Biden’s Industrial Policy Is Just Politics by Another Name

 

Biden’s Industrial Policy Is Just Politics by Another Name

The president’s opposition to Nippon Steel’s planned acquisition of US Steel has little to do with economics or national security.

March 17, 2024 at 12:00 PM UTC

Matthew Yglesias is a columnist for Bloomberg Opinion. A co-founder of and former columnist for Vox, he writes the Slow Boring blog and newsletter. He is author of “One Billion Americans.”

President Joe Biden signaled last week that his administration will oppose Nippon Steel’s proposed purchase of US Steel. As a matter of electoral politics, it’s easy enough to understand. As a matter of economic policy, however — not so much.

The merger requires approval from the Committee on Foreign Investments in the US, which examines such cross-border deals to ensure they are compatible with US national security. But the more relevant issue is that the steelworkers’ union wants the Biden administration to make the approval conditional on labor concessions that will help their members. Biden’s stance is a favor to his supporters.

The idea behind industrial policy is essentially that economic growth is too important to be left to the market. Instead, the state should deliberately cultivate leading industries in strategic sectors.

In some sense, this is compelling. The notion that the US has a national-security interest in maintaining a steel industry certainly makes sense. Russia’s war against Ukraine has revealed critical weaknesses in the West’s defense industrial base. And the extension of these security concerns toward things like microchip and pharmaceutical manufacturing — alongside the traditional pillars of the industrial-age economy such as steel — certainly has merit.

Where things start to go awry is with the premise that these national-security exceptions to a general free-market disposition should also be drivers of economic prosperity. The right way to think about the security case for maintaining a domestic steel industry is that it’s a potentially costly but necessary commitment: Building nuclear submarines is frighteningly expensive.

It’s true that their manufacture “creates jobs.” But nuclear sub manufacturing is not fundamentally a source of American prosperity. In fact, in many ways it’s the opposite: A lot of material resources and skilled labor are poured into machines that generate very little economic welfare for the American people. The jobs associated with the subs are a cost of maintaining America’s defenses, not a benefit of the defense spending.

Of course, to make subs you need steel, which is why there are good reasons to maintain a domestic steel industry. But Japanese ownership of US steel facilities is not a security risk. Not only is Japan a US ally, it is the key US ally against the key adversary, China. Nippon Steel has committed to maintaining production in the US, which is the relevant national security issue. Precisely because this is a sensitive security topic, the US should be thrilled that it wants to buy the company.

In labor terms, it’s easy to sympathize with workers who want a better deal. But leveraging the CFIUS review to extract economic concessions for workers doesn’t just violate the purpose of the process — it undermines it. The US has a strong security interest in the thriving domestic production of steel. That means trying to make operations as efficient and competitive as possible, not boosting labor costs above where they would go without government intervention.

Steel is not the only area in which the administration is trying to turn industrial policy into a win for workers. The attempt to use subsidies to create a domestic semiconductor manufacturing industry, for example, is flailing, mostly because of the White House’s determination to attach many strings to every subsidy dollar in order to promote other progressive goals.

Each deviation from technically sound policy may be defensible on its own terms. It’s not catastrophic to help the steelworkers out in this merger deal, or to slap tariffs on Chinese electric cars even while trying to promote EV adoption, or to hobble the offshore wind industry with Jones Act requirements (that, incidentally, a different union likes). Taken together, however, it amounts to an incoherent approach to policy.

Another case in point: According to Politico, Biden is obsessed with increasing the supply of housing and frustrated by the federal government’s inability to do much about it. At the same time, his administration is poised to further increase tariffs on imported softwood lumber, which will increase the cost of building houses.

It’s notable that, for all his striving to be seen as the most pro-union president ever, Biden does not appear to have more support from blue-collar union members than did Barack Obama or Bill Clinton. That’s because Biden has offset more stridently labor-friendly positions with further-left positions on environmental and social issues. To borrow Ezra Klein’s metaphor, he is adding an electoral everything bagel to go with the economic everything bagel he has already ordered.

Under the circumstances, any step to depoliticize economic policy would be welcome. And the Nippon Steel deal is as good a place as any to start. Let the CFIUS review happen on the merits. Scrutinize the actual national security concerns. Take seriously the notion that, from a security perspective, higher labor costs are worse.

Again, it’s understandable why Biden would want to politicize the US Steel decision, and he’s far from the first president to factor in electoral considerations when making economic policy. But the politics-first approach has hardly delivered political success so far. Why not try assessing the question on the merits?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matthew Yglesias is a columnist for Bloomberg Opinion. A co-founder of and former columnist for Vox, he writes the Slow Boring blog and newsletter. He is author of “One Billion Americans.”