Since Joe Biden took office as president, his administration has not shied away from pursuing aggressive industrial policy in areas deemed essential or strategic. Fundamentally, the government believes that an aggressive subsidy strategy will stimulate favored industries. Specifically, the administration wants electric vehicles and semiconductors to become widespread, providing Americans with clean energy-powered vehicles and an abundance of secure domestic computing power. Through CHIPS and legislation such as the Science Act and the Inflation Control Act, the administration began to put its vision into practice.
However, after just a few years, the machine’s engine began to fail.
There are inherent risks associated with all types of market investing, even in seemingly “bad” markets.
A closer look at the IRA’s electric vehicle provisions shows that this subsidy-heavy approach imposes significant burdens on taxpayers without achieving the promised benefits. last year, EV ownership Nearly 1.2 million new cars are now on the road. As a result, EVs will account for 8.1% of the total car market by the end of the year. These are records in both sales volume and market share, which would normally be cause for optimism.
Nevertheless, Year-on-year growth rate The numbers suggest EV sales growth may be slower than expected. EV sales rose 40% in the fourth quarter of 2023, marking the slowest growth rate in recent years. This was a 9% growth decline compared to the third quarter of 2023 and a 12% growth decline compared to the fourth quarter of 2022.
Demand for EVs may be cooling, but paradoxically, IRA costs are ballooning. In a recent analysis, Taxpayer Protection Alliance It highlighted that the cost of the EV tax credit was more than $224 billion higher than originally expected due to an unexpected increase in EV and EV battery manufacturing.
Under normal circumstances, a simultaneous increase in supply and a decrease in demand usually means a benefit to consumers. In such cases, suppliers must bear the costs of overinvestment and price reductions to regain demand. Oversupply is caused by government subsidies, so taxpayers ultimately foot the bill.
A similar situation is occurring in the semiconductor industry.Despite the passage of the CHIPS Act in response to the semiconductor shortage caused by the pandemic, he said the semiconductor industry Sales decrease Additionally, U.S. chipmaker Intel and Taiwan Semiconductor Manufacturing Company recently announced that production is delayed Establishment of new chip manufacturing plant.
Industrial policy efforts in emerging industries such as electric vehicles and semiconductors typically face challenges such as: race against time. As the term suggests, emerging markets are markets where conditions are rapidly changing. As a result, industrial policy initiatives are likely to be inefficient, wasteful, or redundant from the moment they are introduced. For example, a semiconductor factory can take up to three years to build. However, during his three years there, the semiconductor market went from a global shortage to oversupply, creating challenges in demand.
Furthermore, industrial policy risks politicization. Politicians can use public funds as leverage to advance their political agendas. For example, shortly after passing the CHIPS Act, the Biden administration created provisions in the CHIPS Act Fund that force potential grantees to cover employee funds. child support If they wanted money. Even if industrial policy aims to target narrowly defined problems, there is a risk that it will be packaged with additional regulations, thereby slowing the implementation process and reducing its effectiveness.
There are inherent risks associated with all types of market investing, even in seemingly “bad” markets. For example, over the past decade, consumers have watched companies like Google and Microsoft enter markets like augmented reality and live streaming. Despite strong capital and technology, both companies have struggled to get their efforts off the ground.
Industrial policy is not isolated from these risks. For privately held companies, the investment costs of underperformance are borne by the shareholders who voluntarily buy the business. In the case of public industrial subsidies, it is taxpayers who pay the cost.
with national debt As we approach $35 trillion, policymakers should ask whether it is worth imposing new potential tax obligations on American taxpayers, and this is the question they should ask in every situation. Even the most novice investor understands that it is better to pay off debt before taking on further risks in the form of new investments. If the Biden administration follows this advice and shuts down the Industrial Policy Authority, it would be good for American taxpayers.
