Get behind the wheel of a Detroit-made electric vehicle and drive south. The outline of a city that was once synonymous with industrial decline fades in the rearview mirror. Head to Ohio, where the battery under your feet was made. The semiconductors that regulate its charging speed were also made there, in a vast new factory that counts the Pentagon among its major customers. Recharge yourself with electricity beamed from one of West Virginia’s new nuclear power plants, then begin the long journey into the heartlands. After the endless wind farms of Kansas, you drive through the vast sun fields of Oklahoma, then back to the gulf coast. The journey ends by the water, bright sun shining on a brand new green hydrogen plant.
This is America in 2033, if the Biden administration gets its way. Over the past two years, Congress has passed three bills on infrastructure, semiconductor chips and greenery that will provide $2 trillion to reshape the economy. The idea is that, with government action, America can reindustrialize itself, strengthen national security, revive vacant places, cheer up blue-collar workers, and dramatically reduce its carbon emissions all at the same time. It is the most ambitious country and dirigiste industrial policy for many decades. In a series of articles starting this week, The Economist will evaluate President Joe Biden’s gigantic bet on the transformation of America.
Mr. Biden is making an epochal political bet. He is acting on so many fronts because he had no choice. The only way to build a majority in Congress was to tie the Democratic desire to act on climate change to hawkish concerns about the threat from China and the need to attend to lagging seats in the US heartland. By themselves, each of these concerns is valid. But in terms of politics, the need to unite them together has led America into a second better world. Goals will sometimes conflict, protectionism will infuriate allies, and subsidies will create inefficiencies.
To grasp the scale of what is happening, follow the money. The Infrastructure Act provides $1.2 trillion over ten years for roads, bridges and cables for a new green grid. The CHIPS Act, which promotes semiconductor manufacturing in America, is expected to cost $280 billion. Inflation Reduction Act Holds $400 Billion in Green Tech Subsidies Over Ten Years; some analysts suggest the real figure will be $800 billion. Money is only part of the picture. With it comes a plethora of rules, from requirements that batteries must be manufactured in North America, to restrictions on imports and exports of technology for national security reasons.
A gigantic plan that has so many disparate goals doesn’t simply succeed or fail. Its full consequences may not become clear for many years. However, you don’t have to be Ayn Rand to wonder if the government is capable of handling a series of such ambitious projects. For example, because American environmentalism has put conservation first, it takes more than a decade to get the necessary permits to connect a renewable project in Wyoming to the California grid. Similarly, if industries are encouraged to focus on lobbying rather than innovation and competition, costs will rise.
And some of the goals are contradictory. Applying for jobs in America would be good for some workers, no doubt. But if green products like wind turbines get more expensive, the green transition will get more expensive too. And if other Western countries lose vital industries to America as they chase subsidies or sidestep import restrictions, then the alliances that underpin America’s security will suffer.
In fact, the entire enterprise may be difficult to pull off for lack of affordable workers. The plan would never create many solid jobs for the working class: In today’s manufacturing, robots run the assembly lines. But America may also be struggling to find enough short-term construction workers needed to build green infrastructure. Unemployment is at 3.5%, a 50-year low. More immigration could help fill vacancies, but it is limited. Policies intended to help women reenter the job market, such as early education, were left out of Biden’s plans. Green subsidies therefore risk being diverted into higher wages.
The administration has an answer for its critics. He says that if America can develop new technologies, build supply chains less dependent on China, and reduce the cost of clean energy sources, everyone will be better off. And America has significant advantages: a rich domestic market, vast landscapes for solar and wind farms, pipelines to transport hydrogen, and reservoirs in which to store carbon. Its universities and venture capital make it a hub for green innovation. The country is already sucking up foreign investment to go hand in hand with subsidies. And politics enjoys a certain political consensus. Although the Republicans are less inclined towards the green pieces, they are even more aggressive towards China and even more protectionist.
To help the plan realize its good intentions, three things must happen. First, the effort to strengthen domestic industry must be accompanied by a sustained trade diplomacy programme. One way to build a bloc in favor of a cheaper green transition would be to give foreign-made goods access to American subsidies (as long as they are not Chinese, Iranian or Russian). Second, subsidies should target technologies that are not yet commercially viable, such as new types of nuclear reactors and carbon capture and storage. Public money spent on reshoring solar panel production that could be produced cheaper elsewhere will go to waste. Third, to build new subsidized infrastructure, America needs a reform of its permit laws, perhaps with federal law replacing state and local concerns.
Half full
For better or for worse, Biden’s plan to remake the economy will profoundly change America. He may be able to help deal with an authoritarian China, preventing voters at home from embracing a more radical and destructive politics and defying the gloomier predictions about the effects of climate change. But make no mistake, it’s bold to believe that the way to tackle three problems that are too difficult to tackle separately is to tackle them all together. ■
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