Perhaps a broad, nationwide “boom” will materialize in the future. But it’s just as likely—if not more so—that we are again seeing what critics of targeted tax credits, subsidies, and tariffs have long cautioned regarding these types of policies (i.e., that they do not expand the overall economic pie in the United States or generate sustainable, long-term growth, but instead simply redistribute existing resources like money, materials, manpower, etc., to favored companies at a net loss to the overall U.S. economy). This unfortunate outcome is especially concerning today, absent significant tax, regulatory, trade, immigration, and other supply‐side reforms that would allow total national output to increase in response to stimulus-fueled demand—reforms that American manufacturers, including in government-preferred industries, are expressly seeking.
Early Warning Signs in the United States
It is too early to definitively judge new U.S. industrial policies, but recent developments in the United States give us at least four reasons to be concerned about whether they’ll pay off.
First, the costs of building, staffing, and starting production within subsidized facilities has increased substantially—thanks in large part to U.S. policy. Part of the cost increase is owed to macroeconomic factors, as well as U.S. government subsidies further boosting demand for a limited supply of construction goods, services, and equipment. But it is also the result of new U.S. industrial policies colliding with longstanding supply-side constraints (which are often caused or exacerbated by other federal policies). For example, long environmental impact assessments, litigation under the National Environmental Policy Act (NEPA), and other permitting restrictions have delayed or scuttled U.S. wind and solar projects and related domestic manufacturing. Restrictions on legal immigration are contributing to subsidized firms’ difficulties in finding workers to build and operate new facilities, especially for high-tech manufacturing. Tariffs, “Buy American” provisions, trade remedies duties, and other U.S. trade restrictions inflate the cost of construction materials and manufacturing inputs.
For these and other policy-related reasons, many subsidized manufacturing projects’ costs have increased substantially, and even advocates have recently worried that existing supply-side impediments threaten U.S. industrial policies’ implementation and efficacy. As the former director of the White House National Economic Council Brian Deese just wrote, he and his colleagues “underestimated just how big a barrier [regulations] would pose to clean-energy adoption” and the IRA itself—even though many experts had warned of these very problems long before the IRA became law.
Second, higher costs, changing market conditions, and other unforeseen issues have caused many announced U.S. manufacturing projects to be delayed or canceled outright, some after companies had already spent significant sums on initial siting and construction. For example, the Taiwan Semiconductor Manufacturing Company (TSMC) has delayed production at its first semiconductor facility in Arizona (announced before the CHIPS Act became law) from 2024 to 2025, while delaying its second plant from 2026 to 2028. Numerous EVs and battery projects have also experienced delays and cancellations. Finally, Bloomberg reported last month that, less than two years after the IRA “unleashed a $16 billion flood of promised investments in solar manufacturing” (and despite numerous tariffs on imported solar modules and cells), “manufacturers have quietly shelved or slowed plans for at least four of those plants”, including Enel SpA in Oklahoma, Mission Solar in Texas, CubicPV in Massachusetts, and Heleine in Minnesota.
Surely, not every subsidized and protected U.S. manufacturing investment is experiencing such difficulties, but these and other episodes nevertheless remind us that a wide and uncertain chasm lies between investment announcements and construction starts on the one hand and actual, functioning production facilities on the other. They also highlight the risk of industrial policies imposing not only significant budgetary costs but also numerous unseen costs, including higher consumer prices (where higher costs are passed on) and the diversion of taxpayer and private resources away from more productive and timely U.S. endeavors.
Third, there are already signs that at least some of the U.S. factories eventually completed might not produce innovative technologies that can compete in a global marketplace without open-ended government support. For example, even with numerous import restrictions and “hugely lucrative” IRA subsidies, BloombergNEF estimates that “US-made solar cells and modules will cost 18.5 cents a watt, compared with 15.6 cents for a product from south-east Asia.” Thus, U.S. solar producers recently filed yet another petition for import protection—the seventh such action since 2012.