Biden's tarnished industrial legacy

He began our Great Rebuilding, but his approach had fundamental flaws.

I spent much of the last four years cheerleading for President Biden’s industrial policies. I still don’t think that was a mistake. The CHIPS Act, the Inflation Reduction Act, and other Biden initiatives engineered the first boom in U.S. factory construction in my entire lifetime. And almost all of that investment was private investment — all it took was a few relatively small subsidies and some government guidance to prod companies to pour tens of billions of dollars into building chip factories, battery factories, etc.

TSMC Arizona, which was sort of the flagship test project for Biden’s policies, is now churning out advanced chips and achieving excellent yields. American battery manufacturing is soaring. Solar, too — under Biden, the U.S. has become third in the world in solar panel manufacturing, up from 14th place in 2017. These are all real, impressive accomplishments. We should not forget them — instead, we should continue, expand, and constantly improve the policies that made these things possible.

Biden began the Great Rebuilding of America, and he deserves to be remembered and praised for that.

But at the same time, Biden’s approach to industrial policy suffered from some deep, fundamental flaws that the administration stubbornly refused to acknowledge or correct. Roughly, Biden’s two big industrial failures were:

1. Prioritizing the power of special-interest groups over the good of the public

2. Refusing to address regulatory barriers that inhibit government action

These failures weren’t simple omissions or flubs — they were fundamental to the progressive economic ideology of groups and individuals that were highly influential within the Biden administration. These allies, which included the Roosevelt Institute, Elizabeth Warren, and a variety of other groups, served as key sources of ideas and personnel. They fundamentally failed to grasp several key facts about America’s current political and economic reality:

• They failed to realize that building power within the Democratic party is not the same as building enduring power in America.

• They failed to understand the degree to which the U.S. regulatory environment hobbles the government.

• They failed to understand the economic implications of the transition from a deflationary environment to an inflationary one.

It will be up to the Trump administration, and to Republicans in general, to correct these flaws while preserving the successful parts. If they do this, it will be great, but it means that the fate of America’s reindustrialization is now in the hands of people who were largely skeptical of industrial policy in the first place. If you’re a Democrat or a progressive, that’s not the best outcome.

Too much “power”, not enough progress

No decision embodies the shortcomings of the Biden administration more clearly than the President’s blockage of Nippon Steel’s bid to acquire U.S. Steel. Before the election, this could be seen as a strategic move — an attempt to avoid a small but strategically placed working-class constituency in Pennsylvania. But doing this after the election has absolutely no political purpose — it’s a purely ideological move.

Diplomatically and geopolitically, blocking the acquisition was a huge mistake — a blatant, aggressive poke in the eye to America’s closest and most important ally in the most important region of the world. Biden’s executive order cites “credible evidence” that Nippon Steel “might take action that threatens to impair the national security of the United States”, without citing that evidence or specifying what those actions might be.

This is ridiculous. At a time when Chinese manufacturing is ascendant and the U.S. and Japan need to be cooperating closely on their joint reindustrialization, Biden’s decision treats an ally like a foreign enemy. This led most of Biden’s senior advisors to oppose his blockage of the deal:

Over the last several months, more than a half-dozen senior administration officials — including Sullivan deputy Jonathan Finer, Secretary of State Antony Blinken, his deputy Kurt Campbell, U.S. Ambassador to Japan Rahm Emanuel, Treasury Secretary Janet L. Yellen, Chair of the White House Council of Economic Advisers Jared Bernstein and top Commerce officials — argued against or expressed reservations about the position Biden ultimately took, said officials familiar with the deliberations.

Several aides stressed that Japan is the United States’ most crucial ally in East Asia and one of its most dependable, as the two nations have significantly strengthened a military alliance in the last few years. Sinking the deal could strain that relationship, they said. Japan, they noted, also tops the list of foreign country investment in the United States.

But in pure economic terms, the move is just as foolish. U.S. Steel is a dying corporation that has failed to invest in new capacity or modernize its technology for many decades now. Nippon Steel, a much healthier giant, promised to invest more, preserve union contracts, offer workers $5000 bonuses, issue various investment and employment guarantees, modernize American steel plants, and so on.

Because of this, many union steelworkers supported the deal. Here’s a story from Clairton, PA:

Hundreds of steelworkers stand in the 26-degree chill outside the local U.S. Steel plant at a pep rally of sorts, broadcasting their defiance and their desperation to the leaders that they believe have abandoned them…On this mid-December afternoon, the crowd claps and cheers as more than a dozen speakers demand that the government approve Nippon Steel’s proposed $14.9 billion purchase of U.S. Steel…The targets of their appeal include the White House, Congress — and their own union leadership…

“This incredible deal will solidify our jobs for decades to come,” Jason Zugai, a local United Steelworkers union leader, tells the crowd…[S]teelworkers from U.S. Steel facilities in Alabama, Indiana and Minnesota joined the Clairton rally by video link.