How Our Industrial Policy Is Leaving Us Behind
“It’s nonsense that there’s a beautiful free market in the power industry,” Energy Secretary Rick Perry said last week as he pushed for a government bailout of coal-fired power plants.
Republicans who for years have voted against subsidies for solar and wind power – arguing that the “free market” should decide our energy future – are now eager to have government subsidize coal.
Trump’s Environmental Protection Agency is also scrapping rules for disposing coal ash, giving coal producers another big helping hand. As if this weren’t enough, a former coal lobbyist has just become Number Two at the EPA. If Scott Pruitt leaves (a growing possibility), the coal lobbyist will be in charge.
Meanwhile, Trump is imposing a 30 percent tariff on solar panels from China, thereby boosting their cost to American homeowners and utilities. The Trumpsters say this is because China is subsidizing solar.
To Trump and his administration, boosting coal is fine. Helping solar is an unwarranted interference in the free market.
Until about a decade ago, the United States was the world leader in solar energy. Federal tax credits along with state renewable electricity standards helped fuel the boom.
Then China decided to boost its own solar industry. State-controlled banks lent Chinese solar companies tens of billions of dollars at low interest rates.
Chinese firms now produce three-quarters of the world’s solar panels.
China’s success in solar has inspired China’s new high-tech industrial policy – a $300 billion plan to boost China’s position in other cutting-edge industries, called “Made in China 2025.”
Besides subsidizing these industries, China is also telling foreign (usually American) companies seeking to sell in China that they must make their gadgets in China. As a practical matter this often means American firms must disclose and share their technology with Chinese firms.
“We have a tremendous intellectual property theft situation going on,” said Trump, just before upping the ante and threatening China with $100 billion of tariffs.
China’s theft of intellectual property is troublesome, but the larger issue of China’s industrial policy is not. The United States has an industrial policy, too. We just don’t do it well – and Trump is intent on doing it far worse.
The United States government used to incubate new technologies through the Defense Department, allocating billions of dollars to R&D that spilled over into commercial uses.
Out of this came the Internet, new materials technologies, and solar cells that helped propel the United States into space – and, not incidentally, seeded the commercial solar industry.
America’s high-tech companies have continued to depend on government indirectly – feeding off breakthroughs from America’s research universities, along with the engineers and scientists those universities train (think of Stanford and Silicon Valley). Much of this research and training is financed by the U.S. government.
Trump’s original budget would have slashed funding of the National Science Foundation and related research by nearly 30 percent. Fortunately, Congress didn’t go along.
Meanwhile, federal, state, and local governments in the United States spend over $2 trillion a year on goods and services, making them together the biggest purchasers in the world. Due to “buy American” laws, about 60 percent of the content they purchase must be made in America.
As Steven Greenhouse points out in April’s American Prospect, a few state and local governments are taking a page out of China’s book – luring foreign firms to the United States to make high-tech products that are good for the environment and good for American workers.
As one example, Los Angeles has contracted with BYD, a Chinese company that’s the world’s leading producer of zero-emissions electric buses, to make its buses in California.
BYD’s huge factory north of Los Angeles has already created six hundred well-paid unionized jobs and two hundred white collar jobs.
America has always had an industrial policy. The real question is whether it’s forward-looking (the Internet, solar, zero-emissions buses) or backwards (coal).
Trump wants a backwards industrial policy. That’s not surprising, given that everything else he and his administration are doing is designed to take us backwards.