(Bloomberg) — As President Joe Biden embarked on a tour to promote the impact of his economic agenda in the United States, it caused an uproar around the world.
The series of policies enacted so far are US industrial policies with massive state intervention in the economy and forcing governments from Europe to Asia to respond in kind.
Chip Law and Science invest around US$50 billion in domestic semiconductor manufacturing. The Inflation Reduction Act covers almost $400 billion fund for clean technology. Management consultancy McKinsey & Company projects that approximately $2 trillion in new federal spending will be spent over the next 10 years.
The concern among foreign investors is that companies active in areas that qualify for US financing will move to take advantage of the subsidies offered. Swedish battery maker Northvolt is one of many companies now evaluating whether to build a new facility in Europe or the US.
The European Union launched a series of subsidies in response. South Korea passed its own “K-Chip Law” today, while Canada this week allocated money in its budget to weaken the south’s gravitational pull. The UK, rejecting EU firepower, today announced its response.
Biden’s moves are aimed at increasing jobs and investment in the US, but they are also aimed at keeping the country at the forefront of key technologies and countering China. In that sense, they act as an arm of foreign policy.
Washington’s ally Japan has struck a tax break deal with the US on minerals essential for electric vehicles. The EU is working on a similar deal.
It’s clear that the new US approach forms the crux of Biden’s 2024 re-election campaign, if he does run.
What is also clear is that the global economy is transforming as a result.
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Original Notes: How US Industrial Policy Changed the World: The Balance of Power
—with the collaboration of Michael Winfrey.
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