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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is an FT contributing editor and executive director of American Compass
US policymakers are embracing industrial policy to boost domestic manufacturing and invest in the nation’s productive capacity. With initiatives like the Infrastructure Investment and Jobs Act, the Chips and Science Act, and clean energy programs in the Inflation Reduction Act, the US has seen a surge in public spending and subsidies, resulting in a significant increase in spending on US manufacturing construction. However, it is premature to celebrate a “manufacturing renaissance.” While a policy revolution has taken place and the private sector has responded positively to industrial policy, the Biden administration’s framework falls short.
One major issue is the IRA, which primarily focuses on climate legislation. While reducing fossil fuel use is important, it contradicts efforts to strengthen US manufacturing. The idea of rebuilding industry through a green transition does not make sense. Manufacturing requires a significant amount of energy, and access to cheap and abundant fossil fuels is a key advantage for the US. By transitioning to lower-productivity solar and battery technologies and relying on foreign supply chains, the US is abandoning its energy advantage and hindering its major industrial activities.
The issue becomes evident in the United Auto Workers strike against Detroit’s Big Three carmakers, where the shift to electric vehicles raises concerns. Pushing the automotive industry towards more expensive and less productive vehicles, along with dependence on China-dominated supply chains, has real costs for US capital and labor.
While the push to reclaim the cutting edge in semiconductors is valuable, it has limitations. The US needs a long-term commitment to driving both public and private capital into the manufacturing sector, rather than just funding a finite set of projects. Achieving sustainable progress should be measured by improved labor productivity and a favorable balance of trade in advanced technology products.
Currently, absolute productivity in the manufacturing sector has declined, and the US requires more workers to achieve the same output as a decade ago. Additionally, the US should aim to have a global competitive edge in advanced technology products and reverse the current trade deficit. The current framework of the IRA will not lead to a genuine manufacturing renaissance.
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