The Biden Manufacturing Boom That Isn’t

U.S. industry output has been flat for two years, despite huge subsidies

WSJ editorial. 

"Kamala Harris is vying for votes in the Midwest by touting the Administration’s efforts to boost U.S. manufacturing. In the recent debate, she boasted about “building a clean energy economy” and “investing in American-made products.” So what’s the Administration’s actual record?

Start with the top line, which is that U.S. manufacturing output hasn’t fully recovered from its pandemic plunge and is lower than in 2013. Most manufacturing growth under Mr. Biden occurred during his first year in office amid the post-Covid rebound. Businesses scaled up production owing to an increased demand for goods that was super-charged by the pandemic largesse.

It’s true that spending on construction of new factories has more than doubled during the Biden years, no doubt partly owing to a gusher of subsidies. The Inflation Reduction Act includes rich tax credits for green manufacturing and renewable electricity projects built with U.S.-made materials.

Yet there are already signs that this government-driven investment is a mistake. Auto makers are scaling back electric-vehicle production, which may lead to under-utilized factories. Some green startups are struggling to stay in business, such as Lordstown and Fisker.

The Institute for Supply Management’s purchasing managers index shows the manufacturing industry as a whole has been in almost continuous contraction since autumn 2022, right after Mr. Biden signed the IRA and Chips Act.

Meanwhile, investment in new industrial equipment has been notably weaker under Mr. Biden than Donald Trump. This suggests fewer manufacturers are refurbishing existing plants and investing in technology that will make them more globally competitive.

What about jobs? Ms. Harris said in her debate with Mr. Trump that the U.S. has “created over 800,000 new manufacturing jobs while I have been vice president.” But almost all were bounce-back from the pandemic. As the nearby chart shows, manufacturing job growth has since been flat for two years. 

Manufacturing employment has grown in businesses boosted by subsidies, such as semiconductors (17,800) and batteries (8,800). But jobs have declined in others smacked hard by regulation and inflation, such as oil and gas machinery (-10,400), foundries (-7,200) and fabricated metals (-6,800).

Jobs and hours worked have declined since October 2022 when the Biden subsidy gusher began. Real average weekly wages for manufacturing workers are 2.7% lower than in January 2021.

In a fact sheet on Monday aimed at voters in Michigan, Ms. Harris and the White House boasted about $28 billion in private investment in “clean energy and manufacturing” in the state during the Biden years. Yet overall Michigan has lost 11,300 net manufacturing jobs in the last year and 7,200 since the IRA passed.

The problem for U.S. companies is that Mr. Biden’s anti-business policies offset the impact of subsidies. Inflation caused by all that government spending has raised business costs, and soaring electricity prices have been especially damaging. In March, Metal Technologies Inc. announced it is closing its Northern Foundry in Minnesota, citing the state’s rising electricity prices. Blame in part Minnesota Gov. Tim Walz’s renewable-energy mandate, which has forced the retirement of a major coal plant that provided cheap power.

The Environmental Protection Agency imposed rules requiring steel mills and iron foundries to limit carbon emissions. EPA’s regulations “stand to paralyze an industry” and “impose billions of dollars in mandates” on U.S. manufacturers, warned Democratic Sens. Bob Casey, John Fetterman, Amy Klobuchar, Sherrod Brown and independent Joe Manchin. U.S. Steel warns it will close its Mon Valley plant because of refurbishment costs if the government blocks its acquisition by Nippon Steel. 

The Biden EPA has also imposed stringent emissions limits on paper, cement, glass, steel, iron, and chemicals manufacturers in the name of reducing smog in downstream states despite little connection between the two. States and manufacturing groups challenged the rule, which the Supreme Court stayed in June.

But the business uncertainty caused by myriad rules has chilled investment. Electric transformer manufacturers last year warned that proposed efficiency standards for their industry made it difficult to scale up production. This in turn stalled other business investments, including housing projects and data centers.

***

The U.S. economy is dominated by services these days, so making a political fetish of manufacturing is misguided. But to the extent policy makers want to encourage more investment and hiring in manufacturing, the answer is to reduce costs to make U.S. firms more competitive. Low energy prices, low taxes and fewer regulatory costs are better than government-directed investment in industries that might not have a market.

Biden-Harris policy has been to raise costs for all businesses and then slather on subsidies for those they like. It isn’t paying off for most U.S. companies or workers."