{"id":1100,"date":"2021-12-15T17:20:46","date_gmt":"2021-12-16T01:20:46","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=1100"},"modified":"2021-12-15T17:20:46","modified_gmt":"2021-12-16T01:20:46","slug":"industrial-policy-must-protect-american-manufacturers","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/general\/industrial-policy-must-protect-american-manufacturers\/","title":{"rendered":"Industrial Policy Must Protect American Manufacturers"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">On November 29, 2021, the Peterson Institute for International Economics released a 110-page brief, titled \u201c<a href=\"https:\/\/www.piie.com\/sites\/default\/files\/documents\/piieb21-5.pdf\">Scoring 50 Years of&nbsp; US Industrial Policy,&nbsp; 1970\u20132020<\/a>,\u201d which reviews \u201clessons learned from half a century of US industrial policy\u201d with regard to what worked and what didn\u2019t.&nbsp; &nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The introduction references Alexander Hamilton\u2019s plan of 1791 to grow domestic manufacturing to \u201ccompete with Britain as a producer of manufactured goods for American consumers.\u201d&nbsp; After the War of 1812, Hamilton\u2019s plan became known as the \u201cAmerican System\u201d of Henry Clay, which \u201cconsisted of high tariff walls, a central bank and, above all, government investment in \u2018public improvements\u2019 like rails, canals, and roads to help industry get goods to customers\u2014the very essence of an industrial policy that some analysts say was crucial to US economic development after the Civil War.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These \u201cAmerica first\u201d policies remained in effect until after WWII, when we began to enter into trade agreements with many other countries that reduced tariffs and granted non-tariff trade benefits to our trading partners. The briefing states \u201cthe debate over the role of the federal government, and especially over tariffs and government spending, has gone back and forth. But by 2020, the US ideological pendulum appears to have swung back in favor of industrial policy for domestic manufacturing.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Chapter One defines \u201cindustrial policy as government intervention against market forces to promote a favored firm or industry,\u201d and the\u201d Tools of industrial policy include easy credit, direct and indirect subsidies, preferential taxes, and tariff and nontariff barriers.\u201d Additionally, \u201cthe common objective of US industrial policy is to promote \u2018good jobs at good wages\u2019 in the United States.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The authors believe that \u201can examination of yesteryear cases may, at a minimum, inject a note of caution, and perhaps yield lessons to improve the design of future episodes.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In describing their methodology, they said, \u201cwe assess individual cases from the perspective of proponents who typically count jobs created or saved, ignoring general equilibrium analysis or the value of human capital gained or lost.\u201d They \u201cselected high-profile federal cases plus a very few (out of hundreds) state cases. We divide the episodes into three broad categories reflecting the principal intervention tools\u2026\u201d<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201ccases where trade measures closed the US market or opened foreign markets (chapter 2);<\/li><li>cases where federal or state subsidies were targeted to specific firms to promote their success (chapter 3); and<\/li><li>cases where public R&amp;D funds were spent to advance a promising technology (chapter 4).\u201d<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">For their analysis, they said, \u201cwe examine three features of each episode of industrial policy and for each feature assign a letter grade: A, B, C, or D. Numerical equivalents of these grades, used for the summaries in chapter 5, are A+ = 4.5; A = 4; B = 3; C = 2; D = 1. Our assessments were based on answers to the following questions, which reflect contemporary objectives\u201d:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>\u201cDid the industry become competitive in international (or in some cases national) markets? \u2013 \u201can analogous test is whether the industry became competitive in the national market without further public support.<\/li><li>Were jobs saved in the industry at a reasonable cost to taxpayers or purchasers? \u2013 \u201cWe do not distinguish between the creation of new jobs or the saving of existing jobs in calculating \u2018reasonable cost,\u2019\u201d<\/li><li>Was the technological frontier advanced through government assistance? \u2013 \u201cour assessments are qualitative judgments, not quantitative measures,,,We do not attempt to put a dollar value on technology generated by government programs.\u201d<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">However, they do note that \u201cour job counts refer only to jobs saved or created in the targeted firm or industry, not jobs lost or gained elsewhere in the economy, and we do not distinguish between skill levels.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The authors comment that \u201cIn the United States, government-driven industrial policy claims a relatively small share of federal and state budgets\u2026All told, the total annual cost of federal industrial policies might reach $100 billion, accounting for 2.4 percent of the annual federal budget. With Biden\u2019s initiatives, this prospective total easily exceeds annual federal industrial policy expenditures during the period covered by this report, 1970 to 2020.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Chapter 2 considers \u201cIndustrial Policy Through Trade Measures\u201d stating that \u201cThe use of trade measures\u2014usually protection against imports, but occasionally assistance for exports\u2014is a classic form of industrial policy.\u201d This chapter examines \u201cfive high-profile episodes to illustrate the use of trade measures to carry out industrial policy. The episodes concern steel, textiles and apparel, automobiles, semiconductors, and solar panels.\u201d&nbsp; They graded each of these industries according to the above criteria.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I do not have space to provide the data and analyses behind the grades for each of the five selected industries, but am summarizing the grades for each industry:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>U.S. Steel industry<\/strong> &#8211; rated a \u201cD\u201d for all three of the above criteria.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Textiles and Apparel<\/strong> &#8211; rated a \u201cD\u201d for the first two criteria and a \u201cC\u201d for the third.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Automobiles <\/strong>\u2013 the ratings were mixed:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Did trade measures advance the international competitiveness of the US semiconductor industry?<\/li><li>Rated a \u201cB\u201d<\/li><li>Did trade measures save jobs at a reasonable cost?<\/li><li>Rated a \u201cC\u201d<\/li><li>Did trade measures advance the technological frontier of semiconductor production?<\/li><li>Rated an \u201cA\u201d<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Semiconductors<\/strong> &#8211; split ratings for each of the criteria as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Did trade measures advance the international competitiveness of the US semiconductor industry?<ul><li>Failed outcome for the antidumping phase = D;<\/li><\/ul><ul><li>intermediate outcome for the market opening phase = B<\/li><\/ul><\/li><li>Did trade measures save jobs at a reasonable cost?<ul><li>Failed outcome for the antidumping phase = D;<\/li><\/ul><ul><li>successful outcome for the market opening phase = A<\/li><\/ul><\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li>Did trade measures advance the technological frontier of semiconductor production? Intermediate outcome for the antidumping phase = C;<ul><li>successful outcome for the market opening phase = A<\/li><\/ul><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Solar Panel<\/strong>s &#8211; fared better in the ratings:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Did tax credits advance the international competitiveness of the solar panel manufacturing industry?<ul><li>&nbsp;Failed outcome = D<\/li><\/ul><\/li><li>Did tax credits create jobs at a reasonable cost?<ul><li>&nbsp;Successful outcome = A<\/li><\/ul><\/li><li>Did tax credits (together with the earlier NSF research program) advance the technological frontier of solar panel production?<ul><li>Successful outcome = A<\/li><\/ul><\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">As a result, the conclusion was \u201cAnalysis of impacts in four US industries\u2014steel, textiles and apparel, semiconductors, and solar panels\u2014shows that trade protection has not been a winning formula for industrial policy, judged by the twin tests of establishing an internationally competitive industry and saving jobs at a reasonable cost to household and business consumers. The main reason, of course, is that sunset industries have been more successful in obtaining trade protection; sunrise industries rarely appeal for new tariffs or quotas. To be sure, trade protection may mitigate the pain of job displacement, but when trade protection endures for a decade or longer, new workers will replace those who retire or quit, thereby prolonging the adjustment process.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There conclusions may be right for the data they analyzed to answer the questions posed, but I disagree with the questions establishing the criteria for the ratings. In my opinion, the following are the questions that should be asked in establishing industrial policies:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Are these products part of the military and defense supply chain?<\/li><li>Are these products important to maintaining the health and welfare of Americans?<\/li><li>Are these products competing with imports from China or another country within China\u2019s sphere of influence?<\/li><li>Would it endanger the ability of American manufacturers to produce their products if imports of components and assemblies from China were cut off?<\/li><li>Would it harm America\u2019s ability to be self-sufficient in producing critical products domestically?<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If the answer to any of these questions is \u201cyes,\u201d then whatever policies are needed to protect these domestic industries must be implemented.&nbsp; We cannot defend our country if the products needed by the military and defense industry become unavailable. I don\u2019t just mean the steel needed to produce products for the military. Semiconductors are needed for both military and commercial systems and equipment, as well as textiles and apparel. The COVID pandemic proved that we cannot rely on imports of pharmaceuticals and PPE equipment and supplies to protect the health and welfare of Americans, both military and civilian. The automobile industry doesn\u2019t just make cars for civilian use; they make trucks, tanks, and other military vehicles.&nbsp; Solar panels are used by military bases and government agencies.&nbsp; We need an integrated domestic supply chain if we want to remain a free country.&nbsp; It\u2019s time for all Americans to wake up America to the dangers of being dependent on other countries for manufacturers goods, especially one that has become our enemy \u2013 China.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On November 29, 2021, the Peterson Institute for International Economics released a 110-page brief, titled \u201cScoring 50 Years of&nbsp; US Industrial Policy,&nbsp; 1970\u20132020,\u201d which reviews \u201clessons learned from half a century of US industrial policy\u201d with regard to what worked and what didn\u2019t.&nbsp; &nbsp; The introduction references Alexander Hamilton\u2019s plan of 1791 to grow domestic [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1100","post","type-post","status-publish","format-standard","hentry","category-general"],"_links":{"self":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1100","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/comments?post=1100"}],"version-history":[{"count":1,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1100\/revisions"}],"predecessor-version":[{"id":1101,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/posts\/1100\/revisions\/1101"}],"wp:attachment":[{"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/media?parent=1100"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/categories?post=1100"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/savingusmanufacturing.com\/blog\/wp-json\/wp\/v2\/tags?post=1100"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}