Phil Ebersole's Blog

The misnamed Inflation Reduction Act (IRA) and the Chips and Science Act were President Joe Biden’s $400 billion plan to make American manufacturing great again.  Recently the Financial Times of London published an article about difficulties in launching the plan.

Difficulties are to be expected in any new project.  It took decades of bad economic policy to hollow out American manufacturing capability and to de-skill the American work force.  It may take decades to bring it back.  It won’t be easy. 

But how is the plan coming so far?  Here are some highlights of the FT article.

The Inflation Reduction Act and the Chips and Science Act together offer more than $400 billion in tax credits, grants, and loans to revitalize the country’s industrial heartlands and rival Beijing on the technologies required to reduce the emissions behind climate change and electrify the world’s largest economy.

 

The two laws have catalyzed manufacturing investment, spurring a fierce contest between states to attract corporations eager to build factories and take advantage of the often uncapped federal support. U.S. Census data shows that spending on construction for manufacturing sits at record highs, and the FT estimates that large-scale manufacturing commitments surpassed $225bn in the first year. 

 

But as the two-year anniversary arrives for the legislation, many of these factories face roadblocks linked to deteriorating market conditions, overproduction in China, and a lack of policy certainty in a high stakes election year.  [snip]

 

A Financial Times investigation revealed that 40 per cent of manufacturing investments of at least $100 million announced in the first year following the passage of the two laws face delays or have been paused indefinitely. Out of 114 large projects tracked by the FT worth a combined $227.9 billion, some $84 billion are delayed.

 

The setbacks raise questions about whether the American manufacturing renaissance set out by Biden can be delivered as promised. They also underscore how difficult it will be, both practically and politically, to reconfigure America’s economy to compete in the industries set to dominate the 21st century. … …

 

The question now is whether these delays are simply a hiccup to be expected in such a broad recalibration of industrial policy, or evidence that the process will take longer than anticipated to come to fruition, putting its overall success at risk through multiple economic and political cycles. … …

 

When he came to power Biden vowed to revitalize the sector and compete with China on advanced technologies. “Where is it written that America can’t lead the world once again in manufacturing? I don’t know where that’s written, and we’re proving it can,” he said in December 2022.

 

The Biden administration describes its model for the industrial transformation of the US as “government enabled, private sector-led.” 

 

While IRA and Chips Act incentives work to direct investment into specific sectors, companies often cannot access funding until they achieve certain milestones for production. Many have to secure their own financing through traditional capital markets and deal with structural hurdles like slow permitting and a tight labor market. … …

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