It’s an embrace of industrial policy that hasn’t been seen in Washington in decades. Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics who has inquiry into US industrial policysaid the bill was the most significant investment in industrial policy the United States has made in at least 50 years.
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American politicians of both parties have long hailed the economic power of free markets and free trade while pointing out the dangers and inefficiencies of government interference. Republicans and some Democrats have argued that the government is a poor arbiter of winners and losers in business and that its interference in the private market is at best unnecessary and often destructive.
But China’s growing dominance of key global supply chains, such as those for rare earth metals, solar panels and some pharmaceuticals, has generated new support among Republicans and Democrats for the government to back the strategic industries. South Korea, Japan, the European Union and other governments have outlined aggressive plans to woo semiconductor factories. And the production of many advanced semiconductors in Taiwan, which is increasingly at risk of invasion, has become an untenable security threat for many.
Semiconductors are needed to power other key technologies, including quantum computing, the Internet of Things, artificial intelligence, and fighter jets, as well as mundane things like cars, computers, and coffee makers. .
“The question really has to shift from why are we pursuing an industrial strategy to how are we pursuing one,” Brian Deese, director of the National Economic Council, said in an interview. “It will allow us to really shape the rules of where the most cutting-edge innovation happens.”
Disruptions to supply chains of essential goods during the pandemic have added to the sense of urgency to stop American manufacturing from flowing overseas. That includes semiconductors, where the United States’ share of global manufacturing fell to 12% in 2020 from 37% in 1990, according to the Semiconductor Industry Association. China’s share of manufacturing rose from almost nothing to 15% over the same period.