Global Courant
My analysis of US reliance on capital goods imports on June 18 drew a wide range of reader responses on Twitter, including this from Hudson Institute fellow and former NSC staffer Arthur L. Herman: “Brilliant and concise read on why the current decoupling hysteria won’t succeed without a major shift in the way the US invests in capital equipment, particularly in the private sector. We can’t do that with the remote control from the couch.” Herman wrote a fine book about America’s industrial mobilization before World War II.
Other readers asked how they could reconcile a reported increase in US factory construction with very weak capital goods production numbers. Part of the answer is inflation.
In deflated dollars, the construction boom looks more like a boomlet.
Another part of the answer is that the plant construction data is distorted by a few large chip fabrication projects subsidized by the Biden administration’s CHIPS bill. The Semiconductor Industry Association claims $200 billion in chip investment is underway thanks to grants from Washington. That’s a national security decision, not an economic one. TSMC says it will cost 30% more to produce high-end chips in the US than in Taiwan, and the extra cost will be passed on to US consumers.
And the last part of the answer, as I wrote in the June 18 story, is that capital goods imports have increased from $200 billion in 2020 to $350 billion in 2022.
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