First 100: How Biden Must End Corporate-Run Industrial Policy

Plus, another body blow for the Fight for $15.

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It’s February 12, 2021 (my birthday, in point of fact) and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.

The Chief

It took a few weeks, but Joe Biden finally got on the phone with his Chinese counterpart Xi Jinping. The call took two hours, and Biden reportedly challenged Xi on China’s human rights record, its military aggression, and its “coercive and unfair economic practices,” while holding out hope that the two countries could work together on fighting the pandemic and climate change.

Biden is trying to build an international coalition to deal with China, while keeping Trump-era tariffs in place until an internal review is conducted. He warned loudly of China “eating our lunch” on infrastructure, another big priority. Biden has also launched a Pentagon task force on China, and the Indo-Pacific division of the National Security Council is the biggest, and stocked with China hawks. The entire NSC will be working on China in some capacity.

If it wasn’t clear to everyone why China should be a priority before this week, the story I’ve previously covered about the global semiconductor shortage should clear that up. The global auto industry now expects $61 billion in losses because of the lack of computer chips, which dominate auto production these days (all the better to force authorized dealer repairs on the vehicles). This cannot be turned around quickly, as the lead time for semiconductors is half a year.

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The reasons for this shortage perfectly explain why you don’t want to leave industrial policy to corporations acting in their own self-interest. COVID-related closures of auto factories led semiconductor producers to shift resources to consumer electronics, which were spiking in demand during lockdowns. This worked its way through the supply chain and created a shortage, as demand for autos was miscalculated. It takes a long time to build or reconfigure factories to ramp up capacity. And we don’t have that capacity here, because as much as 70 percent of all chips are made in Taiwan.

Corporations loved this centralization and just-in-time logistics when they profited from it, but the shortage has them begging the Biden administration to ramp up domestic production. So far the Biden team is mostly looking busy by conducting 100-day reviews. Meanwhile, China, whose relationship with Taiwan is fraught to put it mildly, is a decade ahead of the U.S. and counting in building a domestic semiconductor industry, using massive tax incentives to onshore chipmakers.

These supply chain vulnerabilities are scattered throughout industries. We took notice of them in medical supplies and prescription drugs when the pandemic first hit. The U.S. trade deficit is at a record high (so much for getting sick of winning by bringing back all those jobs), and offshoring is now a national security issue, with key components of practically everything made for national defense produced in China or elsewhere.

Even where companies have produced goods here in America, they can’t get them sold, because of dominant buying relationships that wind their way through China. This story about N95 mask makers who simply cannot get into markets, often because of slightly cheaper Chinese goods, but mainly because power buyers lock hospitals and medical facilities into contracts that require the existing goods be purchased.

This too is industrial policy, it’s just managed by corporations who have incentives to abandon U.S. workers. The Biden team has talked about democratizing industrial policy, through promoting advanced manufacturing sectors and stateside production, with strict Buy American guidelines creating a market. This is disregarded as something Soviet but it springs from a tradition dating back to the Founders. We have always invested in our self-sufficiency, with a detour in the neoliberal era.

There’s a danger that a stated industrial policy just devolves into a lobbying competition. Explicit guarantees are needed so favored companies don’t lapse into the usual preoccupations of American late capitalism, by engineering federal subsidies out to executives and investors. And there’s a danger that we’ve already ceded too much ground. China has 93 lithium-ion battery factories; we have four.

China has figured out a way to enable the U.S. industrial sector to collapse from within, attracting corporations with cheaper labor costs. We haven’t really pushed back on the concept that corporate responsibility only extends to its shareholders, and the inevitable drift of this laissez-faire approach has now built in economic, social, and security vulnerabilities. We need more than studies or shibboleths about economic patriotism. We need to do the work.

Two Against the World

When it was just Joe Manchin expressing doubt about including a $15 an hour minimum wage in the COVID relief bill, I thought he could be run over. But the quieter centrist, Arizona’s Kyrsten Sinema, is firmly opposed. “The minimum wage provision is not appropriate for the reconciliation process,” she told Politico. “It is not a budget item. And it shouldn’t be in there.”

Democrats were gamely trying to keep the minimum wage hike in the bill, but it appears doomed. They certainly would have had a much better argument had the Congressional Budget Office not deviated from consensus research and scored the bill as costing money rather than saving it. Now the deficit hawk appeal is out.

I think the proper move once this, as it appears, goes out of the package, is to put the standalone bill on the floor repeatedly until Congress approves it. Sinema and Manchin’s objection is procedural; if they also object to a very popular underlying policy let them, and their Republican colleagues, do it in public.

What Day of Biden’s Presidency Is It?

Day 24.

Today I Learned

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