Biden’s Economic Plan Gets a Lot of
Big Things Right
Big Things Right
It’s not perfect, but the emphasis on R&D, education,
reshoring supply chains and promoting manufacturing is a good start.
reshoring supply chains and promoting manufacturing is a good start.
By Noah Smith
Noah Smith is a Bloomberg Opinion columnist. He was an
assistant professor of finance at Stony Brook University, and he blogs at
Noahpinion.
assistant professor of finance at Stony Brook University, and he blogs at
Noahpinion.
Presidential candidate and former Vice President Joe Biden
has just released a major industrial policy plan for reviving U.S.
manufacturing. The proposal is the first in a four-part series called Build Back Better, which will also
address economic recovery, infrastructure, clean energy, racial equity, and
modernization of health care, child care and elder care.
has just released a major industrial policy plan for reviving U.S.
manufacturing. The proposal is the first in a four-part series called Build Back Better, which will also
address economic recovery, infrastructure, clean energy, racial equity, and
modernization of health care, child care and elder care.
Biden’s plan should immediately make one thing clear: The
era in which free trade was a
centerpiece of the elite economic consensus is well and truly over. Although President
Donald Trump embraced a blunt form of protectionism and thinkers on the right
have been floating ideas about industrial policy, there was always the
possibility that Democrats would hew to a Clintonite free-trade position. But
Biden’s announcement proves that Democrats, too, are squarely in the industrial
policy camp.
era in which free trade was a
centerpiece of the elite economic consensus is well and truly over. Although President
Donald Trump embraced a blunt form of protectionism and thinkers on the right
have been floating ideas about industrial policy, there was always the
possibility that Democrats would hew to a Clintonite free-trade position. But
Biden’s announcement proves that Democrats, too, are squarely in the industrial
policy camp.
But even though Democrats and Republicans now agree that
some sort of industrial policy is
desirable, the harder question is what to do. Trump’s tariffs have resulted in economic losses for the U.S.
and offended key allies, while failing to stem the decline of manufacturing or
the out-migration of high-tech industries.
some sort of industrial policy is
desirable, the harder question is what to do. Trump’s tariffs have resulted in economic losses for the U.S.
and offended key allies, while failing to stem the decline of manufacturing or
the out-migration of high-tech industries.
One good part of the proposal is a large federal investment in research and development. Biden’s plan
would spend $300 billion on R&D, even more than the amount now being
considered in Congress. This not only would revitalize the competitiveness
of U.S. industry, it would help sustain college towns under threat from
cuts in state funding and declining tuition revenue.
would spend $300 billion on R&D, even more than the amount now being
considered in Congress. This not only would revitalize the competitiveness
of U.S. industry, it would help sustain college towns under threat from
cuts in state funding and declining tuition revenue.
A second strength of the plan is education. Biden would invest in community colleges,
apprenticeships and other alternatives to expensive four-year colleges.
Alternative education of this sort has been used to great effect by Germany, and it has helped that
country maintain a solid manufacturing base even in the face of Chinese
competition. In addition to manufacturing competitiveness, this could shrink
the gap between the educational haves and have-nots.
apprenticeships and other alternatives to expensive four-year colleges.
Alternative education of this sort has been used to great effect by Germany, and it has helped that
country maintain a solid manufacturing base even in the face of Chinese
competition. In addition to manufacturing competitiveness, this could shrink
the gap between the educational haves and have-nots.
Another potentially good idea, if well executed, is supply-chain internalization to protect
against pandemics and other disasters. The coronavirus outbreak has left top
economists scratching their heads as to how the world’s greatest economy could
fail to produce items as prosaic as face masks and cotton swabs. The problem is
that during normal times, U.S. companies concentrate on the profitable parts of the supply chain --
design, marketing and the provision of final goods and services --
instead of on the boring, low-margin stuff. That makes economic sense right up
until the point where a crisis strikes.
against pandemics and other disasters. The coronavirus outbreak has left top
economists scratching their heads as to how the world’s greatest economy could
fail to produce items as prosaic as face masks and cotton swabs. The problem is
that during normal times, U.S. companies concentrate on the profitable parts of the supply chain --
design, marketing and the provision of final goods and services --
instead of on the boring, low-margin stuff. That makes economic sense right up
until the point where a crisis strikes.
Biden’s plan would leverage public-private partnerships to
identify the missing pieces of the U.S.’s internal supply chains and fill in
those gaps. He’d use a number of other incentives, including taxes and
subsidies, to encourage companies to retain the ability to make everything the
country would need in an emergency. Though pandemic preparedness is the obvious
goal, there’s also another concern -- the ominous possibility of intensified
tensions or even conflict with China. Biden’s plan would also try to
internalize the supply chains for semiconductors, electronics and other
high-tech equipment that would be crucial in any clash.
identify the missing pieces of the U.S.’s internal supply chains and fill in
those gaps. He’d use a number of other incentives, including taxes and
subsidies, to encourage companies to retain the ability to make everything the
country would need in an emergency. Though pandemic preparedness is the obvious
goal, there’s also another concern -- the ominous possibility of intensified
tensions or even conflict with China. Biden’s plan would also try to
internalize the supply chains for semiconductors, electronics and other
high-tech equipment that would be crucial in any clash.
With regards to the revitalization of U.S. manufacturing,
Biden strikes the right notes -- public-private partnerships and manufacturing
extension services.
Biden strikes the right notes -- public-private partnerships and manufacturing
extension services.
Finally, Biden appears to take the correct approach to China
-- rallying allies against predatory trade practices and intellectual property
theft, while taxing the carbon content of imported goods in order to
encourage China to pollute less.
-- rallying allies against predatory trade practices and intellectual property
theft, while taxing the carbon content of imported goods in order to
encourage China to pollute less.
All this is good. One troubling part of Biden’s plan,
however, is his commitment to have the government buy $400 billion worth of
U.S.-made goods. Domestic procurement orders can have positive effects, such as
when technology companies can use government contracts to gain sufficient scale
and know-how to compete in international markets. But Biden’s plan also
proposes to have the U.S. government buy domestically made concrete, building
materials and other products.
however, is his commitment to have the government buy $400 billion worth of
U.S.-made goods. Domestic procurement orders can have positive effects, such as
when technology companies can use government contracts to gain sufficient scale
and know-how to compete in international markets. But Biden’s plan also
proposes to have the U.S. government buy domestically made concrete, building
materials and other products.
This is problematic, because there’s no need for the U.S. to
specialize in mundane products like this; concrete, unlike cotton swabs, is not
a strategic industry that the U.S. will suddenly find itself unable to produce
in the event of a pandemic or war. “Buy American” provisions also have the
potential to raise costs for U.S. government contractors, just as Trump’s steel
and aluminum tariffs raised costs for U.S. automakers. That would make U.S.
companies less competitive, not more. It might also annoy U.S. allies by
restricting imports from Canada, Europe, South Korea and so on, in addition to
China. It could increase the price tag for needed government projects such as
green energy and infrastructure. And it could become a vehicle for political
patronage and pork.
specialize in mundane products like this; concrete, unlike cotton swabs, is not
a strategic industry that the U.S. will suddenly find itself unable to produce
in the event of a pandemic or war. “Buy American” provisions also have the
potential to raise costs for U.S. government contractors, just as Trump’s steel
and aluminum tariffs raised costs for U.S. automakers. That would make U.S.
companies less competitive, not more. It might also annoy U.S. allies by
restricting imports from Canada, Europe, South Korea and so on, in addition to
China. It could increase the price tag for needed government projects such as
green energy and infrastructure. And it could become a vehicle for political
patronage and pork.
Finally, there’s one big additional strategy Biden should
add to his plan: export promotion. Competing on world markets often forces
companies to raise productivity, but some businesses need a push to leave the
comfort and familiarity of the domestic market. Successful developing countries
often use a technique known as export
discipline: Incentivizing companies to sell abroad, helping them to get
started, then culling those that fail in international markets. For the U.S.,
this could involve implicit export
subsidies -- trade credit, overseas marketing assistance, free consulting,
R&D support and so on. It could involve destination-based corporate taxes
that encourage domestic content. It could even involve explicit monetary
subsidies for exporting, though this would require rewriting of World Trade
Organization rules. But the assistance would have to be temporary, to avoid
creating a conduit for political patronage.
add to his plan: export promotion. Competing on world markets often forces
companies to raise productivity, but some businesses need a push to leave the
comfort and familiarity of the domestic market. Successful developing countries
often use a technique known as export
discipline: Incentivizing companies to sell abroad, helping them to get
started, then culling those that fail in international markets. For the U.S.,
this could involve implicit export
subsidies -- trade credit, overseas marketing assistance, free consulting,
R&D support and so on. It could involve destination-based corporate taxes
that encourage domestic content. It could even involve explicit monetary
subsidies for exporting, though this would require rewriting of World Trade
Organization rules. But the assistance would have to be temporary, to avoid
creating a conduit for political patronage.
So Biden’s plan needs a little bit of work. But overall,
it’s a solid start toward the kind of industrial policy that the U.S. needs
after a long period of laissez-faire.
it’s a solid start toward the kind of industrial policy that the U.S. needs
after a long period of laissez-faire.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net
To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net
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