The uncertain state of the Biden economy
President Biden’s State of the Union address on February 7 touted the economic achievements of his administration. He took credit for a new approach to supporting the transition to a renewables-based economy and a trillion dollar program of infrastructure improvement. He also promoted his “Made in America” initiatives and announced that all Federal public procurement would henceforth require domestically sourced components. And he threatened to raise taxes on billionaires, corporations and, especially, fossil fuel industries.
Unfortunately, his program is headed for the shoals of underperformance and is unlikely to supercharge his 2024 reelection campaign, as he and his team intended. A recent Washington Post-ABC News poll reported that only 16% of respondents said they are better off financially since Biden took office, and 41% said they are worse off, the highest level in their polling since 1986. Large majorities consistently disapprove of his economic policy performance.
In his speech Biden took credit for growth in manufacturing jobs, asserting they had increased by 800,000 since he took office. He also touted lower inflation numbers and the lowest unemployment rate in over a half-century.
Manufacturing jobs, according to official data, did increase in 2022, but are only 230,000 higher since the onset of the Covid crisis. Almost half of that increase is in the food production and processing sector, while jobs in the auto and semiconductor sectors are only ahead by 40,000 and 18,000, respectively. Despite a lower unemployment rate, the total number of people not working across the US has increased by 5 million and the labor force participation rate is higher than when he took office and significantly higher that it was prior to the Great Recession. Inflation, which many economists attribute in large part to new spending of over $3 trillion since Biden was sworn in, remains at 6.5%. It averaged 1.4% in 2020.
The most important question at the start of 2023 is: can the major new Biden industrial legislation—the $1 trillion plus infrastructure bill, the $500 billion Inflation Reduction Act targeting the building of a green economy, and the CHIPs Act putting over $50 billion into semiconductor fabrication and tens of billions into new technology research—help meet the jobs and economic growth ambitions of the administration?
The November 2021 infrastructure bill will support projects over the next decade, but will not even reach expenditure levels as a percentage of GDP of most periods since World War Two. Total jobs in non-residential construction, which includes public infrastructure, did increase by 4% in 2023 from post-Covid lows.
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The stimulus to green technology jobs and semiconductor industry development is likely to be modest since employment in these industries is low, and since the lion’s share of green products are directly or indirectly imported from China, and from Europe for some wind turbines. If currently announced plans for semiconductor manufacturing are realized in coming years, the net investment will result in thousands of highly paid construction jobs and thousands of permanent operating jobs. But total domestic employment in the entire value chain in this industry is only about 400,000. The most significant impact of subsidizing semiconductor fabrication is freeing such an important sector from dependence on external suppliers, such as Taiwan and South Korea, which are threatened by their aggressive Chinese neighbor.
The renewable energy sector has greater promise to create new jobs, but it is questionable whether that promise will be realized since the industry is completely dominated by China. According to the International Energy Agency, China represents 75% of global manufacturing capacity to source modules, 85% of solar cells, 85% for solar cells, 97% for silicon and 80% for polysilicon used for photovoltaics. The Middle Kingdom also controls 70% of global manufacturing for the cathodes and 85% for anodes used in lithium-ion batteries. It has also managed to procure control of well over half the world’s production and processing of the lithium and 70% of the cobalt used in electric vehicle (EV) batteries. 70% of all existing and planned battery production through 2020 will be in China, again according to IEA estimates. In EV manufacturing, China already represents over half of global production, which includes foreign nameplates such as Volkswagen, Tesla and Mercedes in their China operations. Over half of EV sales in Europe, the world’s second largest market after China, are made in China.
It is very difficult to imagine that the US will find a way to the meet the domestic sourcing and assembling goals for EV and battery production, since it currently has less than 5% of global market share in the mining, processing, and manufacturing capacity of batteries for EVs (or for electrical storage). Moreover, Biden administration regulatory policy make it costly and time-consuming (averaging more than ten years) to open new mines and acquire permits for the often environmentally problematic processing of raw minerals. China also controls the mining and processing of rare earths needed in huge quantities for both EVs and solar panels. Finally, China has threatened to put export controls on the manufacturing process technology for advanced silicon used in the solar industry. There are at least five times more people employed in the oil and gas than the solar industry.
Most of what counts for the solar and wind industries in the US is therefore limited to installing and maintaining products made in China and Europe (for wind turbines). The jobs for these tasks, with the exception of the auto sector, are typically non-union and pay much less than those in the oil and gas sector, which the Biden administration intends to displace over time. The value chain for oil and gas products pay significantly better than those for installing and maintaining solar and wind products.
Yet the other element of Biden’s energy policy is to discourage expansion of fossil fuel production, or to build the infrastructure to bring oil and gas to market. New leases for oil and gas exploration are at the lowest levels since the Truman administration, and mining jobs have declined by 10% since Biden took office. The US is already a sizable net exporter of oil and oil products and tripled its exports of LNG to Europe in the wake of the Russian invasion of Ukraine.
Read also: Green lighting from America: the green transition and Transatlantic ties
In short, the Biden economic policy on a net basis is not likely to meet its lofty goals of creating a new dynamism of US manufacturing and job creation. The negative effects of his economic program will not only lead to a prolonged period of slower growth, but will harm relations with trading partners, especially the EU and Pacific Rim manufacturing powerhouses. It would be better from geostrategic and purely economic perspectives to enter into joint development agreements with these allies for the production of renewable technologies and the raw materials required for that production.
This is especially the case at a time of war and economically painful high energy prices which sap Western manufacturing competitiveness in favor of China, which benefits from the fire-sale pricing of Russian oil and gas. The US and its allies are better served in these circumstances to meet the crisis by increasing oil and gas production and cooperating to achieve longer-term goals for a transition to a renewables based economy.