Commentary on Political Economy

Friday 21 April 2023


Making Manufacturing Greater Again

In a black and white photo, Joe Biden, at the center of the picture, in a black mask, looks into a roofless car being assembled in a factory and gestures to a man in the foreground in a mask and glasses.
President Biden at an electric vehicle assembly plant in Detroit.Credit...Doug Mills/The New York Times
In a black and white photo, Joe Biden, at the center of the picture, in a black mask, looks into a roofless car being assembled in a factory and gestures to a man in the foreground in a mask and glasses.

Opinion Columnist

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It can be hard to remember, but initially MAGA seemed to be about more than election lies and cultural/racial grievance. One central theme of Donald Trump’s 2016 campaign was a promise to bring manufacturing jobs back to the United States. And once in office he tried to make good on this promise by slapping tariffs on many imports and engineering tax cuts that were supposed to induce corporations to invest in America rather than overseas.

Unfortunately, his policies were a flop: The promised manufacturing revival never happened.

Remarkably, however, President Biden appears to be presiding over the kind of manufacturing surge Trump had promised. If you follow such things, it seems as if hardly a week goes by without the announcement of plans to build a major new factory in response to Biden-era legislation.

This impression turns out to be true. The advocacy group Climate Power has tracked plans to build scores of clean-energy factories, producing batteries, electric vehicles and more since the passage of the Inflation Reduction Act (which, despite its name, is largely a climate law). There have also been many factory announcements tied to the CHIPS and Science Act, intended to promote domestic semiconductor production.

And all of this isn’t just talk. While many of the announced projects will presumably take time to get fully underway, spending on manufacturing construction has already soared; it’s currently running about 75 percent higher than at any point during the Trump years, and it seems set to go much higher. Goldman Sachs predicts that the Inflation Reduction Act will involve substantially higher government outlays than was initially projected but will also induce trillions of dollars in private investment.

Before I get into the reasons Biden’s manufacturing push is succeeding where Trump’s failed, a few caveats:

First, no policy can restore the economy of the 1950s, when 30 percent of U.S. workers were employed in manufacturing. All advanced nations, even those like Germany that run persistent trade surpluses, are increasingly becoming service economies with a declining share of manufacturing in employment.

Second, we shouldn’t fetishize manufacturing. A good job is a good job; there’s nothing inherently superior about manufacturing as opposed to health care or even entertainment (a major U.S. export).

Third, some of the current manufacturing surge reflects Buy American rules that are problematic in a couple of ways: They raise costs and create trade frictions with our allies.

The defense of Biden policy goes something like this: The CHIPS Act promotes domestic manufacturing because it’s about national security in a time of growing tension with China. The Inflation Reduction Act is de facto protectionist in part because that was the only way to get crucial climate legislation passed, but it also promotes domestic manufacturing to help lagging regions within the United States and blue-collar workers.

We can argue about these pros and cons, but my question right now is about results: Why is Biden’s manufacturing push succeeding where Trump’s failed?

Trump’s tariffs seem to have failed to boost manufacturing in part out of sheer incompetence: By raising the cost of steel and other industrial inputs, they made U.S. industry as a whole less competitive, and overall probably reduced manufacturing employment.

As for Trump’s tax cut, it was basically trickle-down economics: Increase corporations’ after-tax profits and hope they create more jobs. This failed (as trickle-down consistently does) because the underlying premise was wrong: Taxes on corporate profits weren’t a significant factor deterring investment in the United States, so the tax cut didn’t boost U.S. manufacturing. All it did was give corporations a financial windfall.

Biden’s policies, by contrast, might be described as trickle-up economics. Instead of offering corporations broad tax cuts, they provide incentives for the transition to an economy that runs on renewable energy: tax credits for production of or investment in clean energy, for consumers who purchase electric vehicles or energy-efficient appliances, and so on. Combined with Buy American provisions, these incentives will create increased demand for a wide range of U.S.-produced manufactured goods, from batteries to electric motors.

And business is responding to that prospective increase in demand by investing a lot more in American manufacturing than it has for a long time.

Can this policy be criticized? Of course. Biden may be trying to kill too many birds with one stone — using targeted tax credits to save the planet and create good blue-collar jobs and lift up lagging regions. Trying to do all these things at once may lead to doing none of them especially well.

And it’s not at all clear whether these policies will succeed in their implicit political goal: winning back working-class voters who have gone down the MAGA rabbit hole.

Still, the fact is that Biden is actually doing something Trump boasted about but never achieved: promoting a significant revival in U.S. manufacturing.

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