Briefing: Biden Economic Policy: Defining “Bidenomics”

Biden aims to revive U.S. domestic manufacturing and transform the U.S. economy through an energy transition, support for the U.S. semiconductor industry, and support for infrastructure development.

Policy: Biden’s economic policy aims to revive U.S. domestic manufacturing and transform the U.S. economy through a transition to “green” energy, support for the U.S. semiconductor industry, and support for infrastructure development. The “reshoring” of U.S. supply chains is a key aspect on the revival of U.S. manufacturing.

Three Pillars of Bidenomics

Three key pieces of legislation form the three pillars in the Biden policy to promote an energy transition, support the U.S. semiconductor industry, and support infrastructure development.

• Inflation Reduction Act: Address climate change and boost manufacturing jobs through a transition to clean energy.

• CHIPs Act: Revitalize U.S. semiconductor industry. Biden National Security Adviser Jake Sullivan has stated that the U.S. must pursue “as large of a lead as possible” in chips, quantum computing, artificial intelligence, biotech, and clean energy.

• Infrastructure Investment and Jobs Act: Rebuild “America’s crumbling infrastructure.” Help unions.

Collectively, these bills represent a “revolutionary change in U.S. industrial policy” in an effort to expedite innovations in industrial infrastructure. The laws are also linked by the belief in the need to re-shore supply chains, which involves a decoupling from China.

Key Issue: Climate Change

These laws are designed to address climate change by accelerating the transition to clean energy, improving infrastructure “resilience to extreme weather and climate change,” and reducing greenhouse gas emissions. They are also designed to accelerate the transition to clean energy in specific technologies:

• Electricity storage

• Grid modernization

• Hydrogen fuel

• Electric vehicles

• Carbon capture and sequestration

Additional Policy Areas

There are additional policy areas that support the Biden administration’s economic aims with both international and domestic policy priorities:

International Policy

• Decouple from China: The Biden administration supports the re-shoring of supply chains, which involves a decoupling from China through a mixture of new tax incentives, trade restrictions, enhanced investment screening, and domestic subsidies. The administration has also promoted “friendshoring,” which is shifting supply chains away from China and to friendlier countries.

• Pursue global minimum tax: The Biden administration has also pursued a global minimum tax to “level the playing field and make America more competitive.” This, according to the White House, will allow the U.S. to “devote the additional revenue we raise to making generational investments...”

Domestic Policy

• Reduce corporate power through antitrust: The Biden administration has also renewed the focus on antitrust. The FTC is more aggressive in blocking large corporate mergers, and the Department of Justice has made similar changes.

• Higher worker pay and union support: The Biden administration has stated the need to empower workers with “more, good-paying jobs and greater worker power to unionize and have dignity at work.” Three aims of the Biden labor agenda are to (1) increase labor force participation, (2) enhance labor productivity, and (3) stop companies from shifting economic activity overseas for tax reasons (global tax deal).

• Increased health and education spending: The Biden administration has also prioritized lowering healthcare costs and “expanding access to prescription drugs and high-quality health care, high-speed internet, education, child care and long-term care, housing, and other essential needs.”

• Domestic tax reform: Biden has outlined a domestic “worker-centric tax reform” that “ensures the wealthy and large corporations pay their fair share, while never raising taxes on households with incomes below $400,000.”

Significance of Bidenomics

New Economic Philosophy

The Biden economic policy represents a significant change in economic philosophy. It is a repudiation of the so-called “trickle-down economics” of the Reagan era. This is playing out in the following areas:

• End tax breaks for big corporations and the wealthy.

• Aim to grow the economy “from the bottom up and middle out.”

• Subsidize green innovation

• Infrastructure investments

• Curb corporate monopoly power

• Retrain workers

• Move away from pursuit of free trade agreements

• Bolster critical supply chains through “America first” trade policy.

Treasury Secretary Janet Yellen described the Biden Administration’s economic growth strategy as “modern supply side economics.” This, according to Yellen, prioritizes labor supply, human capital, public infrastructure, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality. The recently enacted Bipartisan Infrastructure Bill and the Build Back Better legislation that remains under consideration in Congress incorporate this modern supply side approach. “[It] seeks to spur economic growth by both boosting labor supply and raising productivity, while reducing inequality and environmental damage,” Yellen said.

In 2023, Sullivan called the Biden administration’s economic policy the “new Washington Consensus” a “modern industrial and innovation strategy.” He argued that it will build “a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.”

New View of Government Spending

There has been a shift away from the view that government spending “crowds out” private sector spending and that constraining government spending would free the private sector to invest. The idea under the Biden administration is that government spending “crowds in” additional private sector investment. The result is a more interventionist federal government. In a reference to “Reaganomics,” President Biden called this “a fundamental break from the economic theory that has failed America’s middle class for decades now.” This is playing out in the following areas:

• Subsidies for U.S. industry are intended to maintain U.S. economic primacy and prevent a growing populist threat to democracy.

• Trade and industrial policy are promoted as having national aims.

• Markets are not viewed an ends in themselves.

Drivers of Change

The drivers of the economic change can be traced back to the financial crisis of 2008-2009. This reduced U.S. confidence in free markets, and the slow recovery, weak labor markets, and stagnant household incomes of the post-crisis era exacerbated the issue.

This was a significant factor in the election of Donald Trump, who brought an anti-globalization outlook to the White House in 2016. Additionally, the COVID-19 pandemic and increased tensions with China only added to this anti-globalization perspective. Russia’s invasion of Ukraine furthered this by increasing energy insecurity.

• Trump trade and economic policy: Trump brought significant changes in trade policy. This was most notable in the renegotiation of NAFTA into the USMCA, the tariffs on Chinese goods, and the use of tariffs in economic tensions with the EU. Trump, however, also supported corporate tax cuts.

• Pandemic: The COVID-19 pandemic changed the economic outlook further. It revealed vulnerability of U.S. supply chains and increased geopolitical tensions with China.

• Russia invasion of Ukraine: This rocked global energy markets and by some measures reshaped the global energy system. It led the EU to reduce its dependence on Russian natural gas imports and rely on other suppliers.

• Competition with China: There were growing concerns that the United States is lagging in economic competitiveness, especially in its manufacturing and supply chain. China dominates parts of the critical metals and minerals supply chain needed for clean energy technologies and advanced military hardware. In 2015, China issued its “Made in China 2025” report, which outlined its plan to surpass the United States in global technical superiority across multiple emerging disciplines.

Criticism

Critics have called “Bidenomics” a collection of policies to please certain Democratic interest groups rather than a coherent policy. Trump called Bidenomics “total economic surrender to China and other foreign countries.” Former House Speaker Kevin McCarthy called it “blind faith in government spending and regulations.” Biden’s policies have also been criticized for contributing to highest inflation rates since 1970s. The administration’s antitrust efforts have been unsuccessful in courts. Also, there has also been criticism for slow results in manufacturing employment and slow sector job growth.

Pushback from Allies

While the Biden administration’s industrial policy is aimed at China, some allies in Europe and Asia are concerned with the scale of the new subsidies. They view the policy to encourage U.S. reindustrialization as protectionism and fear that it will take investment of Europe. Japan and South Korea are investing in the United States in green technologies.

In response, the EU is working on a plan for green manufacturing. The issue of industrial policy at national level, however, is risking the EU single market. France and Germany pushing for EU subsidies and Macron has supported a “Buy European Act.”