Ann Arbor (Informed Comment) – David Shepardson at Reuters reports that Ford Motor Co. and its partner SK of South Korea have received a $9.2 billion loan for 3 battery plants in Kentucky and Tennessee from the Department of Energy under the loan program called Advanced Technology Vehicles Manufacturing (ATVM). It is the biggest single low-interest loan ever awarded by the government Loan Program.
The US government last gave out the big bucks to Ford in 2009 when the economy locked up and then crashed, under an initiative by President Barack Obama. Ford paid off the $5.9 billion loan, which helped keep it liquid, last year.
This loan is different, since it isn’t aimed at keeping the US automobile manufacturing sector from going under. Rather it is a form of industrial policy focused on shaping the character of the US auto industry over the next decade.
That shape is green. The loan will help Ford in its transition to electric vehicles, for which batteries are essential.
A group of war hawks in the late 1990s formed the Project for a New American Century. They thought US warmongering in places like Iraq was key to maintaining the US position as the world’s most powerful country in the new century. It was a mind-numbingly stupid idea and it crashed and burned.
In contrast, Joe Biden’s vision of a new American industrial policy is the sort of thing that could in fact keep the US competitive on the world stage in the coming decades.
At the moment, China produces 75% of all lithium-ion batteries of the sort used in electric vehicles. While governmental industrial policy is sometimes criticized inasmuch as it involves the government picking winners and losers in the business world, two considerations have made such a policy imperative for President Joe Biden.
First, Biden accepts the science of climate change and knows that 27.2 percent of US carbon dioxide emissions come from the transportation sector. Capitalism is not going to cease using gasoline all by itself, and certainly not in time to forestall the worst effects of the climate emergency. An industrial policy is absolutely central to this transition.
Second, Biden knows that most of the batteries for electric vehicles are made in China, so there are only two choices: Transition to EVs and become dependent on China for their juice, or create a large scale American battery industry.
These two considerations, of the climate emergency and the undesirability of dependence on a Chinese supply train for security reasons have driven much of Biden’s landmark legislation.
The US is dependent on Taiwan for 90 percent of its computer chips, and even the other 10% are imported. The US has simply stopped manufacturing microchips. The supply chain problems that emerged with the tailing off of the COVID-19 pandemic demonstrated how vulnerable a whole range of US industries, including automobiles, were to such disruptions. For national security, Biden convinced Congress to pass the CHIPS and Science act, which aimed to jump start a domestic microchips industry, and $24 billion in tax credits are newly available to companies for this purpose. A Taiwanese microchip manufacturer has already set up shop in Arizona, seeing the writing on the wall.
Having an electric car industry is just as important as having domestic microchips factories. China had stolen a march on the US in the EV industry and is responsible for some 56% of EV purchases worldwide. There was a danger under the buffoon Trump that the US would lose its auto manufacturing sector just as it had lost its microchip sector.
Biden knows the importance of manufacturing to the US economy and watched it decline to only 12% of GDP in terms of direct contributions. He is determined to reverse that decline, and with his raft of new pieces of legislation has set the stage for a big comeback.
In this case, there is no danger of the government industrial policy picking a winner artificially, because we know we have to get down to zero carbon emissions to save ourselves from dire challenges, and we have to goose the industries key to zero carbon with government subsidies. The climate crisis and the rise of a more assertive and sometimes aggressive China have worked together to create a new American Industrial Policy. How well it succeeds will determine the place of the United States in the world during the twenty-first century.