If Joe Biden’s catastrophic performance in the US presidential debate hadn’t already sealed it, then the attempted assassination of Donald Trump certainly did. It seemed inevitable that either the increasingly frail Biden would stand down or that he'd lose to Trump in November. Now that Biden's gone, he's taken “Bidenomics” – as the hugely expensive experiment in industrial subsidies and protectionism is known – with him.
Biden was elected as a moderate, unifying figure, but on economic issues, he has been the most radical US president for a generation. Bidenomics has been a hugely ambitious and highly expensive project to reshape the American economy. Massive subsidies have been offered to build green infrastructure and bring the production of vital equipment back to America.
Money has been thrown at wind and solar power, building a new electricity grid, subsidising the switch over from petrol to electric cars, and decarbonising homes and offices. The government has opened its cheque book for a new generation of semiconductor factories designed to make the US the world leader in tech manufacturing. Meanwhile, tariffs have been slapped on Chinese imports, such as the 100% levy on electric vehicles (EVs).
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The Biden economic plan
It is not hard to see what those in the Biden administration have been trying to do. They wanted America to become a leader in the production of green energy and reduce reliance on Chinese factories to keep phones, websites and data centres running. They believe dominance of green tech and chip production will secure economic leadership for the rest of the century, and thwart China’s ambitions to become the world’s leading industrial and financial power.
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The stakes are very high. There have been some successes. Solar power generation has grown by 75% over the last four years, and eightfold over the last decade, even if it still only accounts for 4% of energy generated in the US, compared with 60% for fossil fuels, and 18% for nuclear. Firms from Intel to TSMC have been building new semiconductor plants. But this has come at a huge cost.
The total cost of the programmes will come in at $800bn, according to estimates by Credit Suisse, and given that most of the subsidies are in the form of open-ended tax credits the final bill may well be a lot higher. It is one of the main reasons why the government deficit has remained so high, at 5.3% of GDP, and why total debt has soared to 123% of GDP, even though the economy has been growing strongly and debt should be coming down.
US EV investment – a waste of money?
Much of the money has been wasted on a mind-boggling scale. For example, it included a $7.5bn plan for installing new EV chargers, so all those subsidised EVs could be powered up on the road. After three years, only seven chargers had actually been installed.
There was a rural broadband plan to connect remote homes to the internet – at a cost of $42bn – but not a single home has been connected. The chip plants are coming online, but have been beset by planning delays and a lack of skilled workers. There’s little evidence the vast spending has improved competitiveness, lifted wages, or created durable new industries.
EVs are increasingly looking like the wrong technology, the battery industry is crashing, and the chip market is awash with over-capacity. The US has been growing, but mainly on the back of deficit spending, and record shale oil and gas production that has made it the world’s largest producer of fossil fuels.
Biden’s economic plan was pushed by a small group of radicals around the president and one reason they were so desperate to keep their man in place, despite his clear incapacity, was to keep control of the agenda. But there was very little mandate for this radical economic programme. As Biden goes, so will Bidenomics. And, given its dismal results, not before time.
This article was first published in MoneyWeek's magazine. It was edited to reflect President Biden's withdrawal from the 2024 US election campaign. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
