Since the end of World War II, America has been a proponent of free trade and free markets. However, recent developments suggest a shift towards a more interventionist approach with the adoption of an industrial policy. Made in Group, representing over 500 members in manufacturing and engineering, argues that for the U.S. to maintain its global standing, it needs effective government support against competitors employing industrial policies and mercantile strategies.
While free traders resist industrial policies, arguing they lead to favoritism, the reality is that many trading partners, including the top 25, have embraced such strategies, including tariffs, value-added taxes (VATs), and currency manipulation. China’s trade surplus of $311 billion in 2021 with the U.S. underscores the impact of such practices.
The U.S. response to unfair trade practices began with President Trump’s implementation of section 301 tariffs on Chinese goods in 2018, marking the start of a new era in industrial policy. The Biden Administration has continued this trend, incorporating tax rebates, subsidies, and tariffs to stimulate private investment by American companies.
Biden’s industrial policy focuses on key legislative acts:
Inflation Reduction Act: This legislation addresses healthcare, prescription drug affordability, climate change, and imposes a 15% minimum tax on corporations.
Chips and Science Act: A $53 billion investment in U.S. semiconductor manufacturing, research, and development, supported by tax credits for capital investments in semiconductor manufacturing.
Infrastructure Investment and Jobs Act (IIJA): Allocating $1.2 trillion for infrastructure repair and upgrade initiatives, creating jobs and addressing climate change.
The Coalition for a Prosperous America estimates that reducing the tax burden for U.S. manufacturers across sectors could increase real household income, create 11 million jobs, grow the economy, boost manufacturing output, and increase exports.
Despite the potential benefits, concerns linger about the financial impact and lack of measurable objectives in these massive government programs. The Congressional Budget Office estimates a budget deficit of nearly $260 billion over the next decade due to the IIJA, while other estimates suggest higher figures.
After decades of pursuing free trade, the changing economic landscape has prompted a reevaluation of its merits. Both the Trump and Biden administrations have taken steps to introduce reciprocity into trade relationships, using tax rebates, tariffs, and subsidies to counteract the unfair strategies employed by competitors for the past 50 years. This shift represents a departure from the traditional free trade stance, acknowledging the need for a more assertive approach to safeguard America’s economic interests.