FORMER VICE PRESIDENT Joe Biden unveiled the first phase of his economic plans in a speech at Dunmore, Pa., on Thursday, and the presumptive Democratic presidential nominee’s words confirmed that the U.S. political center has shifted away from free trade and toward government-led industrial policy. Mr. Biden promised $400 billion in spending on made-in-America materials and products, and $300 billion in research and development on cutting-edge technologies, plus a crackdown on China’s unfair trading practices. He pledged to raise the U.S. corporate income tax to 28 percent from 21 percent, the level set in the 2017 Trump tax cuts.
A higher corporate rate could shore up the federal tax base, especially if a Biden administration eliminates loopholes that President Trump and a GOP Congress either left in place or created. Indeed, without loopholes it might be possible, for the sake of competitiveness, to set the corporate rate a hair lower, at the world average (adjusted for each country’s total output) of 26.5 percent. Heavy government spending in basic research is also a smart idea, since in general profit-making firms lack the incentive to invest in it at a socially optimal rate.
We’re less enthusiastic about Mr. Biden’s plans for a beefed-up “Buy America” program. He’s right that the pandemic illustrated the pitfalls of offshoring mundane, mass-produced — but sometimes critical — items such as surgical gowns and masks. Otherwise, demanding that, say, all steel used in U.S. infrastructure come from U.S. suppliers, as opposed to next-door neighbors Canada and Mexico, with whom our economy and supply chains are thoroughly and securely integrated, is a formula for higher costs and possibly diplomatic friction. “Buy America” works for favored American suppliers; but it can hurt equally worthy American consumers.
To cite a small but revealing example, Mr. Biden calls for strict enforcement of the Jones Act, a 100-year-old law requiring goods shipped between American ports to be carried on U.S.-built, -owned and -crewed ships. It adds hundreds of millions of dollars to the cost of keeping Puerto Rico supplied each year, which translates into higher prices, including for food, for the island’s long-suffering residents.
Plainly, Mr. Biden is responding to a political situation in which Mr. Trump’s remaining advantage is on the economy. Voters still give the president relatively high approval ratings despite his failure to manage the job-destroying pandemic intelligently. Plainly, too, the Democrat is adjusting past political stands to account for the trade-skeptic populist mood that propelled Mr. Trump and Democratic nomination rival Sen. Bernie Sanders (I-Vt.).
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Fair enough: On the whole, Mr. Biden has managed to keep to a relatively moderate policy course even as he acknowledged Thursday that current crises create a “tremendous opportunity for the nation, an opportunity to prepare now for the future threats we know are just around the corner, an opportunity to address fundamental inequities of our nation, the growing gap between the very wealthy and everyone else.”
The point is not to repudiate markets but to rely on the private sector where the evidence shows it can do the most good for society — and government where it cannot.
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