalworld.org/analysis/trade-and-the-manufacturing-share/), yet despite the justification for this in reinvigorating US industry (and stopping China leeching off everyone else rather than stimulating their own bloody demand), there is little chance a Harris administration would do this.
Biden may have done a good job in re-stimulating the economy post COVID and in shoring up US security supply chains, but if you want a President capable of addressing US industrial weakness, you will need a Trump presidency.
The same Trump that couldn't get Infrastructure week done? Come on mate, you are making a bad faith argument and you know it. Trump didn't advocate or push for this stuff while he was in office before. Like Noah said, he brought an attitude adjustment on it that was a couple decades overdue but it was all bluster without substance.
Trump is the best Republican president for Democrats (albeit, terrible for the country as a whole). He accomplishes very little because he is incompetent and spends most of his time golfing.
If someone wanted to tell the story that the AI boom, and not Industrial Policy, drove these investment increases, how could you tell the difference between that story and yours?
The charts showing the manufacturing construction spending -- assuming there's a relationship between the Manufacturing Spending charts and the Announced Long-Term Investments charts -- point to AI. SK Hynix's plans are directly linked to AI (https://siliconangle.com/2024/06/30/sk-hynix-announces-75b-investment-boost-ai-chipmaking-business/) and a brief search on some of the others suggests AI is at least a partial motivation for the new investment. (Though SK Hynix seems mostly to be investing in Korea so the relationship between the two graphs may not be great).
Looking at clean energy and batteries, that looks a lot like an exponential growth curve that was starting pre-IRA.
The best 'causal' connection seems to be in the Motor Vehicle and Parts employment.
I'm certainly not opposed to these policies--in fact I think they're mostly good. But it feels a little bit like giving Biden credit for a ship setting sail because he hit it with a bottle of champagne before it started moving.
I think it's fairer to say, on the AI side of things, that the investment would be taking place regardless of Biden, but that Biden's policies seem to have directed a greater portion of that investment into the US. The investments in clean energy and batteries would also have been there, but again a bit more is in the US. (Alternatively, you could argue that manufacturers took Biden's election as a signal that they wouldn't face an industrial policy hostile to them like Trump II would have). I want to give Biden credit for good policies, and the fact that the policies were targeted at industries currently making investment decisions is obviously the right way to do it, but I also don't want to overestimate the power of Industrial Policy.
1. Need to make these policies bi partisan and permanent
2. More people need to write publicly about the importance of this
Sure, the tide has turned but we need a good 10 - 15 years, and more broad momentum to make up for lost time, and past harm.
Climate denial recieves so much support from the U.S. fossil fuel industry and allied anti-government ideologies that a huge future problem doesn't get much attention. At some future date, China's energy will come mostly from the sun, which is cheaper (or will be) and inexhausible. America will be sucking salt water in oil and gas wells that get more expensive and less productive. That will shift the balance of power bigtime.
Donald Trump served the purpose of disruption of the elite, neo-liberal consensus. He triggered a queued up partisan realignment involving working class voters. He made it possible to talk about things like tariffs and on industrial policy and insourcing.
Many of us who have supported him in 2016 and 2020 (and will do so in 2024) are very doubtful he has the attention span to drive the change he opened the door for. Some of us supported Ron DeSantis (or others) for exactly that reason: we want Trumpism without Trump. But we lost, and we got Trump again. If he wins in Nov, hopefully he will have better staff around him this time.
It's weird that both candidates are essentially running as figureheads. What we're electing is a partisan team that will implement a set of policies. In that sense, we're behaving more and more like a parliamentary democracy.