In theory, promoting manufacturing can sometimes boost growth. In practice it usually backfires
The sums being spent are vast, and growing. Since they were signed into law, the estimated ten-year cost of America’s green subsidies has risen by at least two-thirds, and is likely to pass $1trn. The Biden administration has also expanded the eligibility for chipmaking subsidies. In June Germany increased its handout to Intel to build a chip plant, from €6.8bn to €9.9bn.
But today’s schemes are likely either to fail or to prove needlessly costly. Countries subsidising chips and batteries are not pursuing catch-up growth but fighting over cutting-edge technology. The market for electric vehicles and batteries is unlikely to become an Airbus-Boeing style duopoly. In the 1980s protectionists argued that Japan would dominate the strategically vital semiconductor industry, owing to its subsidised mastery of memory-chip making. It did not turn out that way.
European leaders think they must match America or face catastrophic deindustrialisation. They have forgotten the logic of comparative advantage, which guarantees that countries will always have something to export, no matter how many cheques foreign governments write or how productive their trading partners become. Denmark has no car industry to speak of, butper person is 11% higher than in Germany.
Belgique Dernières Nouvelles, Belgique Actualités
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