Since President Biden took office, a growing list of multinational corporations have pledged tens of billions of dollars to build manufacturing facilities in the United States. In the semiconductor sector, TSMC, Intel, Texas Instruments, and Micron collectively committed over $152 billion to bring critical chipmaking capabilities stateside. Electric vehicle battery manufacturers including LG Energy and Hyundai allocated $53 billion to build American plants. And while the manufacturing resurgence (such as it is) has been concentrated in high-tech sectors, there are notable exceptions including a $2.7 billion steel mill under construction in West Virginia.
To bring factories back, Washington had to counteract the trade deals that drove them away in the first place. In short, that required subsidies—lots of them. Last summer, Congress passed two of the largest corporate subsidy packages in American history. The $280 billion CHIPS and Science Act lured chipmakers to manufacture stateside with $52 billion in direct subsidies and $24 billion in tax credits. One week later, Biden signed the Inflation Reduction Act (IRA) into law, setting aside over $270 billion in corporate incentives for activities such as EV production and energy storage.
The new industrial strategy is commendable—if only on the surface. Since Bill Clinton ushered in NAFTA in the early 1990s, Americans have been fed the false promise of globalization. The resultant policies enriched the financial sector while decimating the industrial base and squeezing the middle class. Washington has now decided to roll back globalization, but it isn’t for the benefit of the middle class. Instead, the same financialized system that offshored the industrial base nearly three decades ago wants to onshore part of it today—not out of concern for broader national welfare, but to keep China from rewriting the rules of global trade.
For obvious reasons, the political establishment doesn’t want to frame it this way. The Biden administration claims to be rebuilding the American economy from “the middle out,” creating high-wage manufacturing jobs that don’t require a college degree. “Wall Street didn’t build this country,” Biden said in a December speech at TSMC’s $12 billion Arizona factory, “the middle class built the country, and unions built the middle class.”
Conveniently, Biden glosses over explanations of why middle-class jobs disappeared in the first place. He tells the story as: America had good manufacturing jobs, “then something happened,” then jobs went overseas, so now we need to retrieve them.
That “something” that happened, of course, was the wave of free trade deals forged by a bipartisan Washington consensus at the behest of Wall Street. The spree began with NAFTA and snowballed in 2001 with China’s entry into the World Trade Organization (Biden supported both deals and pushed for more). By 2004, the number of American manufacturing jobs had plummeted 44% below its 1979 peak. Working conditions deteriorated in the jobs that remained, since management could always offshore production if American workers pushed their luck. The trade agreements hit the industrial Midwest particularly hard, stripping communities of economic opportunity and clearing the way for the ongoing opioid crisis.
Until recently, this arrangement worked to the mutual benefit of China and Wall Street. Chinese exports grew nearly ninefold in the two decades after it joined the WTO. More importantly, China moved up the value chain, shifting exports to more advanced manufacturing and services. Median incomes for Chinese citizens increased several times over, and the CCP succeeded in eradicating extreme poverty thanks to an $800 billion national development program. Meanwhile, U.S. corporations such as Apple, Tesla, and Nike benefited immensely from China both as a manufacturing base and a growing consumer market. Financial moguls such as Blackstone’s Stephen Schwarzman and Bridgewater’s Ray Dalio made big bets on China and became informal intermediaries between Beijing and Washington. By 2021, China became the top destination for foreign direct investment, seizing a title the U.S. held for decades prior.
While the American financial sector remains deeply invested in China, it has been spooked by China’s emboldened defiance of the Western financial order. Having consolidated power in recent months, President Xi Jinping enacted crackdowns on tech billionaires, political rivals, and financiers. The swift CCP takedown of Alibaba founder Jack Ma likely looms large in the minds of American elites, as it demonstrated a dramatic inversion of their long-presumed power dynamic between governments and titans of industry. China also tipped the regulatory scales further in favor of state-owned enterprises, making it more difficult for Western corporations to compete. In January, Xi warned swift action would be taken against “any infiltration of capital into politics that undermines the political ecosystem.”
These proceedings forced American elites to confront an uncomfortable truth: China will always be valuable to them, but they might not always be valuable to China. In other words, history has not ended; China will not dutifully enter the Western fold, sending its profits to the coffers in New York. A 2022 survey of U.S. businesses operating in China found record low optimism in their five-year business outlooks for China, with 69% citing heightened government policy support for Chinese competitors, often in the form of financing or access to contracts, as a key contributor. Foreign direct investment in China, meanwhile, plummeted to an 18-year low in the second half of 2022. Of even greater concern for Wall Street, Xi explicitly stated his desire to break the international order that underpins U.S. corporate profits. At last year’s National Congress, he called on China to play “an active part in the reform and development of the global governance system,” so that it can oppose “protectionism, the erection of ‘fences and barriers,’ decoupling, disruption of industrial and supply chains, unilateral sanctions, and maximum-pressure tactics.” China has already seen success in this effort, as developing nations are increasingly choosing to buy debt from China instead of the IMF.
Wall Street still wants globalization, but on its own terms. A stronger, more independent China threatens the U.S.’s ability to determine the conditions of global trade. Hence, the new industrial policy aims to give the U.S. just enough of an industrial base to contain China without destroying itself. In a potential conflict with China, the U.S. cannot rely on Taiwan to produce 70% of the chips used in advanced U.S. weapons systems, nor can it quickly find a new source for its many crucial imports from Beijing—more than 70% of active ingredients used in the American pharmaceuticals market, for instance, come from China.
Fundamentally, the CHIPS Act and IRA are military programs, not job programs. Before it became clear the CHIPS and Science Act would pass, the Pentagon sent Deputy Defense Secretary Kathleen Hicks and National Intelligence Director Avril Haines to Congress to explain behind closed doors why the bill needed to pass. The swing vote in the IRA, Sen. Joe Manchin, said the bill set out to “bring our energy and manufacturing supply chains onshore to protect our national security, reduce our dependence on foreign adversaries, and create jobs right here in the United States.” If the “create jobs” part feels incidental, that’s because it is.
None of this necessarily precludes the new industrial policy from rebuilding the middle class. The wrong motives can still produce the right outcome. But the advanced manufacturing subsidized in Biden’s industrial policy doesn’t require all that much low-skill labor. In speeches, Biden said the CHIPS Act would produce 1 million construction jobs. It wasn’t until The Washington Post challenged this assertion that the White House admitted its mistake. The correct estimate, even when calculated by industry-backed research groups, was closer to 6,200 jobs—not exactly great bang for your 50 billion bucks. Workers without high school degrees can expect to earn around $48,000 from semiconductor manufacturers—only $8,000 above the median across all industries, and certainly not enough to afford the lifestyle of postwar factory workers. Ironically, the bill has probably been most effective as a jobs program for D.C. lobbyists, who received a tidy $100 million sum that will undoubtedly do wonders for Georgetown’s cupcake economy.
Putting job considerations aside, there’s also the question of how well this plan will even work on its own terms. Chipmakers Intel, IBM, Qualcomm, Texas Instruments, and Broadcom collectively spent 71% of their profits between 2011 and 2020 on stock buybacks totalling $249 billion. The companies made these buybacks in lieu of capital investments. Even after Senate Majority Leader Chuck Schumer and Sen. Bernie Sanders co-authored a New York Times op-ed calling for buyback reform, Schumer rallied Democrats around a massive subsidy package that does little to curtail the practice. ExxonMobil, one of the primary companies tasked with ushering in our subsidy-fueled “green revolution,” recently announced a $50 billion buyback program that will run through 2024. To be clear, the problem isn’t subsidies—it’s subsidies flowing through extractive corporate vessels right back into capital markets, further driving inequality without creating the middle-class opportunities promised.
A broader protectionist industrial policy might raise labor demand such that wages meaningfully increase. The CHIPS Act and IRA have at least shown that, if Washington has the appetite for it, the U.S. can bring factories back. Offshoring production is a policy choice, not a natural consequence of economic development. Still, within our existing financialized economy, the middle class cannot bounce back in earnest. A true fix seems to require magical thinking: Congress would need to address stock buybacks, soaring health care costs, the housing crisis, and higher education affordability. To borrow from Mark Fisher: It is easier to imagine the end of the United States than the end of financial capitalism.
Without reforming this system, the U.S. risks losing its technology edge to China. As of 2019, the U.S. led the world in gross R&D expenditures, with nearly 30% of total spending. But China has quickly caught up, rising from 4.9% of global R&D spend in 2000 to 23.9% in 2019. If the U.S. allows the logic of financial capitalism to continue steering its economy, it will become less and less efficient at directing money toward R&D. So far the government has been able to compensate by simply increasing the money supply flowing through corporations, hoping a rising tide will lift all R&D boats. The technique works in the narrow sense of funding innovation, but it also produces market distortions that threaten the entire system—look no further than the collapse of Silicon Valley Bank to see how that plays out.
The U.S. dollar’s status as global reserve currency enables this bad habit, but contradictions within the American system threaten it too. For decades, the U.S. tried to sell the world on free trade and globalization. It largely succeeded. But to fend off China, the U.S. had to start flouting its own rules—free trade for thee, protectionism for we. This hypocrisy has strained relations with key American allies. Germany and France, for instance, were understandably upset that the U.S. excluded European-made vehicles from a $7,500-per–electric-vehicle tax credit program. The WTO, long a steward of American hegemony, recently accused the U.S. of violating trade rules by maintaining steel and aluminum tariffs on national security grounds. The gravitational pull of U.S. diplomacy has weakened, borne out in EU bureaucrat grumblings and our strained campaign to isolate Russia.
Even facing China’s rise and the mounting incoherence of our international order, Wall Street can’t help but sabotage its own rescue, auctioning off government-supplied life rafts to the highest bidder. When a system is devoid of any real values beyond self-interest, it reforms itself only to survive another day, even if that endangers its ability to survive another decade. As the situation further deteriorates, the U.S. might address some of its more fundamental problems. But meaningful change—the kind that allows a society to flourish—demands the rediscovery of real values. Until that happens, economics can only offer incremental remedies to our fundamental problems.
Hirsh Chitkara is a writer living in New York.