WASHINGTON, Aug. 15 (Xinhua) -- Why is the U.S. government's "flagship industrial policy" facing difficulties?
Xinhua News Agency reporter Xiong Maoling Xu Chao
The United Kingdom Financial Times recently reported that about 40% of major manufacturing investment projects announced in the first year of implementation of the United States "Chips and Science Act" and the "Inflation Reduction Act" have been postponed or suspended.
Despite protectionist accusations, the United States pushed for the above two bills to enter into force in 2022, trying to promote the return of industries to the United States through massive subsidies. In the past two years, what difficulties has the United States government's proud flagship industrial policy encountered? Why are these so-called industrial policies, which are born of political manipulation, so difficult? What are the negative consequences of these controversial policy practices?
This is the United States Capitol photographed in Washington, the capital of United States, on April 23. Photo by Xinhua News Agency reporter Liu Jie
What are the difficulties encountered by the policy?
In August 2022, the United States CHIPS and Science Act and the Inflation Reduction Act were signed into law by President Biden. The former aims to promote chip manufacturing "backflow" to the United States through huge industrial subsidies and hegemonic clauses that curb competition; In the name of fighting inflation, the latter plans to promote the production and application of electric vehicles and other green technologies in the United States with substantial incentives, including high subsidies.
According to incomplete statistics, the two bills are expected to provide more than $400 billion in subsidies for various industries. At that time, many United States media reported that these policies would help improve the competitiveness of United States' manufacturing industry and accelerate the digitalization and decarbonization of the United States economy.
However, in terms of progress, many high-profile projects announced at that time have now come to a standstill. According to a survey by the Financial Times, the total value of projects worth more than 100 million US dollars announced in the first year of the two bills is about 227.9 billion US dollars, of which 84 billion US dollars are postponed or suspended indefinitely, accounting for about 40%.
For example, large projects on hold include Italy's $1 billion solar panel plant in Oklahoma, LG Energy Solution's $2.3 billion battery storage facility in Arizona, and United States' Albemarle's $1.3 billion lithium refinery in South Carolina.
There are also some projects that have not yet been announced. Semiconductor maker Pardis Dous Inc. planned to move its headquarters from New York to South Carolina last year and invest more than $400 million to open a production line, which was originally planned to be operational in the third quarter of 2023, but the factory is still idle.
Why is it difficult to move forward with policies?
United States government officials have claimed that the two major bills have made the development of United States manufacturing a comprehensive success, but after many projects were revealed to be in trouble, whether the United States' promotion of manufacturing reshoring can really bring economic returns has been increasingly questioned. Multiple reasons, such as changes in market conditions and policy uncertainty, have cast a shadow on many investment plans.
The first is the imperfect supply chain. Gary · Hufbauer, a senior fellow at the Peterson Institute for International Economics, told Xinhua that some of the delays in some projects of the Inflation Reduction Act are related to the shortage of qualified workers in the fields of materials and professional construction. In Arizona, multiple projects worth hundreds of millions of dollars have been delayed for two years. "Costs are higher than expected for everyone due to labor and supply chain reasons." Casagrand, Arizona, Mayor Craig · McFarlane said.
Second, the market demand did not meet expectations. Affected by the slowdown in demand for electric vehicles in the United States market, Korea auto parts maker Misu has delayed the opening of its electric vehicle production line in Alabama by one to two years.
Third, policy variables have increased. Slow funding of the CHIPS and Science Act and unclear Inflation Reduction Act rules have brought several projects to a standstill.
Another important factor is corporate concerns about election variables in the United States. Republican presidential candidate Donald Trump has said on the campaign trail that if elected president, he will "terminate" the Democratic-driven Inflation Reduction Act.
What are the negative effects of the policy?
Many observers believe that the United States has triggered a new round of industrial protectionist competition at the expense of the industrial interests of its European and Asian allies, causing serious disruption to the global supply chain.
In Europe, for example, many companies are already facing high energy costs and operating difficulties due to the escalation of the crisis in Ukraine. Lured by the high subsidies of the Inflation Reduction Act, these companies have moved their production sectors to United States, further weakening the "vital force" of the European economy and exacerbating the risk of "deindustrialization" in Europe.
Vehicles drive past the European Commission building in Brussels, Belgium, June 3 (file photo). Photo by Xinhua News Agency reporter Zhao Dingzhe
In early 2023, the European Commission released the "Green Deal Industry Plan" to support the development of Europe's clean energy technology industry and alleviate the pressure of industrial relocation. However, the lack of a uniform, transparent and efficient approval process among member states has greatly increased the difficulty for European companies to obtain funding. The EU has always been at a disadvantage in the subsidy competition with United States, which has dragged down its economic growth prospects to a certain extent.
According to data released by Eurostat at the end of July, the gross domestic product (GDP) of the euro area increased by 0.3% in the second quarter of this year, and the "locomotive of the European economy" Germany's economy shrank quarter-on-quarter, and the future direction of the euro area economy is still uncertain.
In Asia, two United States bills have attracted some companies to invest in the United States, forcing countries such as Japan to formulate green industrial policies to provide financial support for decarbonization. In a commentary, Korea's Hankyoreh Daily accused United States of becoming a "free trade destroyer" and that "it is fully willing to abandon international trade principles" when they no longer serve its national interests.
For United States itself, these protectionist policies not only exacerbate inflation concerns, but it is also unclear whether industrial reshoring can truly translate into economic benefits and competitive advantages.
When the Inflation Reduction Act was introduced, more than 200 economists signed a letter to the United States Congress arguing that the huge spending plan would create inflationary pressures. Senate Republican leader Mitch McConnell has said the bill means higher taxes and more expensive energy bills. Hufbauer believes that although it is called the Inflation Reduction Act, the bill releases huge spending, and the actual result is to push up inflation in the United States.
Samuel · Hardwick, a researcher at the Crawford School of Public Policy at the National University of Australia, believes that rejecting better foreign counterparts because of "United States First" is not conducive to strengthening United States' national security and addressing climate change in the long run. If more countries compete for subsidies, the cost of achieving these goals will become more expensive for the United States.