U.S. industrial policies lead to distortions amid political uncertainty

NEW YORK, May 29 (Xinhua) -- Massive U.S. industrial policies in recent years, combined with political uncertainty, have led to various distortions, U.S. experts say.

The U.S. industrial policies, which are hard to remove once installed, have harmed Americans in numerous ways.

With producer subsidies, localization subsidies, federal procurement requirements and tariffs, U.S. industrial policies have resulted in a total cost of 1-2 trillion U.S. dollars in new government spending, said Scott Lincicome, vice president of general economics at Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.

Despite the rather dramatic increases in the magnitude and scope of industrial policy in the United States, there has been little actual evidence of a manufacturing boom, especially in the green energy industry.

"There are also additional costs that are paid by consumers through higher prices because of all that protectionism," said Lincicome in a recent panel discussion on electric vehicle (EV) subsidies and U.S. industrial policy.

DISTORTIONS EVERYWHERE

Current U.S. industrial policies create distortions, Lincicome warned, noting the economic, political and geopolitical costs of U.S. industrial policies far outweigh actual, tangible benefits.

In particular, the tariffs imposed on imported products so far are mostly paid by Americans, leading to reduced output and employment in manufacturing, and all sorts of foreign retaliation, he said.

Tariffs also produce cascading and copycat protectionism, and cronyism has been seen throughout the implementation of rules mainly related to the exclusion of tariffs, Lincicome said.

In terms of subsidies, "we are, again, starting to see warning signs and knowledge problems have popped up almost everywhere" with projects being delayed, cancelled or scaled back due to higher-than-expected interest rates and inflation, labor crunches and other issues, said Lincicome.

"Some of those very things are actually caused by the very same industrial subsidies that were funneling to all these industries," said Lincicome.

Also, Lincicome said the opportunity cost is high since there is no budget room for tax reform and no political capital or time for permitting reform as 2 trillions U.S. dollars were spent on industrial policy.

"I don't think any of the fundamental barriers have been removed. We're just hitting those barriers even harder than ever," said Travis Fisher, director of energy and environmental policy studies with the Cato Institute.

In regard to recent policies on EVs, Lincicome said the bureaucratic implementation of EV subsidy rules has caused all sorts of confusion.

"Higher costs because of localization mandates are conflicting with the objective of deploying these (green) technologies rapidly," Lincicome said.

"We've seen politics prevent any substantial reform or termination of these tariffs, despite all those big problems mentioned," said Lincicome.

LINGERING UNCERTAINTY

Political uncertainty is now a big problem, especially in 2024, said Lincicome.

The industrial policy passed as a budget reconciliation measure is probably one of the easiest things to undo, Fisher said.

Noting that policies in different administrations reverse each other, Fisher said, "if you're actually trying to do business, you don't know what the rules are going to be. They keep changing about every four years. That's very frustrating. The uncertainty is real."

The results of the November 2024 presidential election, combined with the U.S. relationship with China and U.S. government deficits, could significantly alter the path of U.S. energy policy and usher in a delayed transition scenario, according to a recent report by Wood Mackenzie.

The peaking of U.S. fossil fuel demand would be postponed by around 10 years and U.S. investment in low-carbon energy and infrastructure improvement in 2023-2050 would be reduced by 1 trillion dollars in the delayed transition scenario, said the report.

It's very tough for an auto manufacturer to know what's coming and that is very scary because they are investing a lot of capital to try to prevail in a very competitive market with little predictability, said Everett Eissenstat, a global trade expert and partner in Public Policy Practice Group at law firm Squire Patton Boggs.

Regardless of the outcome of this year's U.S. presidential election, there's just a lot to unpack in 2025-2026 regarding tariffs, the U.S.-Mexico-Canada Agreement and the role of the U.S. Department of Commerce, said Eissenstat.