Update 673 — Industrial Policy in Action
Administration Building on 2021-22 Bills
Biden’s industrial policy agenda continues to take shape after monumental blocks of policy became law during his first two years in office. Wednesday night, in a speech to House Democrats and staff, President Bide noted Democrats’ industrial policy successes thus far in his term. The President then called on Democrats’ cooperation within the House caucus, moving forward with the policy as members of Congress and the public increasingly see signs of the transformative projects — of infrastructure in action.
Today, we look at Congress’ efforts to boost critical sectors of American industry through measures it adopted last Congress, some significant recent examples of that investment in action, and new requirements for applicants that condition future allocations, with the goal of at least helping to even the playing field with much of the world.
Good weekends, all…
The Biden administration has successfully secured significant investments toward achieving its strategic industrial policy goals. The impact of this investment will last for generations and reverberate far beyond specific sectors of the economy. We have already begun to see the fruits of the billions of dollars allocated by the 117th Congress, but strategic implementation remains key if we hope to maximize the potential benefits of these historic legislative accomplishments.
A Banner Year for Industrial Policy
In the first half of his term, President Biden signed three major bills to boost American industry. His administration has also taken steps to boost domestic supply chains and manufacturing without the help of Congress, through steps like beefing up the Buy America initiative.
- IIJA – The Infrastructure Investment and Jobs Act (IIJA) contained $550 billion in investments in infrastructure and transportation projects which has already funded over 20,000 projects. The bill marked the largest ever federal investment in public transportation, as well as the largest investment in passenger rail since the creation of Amtrak and the largest investment in bridges since the creation of the interstate highway system.
- CHIPs and Science Act – The CHIPs and Science Act aimed to boost US competitiveness in the semiconductor industry. The bill’s $280 billion in investments are largely directed towards R&D and STEM and workforce development programs. There is also roughly $50 billion to boost domestic semiconductor manufacturing. Semiconductor shortages during the pandemic were a key component of the country’s supply chain issues, particularly in the automotive industry. Re-shoring semiconductor manufacturing will both strengthen domestic supply chains and offer national security benefits.
- IRA – The Inflation Reduction Act (IRA) contains nearly $400 billion of investments in clean energy and climate projects. These investments include tax credits for clean energy and manufacturing, individual incentives for consumers to increase their energy efficiency, and funding from the Department of Energy for energy and climate projects. Additionally, the bill’s electric vehicle tax credits have content requirements that encourage EV manufacturers to source their materials either domestically or from free-trade partners.
Together, the massive investments Congress has made in energy efficiency, manufacturing, and infrastructure will have significant positive impacts on domestic supply chains and manufacturing industries. Implementation of all three bills is underway, but it will be some time before the full effect of these investments are felt by most Americans.
Impact Following Investment
We are already seeing the impact of these monumental investments. In addition to the tens of thousands already funded by the IIJA, new projects are being announced regularly. This week, Senator Tester (D-MT) announced that $7.3 million in IIJA funds would go towards the modernization and expansion of Glacier Park International Airport’s terminal building. Last week, Senator Casey (D-PA) and Representative Lee (D-PA) announced $1.4 million in federal funding to study ways to reunite the City of Pittsburgh and Manchester Citizens Corporation which were separated due to the construction of Route 65.
Funding provided by the CHIPS and Science Act is already making an impact. Several companies that produce the world’s most advanced semiconductors have already begun expanding. Taiwan Semiconductor Manufacturing Company (TSMC), the producer of most of the world’s advanced chips, has invested $40 billion in upgrading and expanding a new factory in Arizona. Samsung Electronics is expanding in Texas, Micron Technology has announced plans to expand in Syracuse, and Intel has broken ground on a new site in Ohio.
Notably, the CHIPS and Science Act goes well beyond simply investing in the semiconductor industry. The Act established the Technology, Innovation and Partnerships (TIP) Directorate within the National Science Foundation, which is intended to create breakthrough technologies, meet societal and economic needs, lead to new high-wage jobs, and empower Americans to participate in the U.S. research and innovation enterprise. Additionally, it requires the Office of Science and Technology Policy (OSTP) to conduct a quadrennial “comprehensive review” of S&T.
Additionally, this week the Environmental Protection Agency announced its intention to award $250 million in Climate Pollution Reduction Grants under the IRA for states, territories and cities to slash climate pollution.
Leveraging Investment: CHIPS and Science Act and Beyond
On Tuesday, the Department of Commerce released the application for manufacturers who hope to access funds allocated through the CHIPS and Science Act, and competition for the approximately $40 billion authorized by the bill is heating up. To be eligible for funding, companies must secure some kind of incentive from a state or local government. Critically, the application states that companies that have secured other sources of private capital will receive a “strong preference.”
The Commerce Department is now requiring companies to go beyond simply building new factories, but also invest in child care for its workforce, limit their stock buybacks and share their excess profits with the government.
- Affordable Child Care for Workers – Companies applying for $150 million or more in funding will be required to provide access to affordable high-quality child care for their employees who build and operate new factories. This guideline could boost participation of women in the labor force, which can help address labor shortages within the industry.
- Stock Buybacks Limits – The CHIPS and Science Act prevents companies from using federal funds to finance stock buybacks or pay dividends, but the Commerce Department has further stated that companies refraining from engaging in stock buybacks will receive preference in the selection process.
- Excess Profit Sharing – To guard against companies exaggerating projected losses in an attempt to secure more funds, the Commerce Department is requiring companies to submit detailed financial projections. The government will be entitled to share a portion of companies’ unanticipated or “upside” profits.
Considering the Means, Not Just the Ends
Moving forward, it will be necessary to consider how exactly we achieved the monumental goals outlined. A once-in-a-generation investment requires a proportional consideration of how we implement that investment. The administration and Congress must consider updating current systems:
- Update systems to assess and guide competitiveness
The Commerce Department’s Bureau of Economic Analysis currently publishes trade in value added (TiVA) data. This data tracks the mix of domestic value added and imported content, such as raw materials, that contributes to the goods and services exported from the United States. The BEA can use money already allocated to the agency to create a Global Value Chain (GVC) data unit and better assess the reliability of supply chains.
- Standardize data on jobs and industry
Both the Census Bureau and the Bureau of Labor Statistics currently publish data on jobs and industry which can differ substantially. Congress can act on recommendations by the Treasury Department to remedy this.
The agencies should also consider:
- Strengthening inter-agency coordination
- Shoring up federal staff knowledge, skills, and experience
- Shifting incentives for federal staff away from risk-aversion and towards a renewed willingness to try new approaches
Successful industrial policy must be responsive to the constantly shifting global competitive environment. A strong foundation, coordination, flexibility, and embracing change are necessary to look ahead. The Biden administration’s success so far has the potential to bring about a new stage of American global technological leadership, but the details of the work ahead will truly be deal-breaking.