Biden's 'Economic Plan' Is Industrial Policy That Will Be Terrible for Workers and Consumers
The Democratic president is supercharging former president Trump's failed approach to domestic manufacturing.
A sitting U.S. president called it the "eighth wonder of the world." It was a massive factory, to be sited in Mount Pleasant, Wisconsin, that would make high-end LCD panels. The price tag would come to about $10 billion; local taxpayers would kick in about $4 billion in subsidies over a decade. In return, Wisconsinites were promised 13,000 good-paying jobs and a boost to the state's economy of about $3.4 billion annually.
In a groundbreaking speech at the new factory, the president singled out a union member he said the new plant would help. He said the facility would be built with American concrete and steel. And it heralded a return to manufacturing in the United States. "We're also reclaiming our country's proud manufacturing legacy," the president said, insisting on the importance of protecting domestic steel mills. "We need that for purposes of defense. We need that for purposes of legacy. We're restoring America's industrial might."
Yet three years after the speech, the facility still wasn't completed. The company, Chinese manufacturing giant Foxconn, admitted it would never create 13,000 jobs; the total would be closer to 1,450. State officials recovered billions in subsidies and put the company on what amounted to a performance plan, where it would receive far less government backing, and only on proof of results.
The village of Mount Pleasant, however, would not make a full recovery. To make way for the facility, developers had bulldozed dozens of homes, some of which were taken via eminent domain. At the end of 2022, having spent some hundreds of millions on land and infrastructure for the never-built factory, the municipality was left with debts larger than the entirety of its operating budget, a representative for a community watchdog told Wisconsin Public Radio. The eighth wonder of the world turned out to be little more than dashed dreams, demolished homes, and empty public coffers.
The president who delivered the Foxconn groundbreaking speech was Donald Trump.
Yet in theme and tone it might as well have been delivered by President Joe Biden, who has spent the last year traveling to manufacturing sites and touting his administration's commitment to promoting and subsidizing a resurgence in American factory jobs.
In speeches and tweets, Biden has credited the construction of new manufacturing facilities to what he calls "my economic plan." But what Biden calls his economic plan bears more than a little similarity to Trump's vision of restoring American might through government largesse targeted at private industry.
It's industrial policy on a massive scale, and it amounts to a plan to deploy Foxconn-style manufacturing subsidies nationally in an expensive bid to protect American industry and national security.
Biden's projects may not fail quite as spectacularly as Foxconn's, but history suggests the results probably won't be much better. Indeed, there are already signs that his economic plan is running into trouble.
Biden's industrial policy is, not surprisingly, far more expansive than Trump's. And unlike the Foxconn facility, which was subsidized by the state of Wisconsin, it has been bolstered by major legislation from Congress. Biden's industrial policy rests primarily on three pieces of legislation: the bipartisan infrastructure law signed in 2021, and the Inflation Reduction Act and the CHIPS Act signed last year. Together, this trio of bills provided hundreds of billions in subsidies, tax breaks, and inducements for domestic manufacturing, with a particular emphasis on semiconductor production and clean energy and transportation.
But these subsidies are already being used as vehicles to pursue unrelated goals: The Commerce Department, for example, recently announced that companies receiving subsidies from the CHIPS Act would have to provide child care for their workers.
In addition, the rules say beneficiaries should try to use union labor and pay union wages to construction workers. Biden, of course, is a self-described "union man," but these provisions will inevitably drive up costs and make it more difficult to find suitable workers, since, as Cato Institute scholar Scott Lincicome has noted, only about 12 percent of U.S. construction workers are unionized.
Similarly, Biden's infrastructure plans have been stymied by a requirement to "buy American," since many of the products needed to build domestic infrastructure are no longer made in the United States.
Domestic production requirements have proven more than a headache for builders. When a Michigan baby formula plant stopped production last year following a bacterial infection, Americans struggled to find a replacement because federal rules make it nearly impossible to import baby formula from Europe. At best, "buy American" requirements raise costs. At worst, they put American lives at risk by making vital goods more difficult to procure in emergencies.
This is always the story with industrial policy, whether the mechanism is subsidies or protectionist regulation. No law exemplifies the failures of industrial policy more than the Jones Act, a century-old law that regulates U.S. shipping. When it was passed in 1920, it provided subsidies to build up the American shipping industry. Today, the law includes various wage and labor requirements. And it prevents foreign ships from traveling between domestic ports and some noncontiguous parts of the U.S., such as Puerto Rico. The original text of the statute explained that it was "necessary for the national defense and for the proper growth of [America's] foreign and domestic commerce."
In normal times, its primary effect is to raise prices for American consumers by making it more expensive to ship goods. In emergencies, it has put lives at risk: Last summer, after Hurricane Fiona devastated Puerto Rico, Jones Act rules made it nearly impossible for the island's residents to acquire potentially life-saving goods like fuel for generators. Under pressure, the Biden administration eventually provided a "temporary and targeted" waiver for the rule—a grudging, narrow acknowledgment of the widespread harms it causes.
The reality is that Biden's economic plan amounts to a vast expansion of Jones Act-style industrial policy and protectionism—a vast system of subsidies and regulations to narrowly bolster domestic industry at the expense of American taxpayers and consumers.
Biden might retort that his focus is on promoting the interests of U.S. workers. But all Americans would be served far better by policies that seek to eliminate existing protectionist policies, building resilience and adaptability rather than the economic rigidity that Biden-style industrial planning inevitably entails.
As a bevy of experts from the Cato Institute point out in the recent book Empowering the New American Worker, policy makers should pursue policies that make employment more flexible—like remote work and gig employment, rather than make it more rigidly defined. And they should recognize that factory jobs are not the best or only path for non-college graduates: Retail managers increasingly command six-figure salaries. Occupational licensing laws that require dozens or hundreds of hours of training before certification to work in a profession have mostly served as barriers to entry for aspiring professionals. Eliminating state licensing boards and licensing types can go a long way to making the work force more accessible. Ending the Jones Act, meanwhile, would not only lower prices for American households: It would also mean the end of regulation-driven shipping emergencies like the one in Puerto Rico.
But Biden has chosen expensive subsidies and rigid regulations over flexibility and empowerment. And even those with long experience in American manufacturing are skeptical that Biden's semiconductor manufacturing plans will work as promised. On a Brookings Institution podcast last year, Morris Chang, the retired founder of the Taiwan Semiconductor Manufacturing Company (TSMC), which through a subsidiary has operated a manufacturing plant in Oregon since the 1990s, warned that America's efforts to subsidize domestic production would be an "expensive exercise in futility." TSMC is in the midst of building a new chip factory in Arizona, and the project has already hit a number of snags, including labor shortages and higher-than-expected costs.
Notably, the project began in 2020, under President Trump—once again demonstrating the unfortunate bipartisan continuity of the approach.
Biden has not engaged in quite the level of hyperbole that Trump did when he said the never-built Foxconn facility would be a new wonder of the world. But he has supercharged industrial policy with vast sums of federal funding. And when he signed the CHIPS Act last year, he sounded many of the same notes that both Trump and the authors of the Jones Act did a century ago, saying that the semiconductor subsidy bill was "in our economic interest and national security interest." But there is little reason to believe Biden's industrial policy plans will be either.