The Once-Taboo U.S. 'Industrial Policy'... Biden Brings It Up [Global Focus]

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "At one time in Washington D.C., USA, the term ‘industrial policy’ was taboo as it could be seen like a European socialist. Now, this term is resonating among the White House, Congress, think tanks, and lobbyists." (The Economist, UK weekly magazine)

Since the Biden administration took office, the U.S. government's industrial policy stance has shifted from private companies to a state-centered approach. This is exemplified by the full-scale launch of the ‘Made in America’ policy through successive domestic industry support bills such as this year’s CHIPS Act and the Inflation Reduction Act (IRA). As state-led industrial policies emerge one after another in major countries, the Biden administration is expected to strongly push this stance for the time being, based on the logic of responding to the threat of China’s economic growth.

◇From Semiconductors to Electric Vehicles... Biden Administration ‘Accelerates’

Since taking office, the Biden administration has accelerated securing industrial support measures using government finances. In November last year, it prepared a massive infrastructure bill worth $1.2 trillion (about 1714 trillion KRW) to improve the poor infrastructure in the U.S., securing budgets for building electric vehicle charging stations and developing clean energy technologies. In July, the CHIPS and Science Act (CSA), aimed at securing semiconductor manufacturing facilities in the U.S. to dominate semiconductor supremacy, passed through the U.S. Congress. It provides $52 billion solely for establishing semiconductor manufacturing facilities, which has become the foundation for attracting investments from major countries such as South Korea and Taiwan. A month later, in August, the Biden administration prepared the Inflation Reduction Act, planning to invest $370 billion solely in green energy transition.

The Economist stated, "Adding all these up, the annual funds投入 into industrial policy over the next five years will be around $100 billion," citing the Center for Strategic and International Studies (CSIS), which analyzed that the scale would be about twice the existing expenditures that could be categorized as industrial policy. The Biden administration also recently launched the ‘National Biotechnology and Biomanufacturing Initiative’ by investing $2 billion to support the U.S. bioindustry. Ahead of the midterm elections this November, President Biden is continuously promoting these industrial policies and legislative achievements. He is actively trying to raise his low approval ratings by saying everywhere, "American manufacturing is back. Detroit is back, America is back."

◇U.S. State-led Industrial Policy ‘Unprecedented’... Aimed at Checking China

Regarding the Biden administration’s moves, evaluations such as "There is little similar history of government intervention" and "It is unusual that the government is focusing more than the private sector" have emerged. Since the 1980s, with the rise of globalization and through the Cold War era, the U.S. has advocated free-market principles and tabooed government market intervention. The U.S. political media Politico reported, "Industrial policy lost much popularity for decades after the Ronald Reagan administration. To hardline conservatives, it felt like the Soviet economy."

However, the situation has changed. The reason industrial policy, which was not welcomed in the U.S., is now gaining attention is precisely because of China and supply chain restructuring. China has rapidly grown in key technology sectors under government support, competing with the U.S., and the COVID-19 pandemic exposed the economic fragility due to supply chain crises. The necessity for the U.S. to hold the lead in major technology markets has increased.

Looking at the support bills the U.S. has introduced, most industrial sectors targeted are those where the U.S. aims to dominate and check China, including semiconductors, electric vehicles, and bioindustries. President Biden emphasized these bills as matters of ‘national security,’ and even the ‘opposition’ Republican Party voted in favor of the semiconductor support bill.

[Image source=Reuters Yonhap News]

Although the Trump administration had already introduced measures to check China, it is analyzed that these policies continue because President Biden appointed figures with a willingness for market intervention to economic agencies. A senior Biden administration official told Politico, "Part of our effort is to create room for the idea that the government has an appropriate role in industrial development."

◇Effectiveness ‘Questionable’... "Must Be Done at the Right Time"

However, some voices criticize that it is uncertain whether such state-led industrial policies can succeed in strengthening U.S. manufacturing. There are also doubts about whether funds can be efficiently allocated focusing on the growth of American companies. During the Obama administration, the government provided a $535 million loan guarantee to solar panel company Solyndra, which went bankrupt within two years. Then-President Obama even called the company ‘America’s future,’ but it went bankrupt due to competition from China’s low-priced panels.

Currently, the only field where the U.S. has implemented state-led industrial policy is the defense industry, and there are criticisms that outside of defense, there are no facilities to manage or execute fund disbursement according to support laws. After the passage of the CHIPS Act and the Inflation Reduction Act, the Biden administration announced it would create a separate response team to oversee these and assign experienced personnel from previous administrations to discuss efficient support.

Robert Atkinson, president of the Information Technology and Innovation Foundation (ITIF), who has supported industrial policy through several government roles since the Clinton administration, said, "Industrial policy is not ineffective," but added, "It must be done at the right time. Once significant capability is lost and a competitor gains it, there is little you can do." Todd Tucker, an industrial policy expert at the Roosevelt Institute, said, "Commerce Department officials say U.S.-owned companies want to receive funds. But the ship has already left the dock, and many foreign companies are now leading."