Invest in a Patriotic Economy
President Biden’s efforts to modernize the federal government’s role in the national economy are underway. While the Administration has taken a number of important steps, unnecessary additions threaten the entire venture.
As President Joe Biden enters his third year in office, and his first without the benefits of a unified Congress, it’s likely that the bulk of his policies to reshape the American economy have already been passed. So far, these efforts are a mixed bag. Biden’s large-scale economic intervention risks falling into the eternal trap of central planning: in picking the wrong winners, the federal government ensures that Americans lose.
The Chips and Science Act, Infrastructure Investment and Jobs Act (IIJA), and Inflation Reduction Act (IRA) contained almost $2 trillion in spending to drive economic growth. Unfortunately, many key provisions will prove antithetical to the broad-based prosperity the Biden Administration claims as its driving mission. By attempting to prop up a handful of favored industries, the federal government will find itself attempting to swim against the tide of complex global trade networks. This inefficient spending will lead to higher costs for American consumers.
Among the most onerous regulations in the laws are “Buy American” requirements. The IIJA and IRA provide funding for national infrastructure projects. While this is an admirable and necessary goal, these same bills require that these projects use materials produced on American soil. A recent essay from the Peterson Institute for International Economics explained that “only a few firms have the connections, technical skills, and capacity to construct highways, bridges, tunnels, wind farms, solar farms, and broadband networks.” These firms will quickly be overwhelmed, resulting in delays and snowballing expenses.
In industries where the companies to “Buy American” from simply aren’t capable, the Biden Administration’s solution is to simply throw around money at them until they can produce arbitrary quantities of desired products. One of the most targeted sectors is semiconductor manufacturing, where the computer chips used in electronics are created. These chips were the namesake of the CHIPS and Science Act. Despite its cutting-edge nature, this is not the first time a major nation has attempted to jumpstart a homegrown chip industry. In the 1970s, Japan embarked on a protectionist quest to become the world's leading semiconductor manufacturer. While it succeeded in that regard, its misallocation of resources and the trade backlash from other countries hurt other industries and ultimately left Japanese consumers worse off.
President Biden can instead choose patriotic over nationalistic economics. Instead of the nationalist tactic of trying to build up American firms by fighting global trade, Biden and future leaders should opt for patriotism. A patriotic economy is one that supports the American people while respecting our allies in the fight for global freedom.
The communities that have been left behind as prosperous industries cluster in coastal cities deserve to be uplifted. Despite its waste, Biden’s industrial strategy takes important steps to do this responsibly. Among the programs funded by the recent bills are initiatives to create carbon capture ($3.5 billion) and hydrogen energy ($8 billion) hubs. While carbon capture and fuel cells will not single-handedly revitalize distressed regions, investing in technologies that can be situated in a wide variety of areas will prove more successful than reengineering comparative advantage. Instead of trying to claw back manufacturing businesses, the government can take softer actions to allow new industries to take root.
“Buy American” requirements can be retooled into “Buy American Values” requirements. The overarching goals of the legislation can be achieved more effectively by cooperating with like-minded countries. Extending preferential treatment to countries in the Pacific rim and Eurozone would create millions of new business opportunities for Americans while forging closer ties with necessary allies. Reaching out to countries in Southeast Asia particularly would help remedy the fallout from America’s withdrawal from the Trans-Pacific Partnership that left us isolated from this important market.
It’s not too late for the Biden Administration to reject the economic nationalism that has been steadily building a bipartisan consensus. Rather than looking inward towards failure, America must find success in patriotic cooperation.
Alex Moskovitz is a third-year Data Sciences for Political Science major in the School of Public Affairs. He is a Managing Editor for the Agora.
Image courtesy: Wikimedia Commons