Like It or Not, the Government Wants to Help

The U.S. government can't seem to help but get involved...

American companies were burned by pandemic-era shutdowns and shortages at their global manufacturing plants. Longtime subscribers know many are rebuilding production back on U.S. soil.

And alongside these "reshoring" efforts, the U.S. – and the rest of the world – is facing its most extreme level of government hand-holding in decades.

Governments have started ramping up "industrial policy" interventions... meaning they're pushing subsidies, local tax breaks, and tariffs on imports to help support local industry.

Global industrial policy interventions ballooned from 228 in 2017 to 1,568 in 2022. That's more than 580% higher. And some folks are getting worried...

Particularly in the U.S., there's plenty of longstanding skepticism around government intervention in industry. Many people are wary of "big government" policies.

To quote former President Ronald Reagan (more on him later)... "The nine most terrifying words in the English language are: I'm from the government, and I'm here to help."

But whether you're pro-intervention or against it, today's presidential candidates seem set on sticking their noses in U.S. industrial policy.

So today, we'll look at what the strategies of both presidential hopefuls could mean for the economy... and for investors.

Until the pandemic, government intervention had been in a decadeslong rut...

While it boomed in the decades after World War II, Western nations – particularly the U.S. and the U.K. – started worrying that governments had become too bloated and controlling.

Ronald Reagan and former Prime Minister Margaret Thatcher set out to flip the narrative.

Instead of taxing businesses, only to turn around and help support them with subsidies... they focused on lowering taxes and inflation.

These initiatives are often considered major drivers of the pro-business shift in both the U.S. and the U.K. Global policy interventions sat at pretty much zero through 2010.

And then, as we mentioned... they took off.

COVID-19 completely changed how the U.S. government thinks about intervention. Our leaders are back to the hands-on approach that was popular before Reagan took office.

And that goes for both sides of the aisle.

The U.S. government will continue to step in, one way or the other...

The Biden administration has put a clear emphasis on industrial policy, boosting domestic chip product through the CHIPS and Science Act... and investing in infrastructure and clean energy with the Build Back Better initiative.

This is an instance where industrial policy pushes the country in the right direction. It should foster innovation and corporate success, not get in the way. The U.S. will grow its most important sectors, like manufacturing, chips, and AI.

According to the International Monetary Fund ("IMF"), in 2023, around 35% of global interventions were motivated by this sort of strategic competitiveness.

If Vice President Kamala Harris wins the presidency, she'll likely continue with this policymaking approach.

Similarly, former President – and current Republican presidential hopeful – Donald Trump has his own track record of intervention.

He raised tariffs to protect domestic industries and jobs... and he tends to pick industry winners and losers and support the chosen ones.

For instance, Trump has made it clear he'll support U.S. oil and gas. And while he's not planning to subsidize U.S. solar, he'd increase tariffs on Chinese solar goods to help the U.S. in a different way.

We're looking at plenty more hands-on intervention, despite what either candidate might claim...

And even if you're a lifelong government skeptic, rest assured... that doesn't spell automatic disaster for the U.S. economy.

Industrial policy can be a problem when it interferes with the inner workings of a business. It'll be a bad sign if the government starts bailing out struggling companies rather than investing in high-growth industries.

That's not what we've seen so far from either policy platform. Policies that focus on critical sectors like chips, infrastructure development, and emerging technologies like AI could lead to significant economic growth.

There will be plenty of booming industries to invest in... no matter who takes office.

Regards,

Joel Litman
August 5, 2024