[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 118-366
MADE IN AMERICA: THE BOOM IN U.S.
MANUFACTURING INVESTMENT
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HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
OF THE
CONGRESS OF THE UNITED STATES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
JUNE 12, 2024
__________
Printed for the use of the Joint Economic Committee
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-241 WASHINGTON : 2024
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Martin Heinrich, New Mexico, David Schweikert, Arizona, Vice
Chairman Chairman
Amy Klobuchar, Minnesota Jodey C. Arrington, Texas
Margaret Wood Hassan, New Hampshire Ron Estes, Kansas
Mark Kelly, Arizona A. Drew Ferguson IV, Georgia
Peter Welch, Vermont Lloyd K. Smucker, Pennsylvania
John Fetterman, Pennsylvania Nicole Malliotakis, New York
Mike Lee, Utah Donald S. Beyer Jr., Virginia
Tom Cotton, Arkansas David Trone, Maryland
Eric Schmitt, Missouri Gwen Moore, Wisconsin
J.D. Vance, Ohio Katie Porter, California
Jessica Martinez, Executive Director
Ron Donado, Republican Staff Director
C O N T E N T S
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Opening Statements of Members
Page
Hon. Martin Heinrich, Chairman, a U.S. Senator from New Mexico... 1
Witnesses
Mr. Kevin Hostetler, Chief Executive Officer, Array Technologies,
Albuquerque, NM................................................ 4
Mr. Skanda Amarnath, Executive Director, Employ America,
Washington, DC................................................. 6
Dr. Adam N. Michel, Director of Tax Policy Studies, Cato
Institute, Washington, DC...................................... 8
Mr. Scott Lincicome, Vice President of General Economics and
Stiefel Trade Policy Center, Cato Institute, Washington, DC.... 17
Submissions for the Record
Prepared Statement of Chairman Martin Heinrich, a U.S. Senator
from New Mexico................................................ 19
Prepared Statement of Mr. Kevin Hostetler, Chief Executive
Officer, Array Technologies, Albuquerque, NM................... 22
Prepared Statement of Mr. Skanda Amarnath, Executive Director,
Employ America, Washington, DC................................. 24
Prepared Statement of Dr. Adam N. Michel, Director of Tax Policy
Studies, Cato Institute, Washington, DC........................ 35
Prepared Statement of Mr. Scott Lincicome, Vice President of
General Economics and Stiefel Trade Policy Center, Cato
Institute, Washington, DC...................................... 50
Questions for the Record submitted to Mr. Skanda Amarnath from
Senator Amy Klobuchar and Response............................. 68
Chart submitted by Chairman Martin Heinrich titled: After Passage
of CHIPS Act and IRA, Real Construction Spending on
Manufacturing Surged........................................... 71
Chart submitted by Vice Chairmen David Schweikert titled:
Employment in Manufacturing Has Remained Almost Constant for 85
Years.......................................................... 72
MADE IN AMERICA: THE BOOM IN U.S. MANUFACTURING INVESTMENT
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WEDNESDAY, JUNE 12, 2024
United States Congress,
Joint Economic Committee,
Washington, DC.
The hearing was convened, pursuant to notice, at 2:58 p.m.,
before the Joint Economic Committee Chairman, Martin Heinrich
in Room G-50 Dirksen Senate Office Building.
Present: Senators Heinrich, Hassan, Welch.
Representatives: Schweikert, Smucker.
Staff Present: Hannah Ceja, Sebi Devlin-Foltz, Kobe
Barthdemy, Douglas Simons, Ron Donado, Matthew Cernicky,
Alexander Schunk, Colleen Healy, Jeremy Johnson, Jessica
Martinez.
Chairman Heinrich. This hearing will come to order. I'd
like to welcome everyone to today's Joint Economic Committee
hearing titled, ``Made in America: The Boom in U.S.
Manufacturing Investment.''
Today's hearing will begin with five-minute opening
statements from myself and Vice Chairman Schweikert, and each
of our four witnesses, and then we'll proceed to questions,
alternating between parties in the order of member arrival.
I'm just going to remind members to keep their questions to
no more than five minutes, but I think you and I can handle
that.
Vice Chairman Schweikert. You just remind me.
Chairman Heinrich. Now, on to opening statements. Over the
past few years, we have seen a truly remarkable comeback story
for American manufacturing, impacting communities both in my
home state of New Mexico, but across the country. The economy
has added hundreds of thousands of new jobs in manufacturing
and construction, as private investment has flowed into the
clean energy sector, semiconductor production and advanced
technology manufacturing through the U.S.
This was not an accident. We fought hard to bring real
solutions to the table and move forward with the Inflation
Reduction Act, the Bipartisan Infrastructure Law and the CHIPS
and Science Act. These policies have driven the comeback story
that we are seeing, and this graph shows how factory investment
surged after the passage of those laws, a trend that we hadn't
seen under any prior administration's policies.
With these historic bills, we've spurred a manufacturing
renaissance across America, and not only is this benefitting
our economy, but it will also bolster our national security and
protect our children and grandchildren from the impacts of
climate change for years to come.
The buildout of these key industries will pay dividends by
creating middle class jobs that people can build a family
around in their home communities. They will create thousands of
careers in New Mexico and across the U.S. in the skilled trades
and in advanced manufacturing, and it is critical in this
moment that we work with unions, with industry, with training
centers and local leaders to make sure that implementation of
these policies is done right.
To ensure our workforce can capitalize on these
opportunities, we need to focus on training and upskilling.
Apprenticeships and vocational training, as well as
partnerships with community colleges and universities will give
more Americans the chance to meet rising demand for these
careers, that will help move our communities, our country and
our economy forward.
That is why our legislation made sure to invest in these
efforts, and in companies that commit to building up America's
workforce. Array Technologies is a perfect example of a company
that is leading the way by expanding its manufacturing
facilities here in the U.S. I was happy to be at Array's
ground-breaking ceremony in April of this year with Secretary
of Energy Granholm, and am glad that their CEO could join us
here today.
For decades now, Array has been a world leader in
manufacturing solar trackers, the hardware that rotates solar
panels towards the sun throughout the day. This year, Array is
investing more than $50 million to construct a new 216,000
square foot campus in Albuquerque, New Mexico, that will
support 300 new jobs in the near-term.
And they are expanding largely because of the production
tax credits that we worked so hard to include in the Inflation
Reduction Act. Just as they did for Array, these incentives
sent a powerful signal to companies that we are ready to build
big things in this country once again.
In the last few years, we have seen hundreds of
manufacturing announcements representing billions of dollars in
private investment, and along with the Inflation Reduction Act,
we are seeing booming private investment in semiconductor
manufacturing from the CHIPS and Science Act. This law is
already boosting employment and wages in New Mexico, with Intel
announcing a $3.5 billion investment in its Rio Rancho campus
and fab.
This facility is expected to create at least 700 permanent
manufacturing jobs, but thousands of construction jobs in the
meantime, and we are not stopping there. Just yesterday, the
Department of Commerce announced new CHIPS Act funding for
Solaro, a home-grown New Mexico company that can now expand
production and hire 100 new manufacturing workers.
With support from these policies, companies are opening new
factories in American communities, to build everything from
semiconductors to wind turbines and heat pumps, to solar panels
and energy storage. That's what good policy does.
But I want to make sure that it is clear that due to these
policies, business is not only growing in urban centers. We are
driving investment in rural America. I have seen this firsthand
back in New Mexico, where Arcosa recently opened a new wind
tower manufacturing facility in Belen in Valencia County.
Back in April, I got to meet the workers there and see the
first wind towers coming off the line at that facility, and
this is just one example of how these laws that we have passed
here invest in the economy of the future. These bills are also
driving investment in rural energy and infrastructure that can
reduce operating costs, lay the groundwork for future economic
growth.
With this approach, we are making sure that the benefits of
this manufacturing boom reach the entire country. I am looking
forward to hearing from our witnesses on how these federal
investments have guided business and manufacturing decisions in
the U.S., and how we can continue to support this expansion and
make its benefits as--and make sure it benefits as many
Americans as possible.
With that, now I will turn to our Vice Chairman, Chairman
Schweikert.
[The prepared statement of Chairman Heinrich appears in the
Submissions for the Record.]
Vice Chairman Schweikert. Thank you, Chairman Heinrich, and
would you believe that I see parts of this differently. Being a
big fan of something that is often referred to as allocation
theory, when it is done through a government grant, will that
government always be granting to the latest, best, fastest,
most nimble, most cutting edge, most disruptive technology, or
do we often fund incumbency.
I think that the record shows that much of the capital
expenditure, which every dime has been borrowed. Once again,
this cash flow that is going out, every dime is borrowed money.
So, you actually have to now think of the rate of return. We
are paying interest on that.
We also have a chart, and we are happy to put it into the
record without objection, that also will demonstrate that
manufacturing and employment functionally are the same as it
was in 2022, once again demonstrating that yes, you may get
spikes in trade as a plant is being built, but are we back into
the cycle once again of a planned economy industrial policy,
where we actually--a fraction of that money could have gone
into the research and development of the next generation that
disrupts and makes America truly leap ahead of the rest of the
world.
Instead, this policy has set off a cascade of subsidized
chip manufacturing. You see China now organizing what was the
last fund, $30 billion, and the EU is now setting aside a
massive subsidy to have theirs. We have actually now created a
race to the bottom.
At the very same time, we are doing tax policy, saying we
need a global minimum, but over here we have functionally
financed something that is dramatically more expensive in the
global race to the bottom, a subsidy policy. Its math, you
cannot avoid the reality.
The other thing I will also give is the basic belief of if
you are going to have industrial policy, the concept of having
government handing out grants and the political danger that
comes around when I must go knock on the door of the
administration or the politicians to get my cash, the
distorting effects that has on society, on competitive markets,
and the allocation theory comes back into play.
If we are going to borrow money from your retirement and my
kids' future, are we actually getting the long-run economic
growth, or as so often as is quoted around here, are we just
seeing the sugar high for a short time without long-term
extended growth and sustainable employment? And with that, I
yield back.
Chairman Heinrich. Now I would like to introduce our
distinguished witnesses today. Mr. Kevin Hostetler is the Chief
Executive Officer of Array Technologies, a global company
specializing in utility-scale solar trackers and renewable
energy, headquartered in Albuquerque, New Mexico.
Array has been a leader in the solar industry for over
three decades, and has helped build out the U.S. supply chain
for solar components. Prior to joining array, Mr. Hostetler
served as CEO at Rotork, where he led the company's growth
acceleration program, and as CEO of FDH Infrastructure
Services, an engineering consulting company, focused on
critical infrastructure like bridges, dams and transmission
towers.
Mr. Skanda Amarnath is the Executive Director at Employ
America, a research and advocacy organization committed to the
macroeconomic policies that can sustain full employment
outcomes. Employ America has written at length about the
interconnections between manufacturing investment, productivity
growth and employment gains for workers, among other pressing
economic policy topics.
Now, prior to joining Employ America in April of 2019 as
research director, Mr. Amarnath worked as a market economist
and strategist, and as an analyst at the Federal Reserve Bank
of New York.
Dr. Adam Michel is the Director of Tax Policy Studies at
the Cato Institute, where he focuses on analyzing the economic
and budgetary effects of taxation in the United States. Prior
to joining Cato, Dr. Michel served as the deputy director at
the Joint Economic Committee under Senator Mike Lee.
Mr. Scott Lincicome is the Vice President of General
Economics at Cato's Herbert A. Stiefel Center for Trade Policy
Studies. Mr. Lincicome is also a senior visiting lecturer at
Duke University Law School, where he has taught a course on
international trade policy and previously taught international
trade policy.
Mr. Hostetler, let us begin with your testimony, and then
we will just continue in the order of the introductions.
STATEMENT OF KEVIN HOSTETLER, CHIEF EXECUTIVE OFFICER, ARRAY
TECHNOLOGIES, ALBUQUERQUE, NEW MEXICO
Mr. Hostetler. Thank you, Mr. Chairman, Mr. Vice Chairman
and all members of this Committee. It is an honor to be here
today. My name is Kevin Hostetler, and I am the CEO of Array
Technologies. Our U.S. footprint includes Albuquerque, New
Mexico, where we have our manufacturing facility, and our
research and development hub in Chandler, Arizona.
Array is a leading American manufacturer and global
provider of tracker solutions for utility-scale solar energy
projects. Our solar trackers are an integral part of solar
farms, rotating panels to follow the sun, which increases
energy production by up to 25 percent.
Founded in 1989 in Albuquerque as one of the first U.S.
solar manufacturers, Array is a true American manufacturing
success story. We are proud to be an American company, sourcing
low carbon domestic steel, supporting local jobs and using a
traceable U.S. supply chain with trusted partners.
I am grateful to be leading Array during this nation's
manufacturing renaissance. In April, Array broke ground on a
new manufacturing campus in Albuquerque, where we will make our
clamps, center structures, drive system components and
electrical controllers. The IRA and 45(x) credits are helping
us to onshore critical components and realize this 50 plus
million dollar expansion.
To start, our new facility will employ more than 300 local
residents in the near term. This growth will enable us to
further develop more onshore capacity and make more solar
technology here at home. Over the next decade, we anticipate
significant growth in industry employment, with solar
manufacturing jobs expected to more than triple.
In the meantime, we need to create a skilled, renewable
energy workforce. That is why we partner with schools like
Central New Mexico Community College. In 2022, we donated a 1.3
megawatt solar site that generates power for the campus and
serves as a training facility for Array to provide hands-on
learning to students.
Collaborations like these are building a pipeline of
talent, ensuring that students and job-seekers have the
necessary skills and knowledge to thrive as the industry
creates jobs. The IRA and other federal investments have helped
grow our domestic production. As an example, the 45(x) tax
credits are allowing us to onshore plant manufacturing, where
we were importing and this will double our manufacturing
capacity in Albuquerque.
We have also invested in new capital equipment to support
the current and future growth of our facility. Since the
passage of the IRA, there has been a notable uptick in
announcements from new solar manufacturing facilities across
the supply chain, driven by the law's provisions and the
anticipated rise in solar demand.
This has caused a ripple effect, as our business growth has
also spurred growth for our partners. Copper State Bolts and
Nuts Company has added an additional 30,000 square feet in
their Goodyear, Arizona facility to support their solar
business. Our partner Priefert Steel in Mount Pleasant, Texas
has invested $25 million in solar in the last 24 months,
employing over 200 people.
Lock Joint Tube in Temple, Texas invested $16 million in a
dedicated tube line to support solar tracker manufacturing. And
finally our partner Nucor is investing $70 million in capital
for a new steel plant in Kentucky to support the growth in
solar demand.
The IRA has set the stage for long-term growth and
stability for our business and the U.S. solar industry. The law
is expected to facilitate nearly triple the current solar
capacity by 2028, fostering a strong, sustainable future for
renewable energy in America.
Array's presence in New Mexico not only boosts the local
economy, but also positions the region as a hub for renewable
energy innovation and manufacturing. We are proud to work with
company like Enchanted Machine Works, Knockout Metal Works and
Precision Sharpening. This growth contributes to a more
resilient and diverse economic landscape benefiting the broader
community and promoting long-term prosperity.
The IRA has spurred a true manufacturing resurgence and
Array is just one example of how this legislation is paying
dividends. With policies that supercharge solar manufacturing
and create new jobs, together we are paving the way for a
brighter, more sustainable future. Thank you for the time and I
look forward to answering your questions.
[The prepared statement of Mr. Hostetler appears in the
Submissions for the Record.]
Chairman Heinrich. Mr. Amarnath.
STATEMENT OF SKANDA AMARNATH, EXECUTIVE DIRECTOR, EMPLOY
AMERICA, WASHINGTON, D.C.
Mr. Amarnath. Chairman Heinrich, Vice Chairman Schweikert,
thank you for the invitation to testify today. My name is
Skanda Amarnath. I am the Executive Director of Employ America,
a non-partisan macroeconomic policy research organization.
Before discussing what the available macroeconomic data
tells us about the nature of manufacturing investment and
public policy, I would like to first lays out some reasons why
manufacturing and industrial investment may be of unique
relevance.
Economic development and manufacturing advancement have
long been tied together. No major advanced economy has
sidestepped the industrialization process on its path to
becoming wealthy. If you compare what each country exports, it
becomes clear which countries are richer and which countries
are poorer.
Richer countries tend to produce a broader diversity and a
higher complexity of traded products. That is because richer
societies have accumulated superior know-how for producing
highly complex leading-edge products, and can do so across a
broader range of goods.
The reasons to encourage investment in manufacturing are
thus twofold: ensuring that workers and enterprises in the U.S.
capture the knowledge spillovers associated with producing
technologically advanced goods, and encouraging broader
industrial diversification at the national, state and local
levels.
A more diversified economy also goes hand in hand with a
wider range of opportunities for workers and businesses. But
where other sectors have thrived over the past few decades,
manufacturing has seen a general decline. Some reasons for the
decline were inevitable, but it is worth noting that this trend
also grew more visible in high-tech, advanced manufacturing
sectors.
With this mind, the surge in construction of manufacturing
facilities is worth studying. The level of spending that the
private sector has engaged in to construct manufacturing
facilities has increased from approximately $80 billion in 2019
to around $220 billion today.
Even after adjusting for specific cost increases, the level
of real investment has more than doubled since 2019. While
public policy is surely supporting much of this increase, it is
worth clarifying that these expenditures are directly deployed
by private firms, not by governmental actors.
Not all manufacturing subsectors have seen a surge in
investment, but the ones most closely adjacent to recently
enacted legislation have. The manufacturing supersector
encompassing computer and electronic products, and electrical
equipment, appliances and components have seen a tenfold
increase in real manufacturing structures investment since
2019.
This supersector includes not only the primary subject
matter of CHIPS, but also photovoltaic cells for solar panels,
batteries for motor vehicles and transformers for the utility
sector, all potentially facilitated by CHIPS and IRA.
The timing of the surge in investment in manufacturing
construction is the most compelling evidence that CHIPS and IRA
are having a sizeable impact on the willingness of
manufacturers to build out and improve their facilities. The
effects of policy enactment are especially clear cut across
census regions in the Midwest and Sun Belt, where manufacturing
investments surged noticeably following the enactment of
legislation.
To fully evaluate the success of policy, it will require
translating capacity gains, which recent construction spending
should represent, into gains in manufacturing output and
productivity. But importantly, it is still far too soon to
expect relevant manufacturing facilities to reach productive
maturity and achieve the anticipated level of output.
It will take time to fully build out capacity, and more
time still to reach productive maturity. The relevant
manufacturing investments, given their capital intensity, are
also unlikely to share their full labor market impact through
factory floor jobs alone. Instead, what we see is how
manufacturing investments can drive growth in construction-
related or product research and development jobs.
While targeted sectors are likely to see further gains in
employment only as production scales up, the bigger gains in
employment are materializing right now for electricians,
engineers, architects, lab testers and a range of other fields
I describe in more depth in my written testimony.
As we look to the future, it is important to remember that
leading edge manufacturing production, whether tied to
semiconductors or the vast array of new energy technologies,
often requires available and affordable financing, a proximate
supply chain and industrial base, and a skilled workforce.
These necessary conditions for investment often depend on
the presence of industry in the first place, thereby giving
rise to what might may understand as a chicken or the egg
dilemma. It often takes a critical mass of policy support to
ensure investment decisions can overcome hurdle rates that
otherwise would deter the sorts of investments that we are
seeing right now.
We have had decades of declining interest rates and falling
cost of capital, but only in recent years has a flurry of
investment in capital intensive manufacturing sectors emerged.
This flurry has even defied the has defied the Fed's recent
campaign to tighten financial conditions thus far.
But even with this progress, old and new constraints,
whether they stem from financial constraints, regulatory
burdens or something entirely different, are likely to bind. In
ensuring that enacted legislation yields maximum benefit for
the public, my hope is that lawmakers and policymakers stay
attentive, open-minded and pragmatic.
[The prepared statement of Mr. Amarnath appears in the
Submissions for the Record.]
Chairman Heinrich. Dr. Michel.
STATEMENT OF DR. ADAM MICHEL, DIRECTOR OF TAX POLICY, THE CATO
INSTITUTE, WASHINGTON, D.C.
Dr. Michel. Chairman Heinrich, Vice Chairman Schweikert and
members of the Committee, thank you for inviting me to testify
today. It is a particular honor to participate in a hearing for
a Committee I once worked for, and which I have many fond
memories.
To understand the state of our current economy, it is
important to begin with the tax reforms passed in 2017. By
cutting the corporate tax rate and allowing full deductions for
new investments, called ``full expensing,'' the Tax Cuts and
Jobs Act empowered businesses to expand their U.S. operations.
These changes were particularly helpful for investment-
intensive sectors like manufacturing. The tax cuts led to
faster growth and higher wages. Today, those same tax cuts
continue to support a strong labor market, additional
investment and a larger economy. Instead of building on these
successes of the tax cuts by making 2017 reforms permanent,
Congress has more recently done the opposite.
Instead of letting individual Americans, investors,
consumers, entrepreneurs determine the quantity, quality and
location of new projects, Congress and the President have
repeatedly inserted themselves into the private economic
decision-making, allocating scarce resources according to their
own design and for Washington's benefit.
These types of centrally planned industrial policies have a
multi-decade track record of spectacular failures. Such
policies inevitably require more than just incentives. For
example, generous subsidies support electric vehicles and their
infrastructure. But the billions of dollars of support is not
enough.
The subsidies come with heavy-handed regulations that all
but ban the competitors, and the administration now tells us
that tariffs are also necessary to protect the industry from
foreign competition. Market manipulation on one margin always
leads a cascade of new state interventions that are not just
windfall profits of corporate industry, but costs to American
consumers.
Industrial policy also breeds corruption and fraud. Past
tax credits have resulted in schemes designed to drain the U.S.
Treasury of hundreds of billions of dollars. These fiscal
costs--fiscal resources lost to the programs also represent
multi-trillion dollar opportunity costs, such as foregone
opportunities to make more effective tax cuts permanent.
For example, Congress chose to spend trillions of dollars
on dubious energy subsidies in the Inflation Reduction Act,
instead of pursuing broad-based policies like making expensing
for research spending permanent, a policy that would have
benefited millions of businesses and their employees all across
America. As a result of Congress's failure, business R&D
plummeted when expensing expired.
I will end with the most worrying trend. The Biden
administration is actively exporting these industrial policies
around the world, and they are doing this over the explicit
objections of Congress. Working through the Organization for
Economic Cooperation and Development, the administration has
designed the building blocks for an international tax cartel
that targets America's most successful employers with higher
taxes in more than 100 new countries.
The minimum tax they have designed not only raises tax
rates, but explicitly encourages competition with state
subsidies. Paired with domestic U.S. corporate subsidies, the
OECD minimum tax has prompted new industrial policies in
countries around the world, including the European Union, South
Korea, Japan, Israel, Germany, Vietnam, Bermuda, Singapore,
Ireland, Taiwan, India and China, just to name a few.
These offsetting subsidies trade no new productive economic
activity. They simply pad the profits of big, politically
connected firms. Congress might as well have lit a trillion
dollars of taxpayer money on fire. At least a bonfire would not
have fueled multiple years of high inflation.
Which leads me to my concluding recommendations. Congress
should reject the Biden administration-led OECD tax cartel by
cutting its funding and withdrawing from the OECD membership.
Congress should also reject industrial policies here at home by
repealing the more than $3 trillion of tax subsidies, including
those in the CHIPS Act and the Inflation Reduction Act.
Pursuing neutral, pro-growth tax policies that support
American employers--that support American employers by keeping
taxes low for everyone will provide the biggest benefits to
workers, to manufacturers, to service providers and to families
across the country. Thank you. I look forward to your
questions.
[The prepared statement of Dr. Michel appears in the
Submissions for the Record.]
Chairman Heinrich. Mr. Lincicome.
STATEMENT OF SCOTT LINCICOME, VICE PRESIDENT OF GENERAL
ECONOMICS AND STIEFEL TRADE POLICY CENTER, CATO INSTITUTE,
WASHINGTON, D.C.
Mr. Lincicome. Chairman Heinrich, Vice Chairman Schweikert,
members of the Committee, thank you for having me here today.
Industrial policy is indeed back in Washington, and supporters
are already taking credit for an American manufacturing boom.
Today, I will offer two notes of caution detailed in my
written testimony. First, the recent increase in U.S.
manufacturing investment must be put into context. Before the
CHIPS Act and IRA were enacted, market factors had pushed
companies to reconsider semiconductor supply chains. Private
demand for and investment in green energy was soaring, and
several major U.S. projects had been announced.
It is thus unclear how much manufacturing spending today
has been caused by instead of just coincident with new U.S.
industrial policies. Furthermore, increases in industrial
spending is still a relatively small share of total output and
investment. That spending might still be important some day,
but it is not currently an economic game-changer.
Indeed, actual U.S. manufacturing performance has been flat
since 2022. Private surveys have been pessimistic, and 2024
projections are now softening. Maybe a boom eventually arrives,
but it is just as likely we are again seeing what critics of
targeted tax credits, subsidies, tariffs and other industrial
policy measures have long cautioned, that they do not generate
sustainable long-term growth, but instead just redistribute
existing resources to favored companies at a net loss to the
U.S. economy.
Second, we must also consider the actual return on all
these investments. When the government showers preferred
industries with trade restrictions and trillions of taxpayer
dollars, the policies will inevitably produce something in the
real economy.
The real question is what exactly all that government
support is getting us. Is it generating dozens of innovative
and globally competitive American factories and a strong U.S.
economy, or will it produce a few more successes and many other
failures?
Not just unfinished projects, but entire industries
dependent on government support, plus unintended and unseen
costs elsewhere in the economy. Today, it is too early to say,
but there are already warning signs here and abroad, ones we
have seen before. Here at home, the cost of building, staffing
and starting production of subsidized facilities has
skyrocketed, thanks in large part to supply side barriers like
the National Environmental Policy Act, tariffs and Buy American
restrictions.
High costs and other unforeseen issues have now delayed or
cancelled many semiconductor, EV and solar projects, even some
where construction had already begun. And there are already
worrying signs that factories eventually completed here will
not produce cutting edge technologies that compete globally
without open-ended government help.
Solar panels, for example, still cost more to make here
than abroad, even with all the subsidies and tariffs. The
industry's solution: even more tariffs. Finally, politics is
again distorting industrial policy's implementation, social
policy a tap to CHIPS Act subsidies, IRA dollars funneled to
swing states, slow and complicated bureaucracy, election-
related investment uncertainty and of course a lobbying boom
there on K Street.
These and other issues remind us that there is a huge chasm
between celebrated investment announcements and actual
productive factories. They also show that the risk of today's
industrial policies is that they produce small and discrete
benefits at a massive cost, including not just a budgetary hit
but by diverting finite taxpayer and private resources away
from better targets.
There are also concerns abroad, because subsidies here have
prodded the EU, Japan and South Korea, Taiwan and India, China
and others to offer subsidies of their own. Thousands of new
industrial policy measures in the last year alone likely worth
trillions of dollars.
If history is any guide, this uncoordinated and predictable
global subsidies race could generate gluts and trade wars that
would undermine the very domestic investments our industrial
policies are trying to encourage. In the end, almost everyone
would be worse off, especially developing countries that can
afford big subsidies and, in the case of green goods, the
environment.
In closing, American industrial policy has long faced
challenges that limit its effectiveness and inflict unintended
economic and geopolitical damage. It is too soon to conclude
that we are following the same path today, but signs do point
in that direction.
Now this does not mean that Congress should just sit back
and watch things unfold, simply hoping our trillion dollar
gamble pays off.
As I and Adam and others have written, there is a long list
of proven tax, trade, regulatory, immigration and other reforms
that Washington can and should pursue to boost strategic
industries, and address strategic challenges. But subsidies and
protectionism still are not on that list. Thank you, and I look
forward to your questions.
[The prepared statement of Mr. Lincicome appears in the
Submissions for the Record.]
Chairman Heinrich. Thank you. Mr. Hostetler, I want to ask
you a question. I was really pleased to visit Array in April
with Secretary Granholm, to break ground on your new
manufacturing facility. But one of the things that really
struck me was the stories that individual folks who work for
Array were telling about their jobs and their impact on their
families.
Can you talk a little bit about the kind of benefits the
working family can access through a career in advanced
manufacturing, and what that means for the wider community?
Mr. Hostetler. Absolutely, Mr. Chairman. As you were able
to witness at our groundbreaking in April, the stories of our
employees coming into this industry and those that have been in
for some time, are enjoying very strong wages, great benefits
and great additional education opportunities through our
local--resources with our local community colleges.
They are able to build a solid foundation for their family,
and again contribute a great deal to the local economy.
Chairman Heinrich. You know, one of the challenges we have
in New Mexico right now is that there are so many simultaneous
construction projects going on between the transmission that's
being built, the manufacturing that's being stood up. Workforce
is a real challenge. Can you talk about, a little bit about the
relationship between the Inflation Reduction Act and your
efforts to invest in local workforce to build that capacity?
Mr. Hostetler. Absolutely. As I said in my prepared
remarks, Mr. Chairman, we have been working with the local
community college. We have provided them some additional
systems to which they could train employees early on in how to
build, install, maintain and control solar systems.
We are also employing local engineers, local maintenance, a
very wide degree of different employees in customer service,
and all of that is geared at once again providing a very
stable, very strong foundation for their lives in the
community.
Chairman Heinrich. Mr. Amarnath, talk a little bit--expand
on how this focus on energy tech, on semiconductor production
and infrastructure, how do those relate to the overall
groundwork for U.S. job growth, and what does that mean for the
future of the American middle class?
Mr. Amarnath. Sure. So I would start with the--obviously
the gains have come through construction investment so far, and
so especially if you look at the labor market data, while
manufacturing employment has recovered from the Covid Recession
and in spite of pretty stable overall, the real gains have
probably been more visible in other sectors, especially in
terms of first as I said, the trades construction. But also if
we look to the repair and maintenance and into particular
sectors of especially engineering services and engineering and
drafting and lab testing and there are at least a few key
sectors, again where manufacturing and services actually go
hand in hand, where there is a tendency to say
``manufacturing'' and just focus on particularly that
subsector. But I would actually encourage people to think a
little bit more holistically about how manufacturing and
services are pretty complimentary in these contexts.
And especially when you think about where the good jobs
are, right, those are jobs that are typically attached to when
you are higher in the value chain, right, where you actually
are at the leading edge. And that is, to my mind, the merits of
focusing on semiconductor manufacturing, on particularly newer
energy tech, and these are jobs that would be good jobs on the
factory floor but also elsewhere.
That is typically also good for--in terms of commercial
opportunity for American businesses as well.
Chairman Heinrich. Yeah. Many of the people in the skilled
trades that I talked to would point out that, you know, when
you are building these things, they are inherently temporary
jobs. But those are the good jobs that support their middle
class families. They are temporary. When they are standing up
an Intel factory and then they move on to building
transmission, and then they move on building their research
facility at our national labs, we think of those as temporary.
But they are really permanent jobs for those individuals. I
want to ask you as well, you know, we have seen some of the
supply chain that we hemorrhaged for decades, particularly to
China but more broadly to Southeast Asia for things like--for
solar panels, for modules, for electric motor components, for
battery storage.
Some of that supply chain is beginning to move back onto
U.S. shores. How important is that, and how critical is the
structure of a production tax credit to have incentivized that
reshoring of critical supply chains?
Mr. Amarnath. It definitely seems like this flurry of
manufacturing investment that we have seen is pretty
concentrated in terms of the timing of it, and so while I--it
is very possible there are layers of policy supports that have
been helpful, it definitely was unleashed all at once I would
say, in terms of it being over a very concentrated time period.
And that suggests that it does require a critical mass to
get over these hurdles, and these things are--you have to get
to actually--while I think there are actually a lot of merits
to what some of another testimony--people have testified as far
as having broad-based policies that are supportive of all
industries, there is also a certain quantum of investment that
is needed in a lot of cases, especially where you get into
capital-intensive sectors.
And so these are things that have clearly been helpful as
far as seeing the surge, especially in 2022 and 2023. Again,
this is the first phase of manufacturing investment in terms of
structures. We obviously want to see it shore up in equipment
and production later on, and these are obviously open questions
that need to be tackled in real time.
But there is clearly something that is valuable about
having onshore supply chains that we have probably learned over
the last few years in certain contexts, where we have had a
knockout of auto production for two years.
There is definitely certain things that can build in more
resilience, and then there are things that are especially
valuable in terms of leading edge technologies, where again, I
think there is a lot of national security and economic security
relevance to just being at the leading edge there.
And then I would say at least in the context of call it
better batteries and semiconductors, there has been evidence
that the U.S. has fallen behind.
Chairman Heinrich. Vice Chairman.
Vice Chairman Schweikert. Thank you, Mr. Chairman. Doctor,
first off a couple of things from your testimony, your written
testimony, and I am chasing a couple of things.
So in my opening statement, I tried to touch on, shall we
say, allocation cost of--because I remember the rage from our
brothers and sisters on the left when we did tax reform, being
a trillion and a half dollars which, as you know, Joint Tax
missed the number by $900 billion, actually, on top of receipts
that came in.
But this is direct subsidies that is over two trillion, and
the distortion factors of allocation. So my couple of questions
are when we look at the distortion of a planned economy
industrial policy, which the left embraced, wages, wage growth,
the cost to society of the inflation it helped fuel, is society
functioning poorer today?
Will I see that the couple of trillion dollars of planned
economy spending in workers' wages? Will the wages long-run be
healthier and stronger, or did we actually create a--
functionally a short-term sugar high in a limited number of
politically connected organizations?
Dr. Michel. Thank you for the question. It is, I think, the
second one. The chart that you--that you are holding up there
shows the cost of the direct subsidies compared to making
policies that were expiring at the same time, mainly business
expensing for research and spending in physical investments
like manufacturing facilities.
Those policies were expiring and so--and the cost, the $2
trillion cost of the direct subsidies, is significantly larger
than setting neutral policy that gets out of the way of
investment for all businesses, rather than targeted businesses
that receive specific checks from Washington.
And so that is why we should first get the government out
of the way of investment before the government starts getting
in the business of picking who is investing and where.
Vice Chairman Schweikert. This borrowing and spending and
its contribution to inflation. Ultimately, is society poorer?
Dr. Michel. Yes, undoubtedly. When the government is taxing
the money out of the economy to then redistribute, or
borrowing--or borrowing, all of these things make us poor.
There is deadweight loss on the tax side, there is
inefficiencies on the spending side. Inflation is making people
poorer----
Vice Chairman Schweikert. So for those of us in the
Phoenix-Scottsdale area, unless you make 26 percent more today
than when this all began, you are poorer. Mr. Lincicome--
Lincicome. Look, you actually have a great chart in here,
because you remember part of this hearing was titled, you know,
the manufacturing boom.
But if you actually look at the dot plot and say hey, here
is where, you know, the industrial policy, the spending began,
and the number of, you know, plans that were happening under
existing Tax Code and considering if you actually put in the
hiccup, as we will call it, during COVID-19, how do can you
call this a boom?
It might be a tighter concentration, but the fact of the
matter is under an allocation theory of tax policy, we were
actually doing quite well and it was a wider distribution.
Mr. Lincicome. Right, thank you. If you look at, you know,
the headlines around that time, whether it is in 2019, 2020,
2021, you saw there was a lot of interest for various market-
related reasons, the pandemic, pure politics and the rest.
There was interest in changing supply chains, changing
sourcing, onshoring certain production of defense-related
technologies or other critical industries.
And you know, I think it is undeniably true we are going to
see some sort of sugar high, some sort of investment and
because of all of these subsidies. I mean again, we are talking
trillions of dollars potentially in government and taxpayer
money going to favored industries.
But the question is not only about whether that is inducing
that sugar high, it is what we are actually getting.
Because in the previous, in the pre-IRA, pre-CHIPS era
where we were seeing some of those announcements and some of
those investments, those were not coming because somebody was
dangling cash at a company, or they were not coming because
there was some sort of tax credit expiring or whatever.
They were coming because the investors saw a legitimate
long-term investment that they wanted to make. Those are the
types of investments we want here in the United States.
Vice Chairman Schweikert. All right, and Doctor, I want you
to confirm something I believe I understand. When we do it
through sort of tax regulatory allocation theory, our policy,
the vast majority of that goes to corporate America actually
goes to workers' wages.
Dr. Michel. When we are--when the Tax Code is treating
investment neutrally through something like expensing or a
lower corporate tax rate, most of that is shared by workers
through higher wages, the theory--the additional investment
leads to higher productivity, which then leads to higher wages.
The opposite is not true. A tax credit does not have that
same passthrough to higher wages. It primarily goes to pad the
profits of the corporation doing----
Vice Chairman Schweikert. Which I have always found amazing
irony in where the two parties are, and what we say about each
other. And yet we can demonstrate mathematically this policy
over here is actually what helps workers, and with that, I
yield back, Mr. Chairman.
Chairman Heinrich. Senator Welch.
Senator Welch. Thank you--I want to thank all our
witnesses. It is interesting listening, because really there
are two economic philosophies at work here. There is the
industrial policy that obviously underlies a lot of the Acts
that have been recently passed, and there is the very strong
free market approach, with government not being involved at
all.
I voted for those pieces of legislation and support them,
and think the government does have a role. But I think that is
really the debate as I listen to you. But I want to ask you,
Mr. Hostetler, right?
Mr. Hostetler. That is correct, yes.
Senator Welch. You have to deal with--you have to deal with
this guy in New Mexico?
Mr. Hostetler. I do.
Senator Welch. Well my--it is tough. It is tough.
You know, it is really interesting what you are saying,
because the legislation, there is some funds available for you
to help folks learn how to do solar installations and then move
towards providing more clean energy; correct?
Mr. Hostetler. Yes.
Senator Welch. The CHIPS Act also provided some funds that
got invested in Vermont at Global Foundries, and folks there
see that as jobs. They do not see it as the government involved
or not involved. I mean the bottom line for them is that it is
going to give them a new lease on life in these advanced chips.
But tell me how it makes a difference for young people,
whose job prospects in many of our rural communities are really
pretty limited until they get an opportunity to do something
that has a sustainable future?
Mr. Hostetler. Yes, absolutely. First, I mean I would like
to think of this as here is a great example where you separate
the theory from practice and the reality, right? So these
specific provisions passed within the IRA has led to a
definitive practice of onshoring, and that is bringing jobs
back to the U.S. that were previously done in Southeast Asia.
That--as we discussed, that new factory will generate 50
additional jobs that we are again onshoring back from Southeast
Asia into the U.S. This coupled with the fact that some of the
provisions that were outlined in the IRA provides prevailing
wages and apprenticeship programs for all construction
projects, which not only ensures good-paying jobs and an
opportunity to learn a new career in what will be a sustainable
future for the U.S., that is in the renewable energy.
So we feel really strong about those specific provisions
and what they are doing in terms of assuring good wages, and
wages that will be able to be sustained over a long period of
time.
Senator Welch. Thank you. And you know to be fair to the
free market argument, as a result of some of these so-called
industrial policies and really putting a limitation on imports
with tariffs, American consumers are going to pay a little
more, right?
But what I have seen is that if the whole goal is to just
get the lowest price, then capital will go to the cheapest
labor and pretty soon you have hollowed out communities like we
had in Vermont, when we lost our machine tool industry. And
coming from a rural state, I have seen that manufacturing is a
critical part in these rural communities that have depended on
agriculture, but had the benefit of manufacturing.
So I guess I will ask you, Mr. Amarnath. You see some
benefit in these policies that are being disputed about their
economic efficacy, with having as a goal trying to bring some
of these manufacturing jobs back to our communities.
Mr. Amarnath. So I would say especially where it deals
with--you are trying to rationalize particular policies for a
particular industry, right, there is obviously places where it
could be in excess, but it is also worth thinking about what
types of capacities are being built up in the process, right?
In the case of machine tooling, for example, that is a
pretty specialized industry and where there is also--also a lot
of evidence of where competition is not exactly fair on a
global scale, and where there needs to be some thought given to
what capacities are we losing in the process.
These are people who obviously are working and they are
earning a paycheck, but they also are developing a certain set
of skills, a certain type of know-how. That is pretty valuable
and very costly to lose.
Senator Welch. Thank you. I will--my time is up, and I did
not have a chance to address you, but I want to acknowledge
when you do have industrial policy, you do have tax policy,
there is going to be winners and losers. And if you are on the
side, as I was, to support the Inflation Reduction Act, it
really does demand of those of us who supported those policies
that there be a hard-headed, hard-nosed assessment of what has
been the cost and what has been the benefit.
So your point in that respect I--I agree with. I will yield
back and I guess Mr. Smucker you----
Chairman Heinrich. Go ahead.
Representative Smucker. Thank you, Senator Welch, and just
a follow-up to some of the comments that Senator Welch just
made, and I think--I think he aptly described, perfectly
described the debate that we are having now, the debate that we
will be having next year as we look extending certain
provisions of our Tax Code and other changes that could be
made.
How do we design the best system to achieve what I think
are shared goals. We want all Americans to prosper. We want the
economy to grow. We want to encourage innovation. We want to
promote job growth and opportunity. So I think it is a very
valuable discussion to have.
Mr. Hostetler, I understand or I hear the impact on your
business, and I think your employees have benefited from that,
you have benefited from that. But I worry about the broader
impact on all Americans, and I think if you look at the--the
what has happened after the IRA was passed, I think it is
called the Inflation Resurgence Act it should be, because we
saw inflation grow and our folks on our side have learned that
is exactly what would happen when you expand supply that much.
And while it is benefiting some people, I think on a much
broader basis I have talked to people in my community who have
not seen the benefits of some of the companies that have
benefited, and they are hurting. It is--it is difficult for
them sometimes to put food on the table, gas in their car.
Prices have gone up 20 percent at least, some items much,
much more. Since we have implemented some of these industrial
policy items, as Senator Welch was talking about. It is painful
for people, and you could pare that back and I will get maybe
Mr. Lincicome, I will ask you to respond to this.
But compare that back to the impact of the Tax Cuts and
Jobs Act. Now that bill was not perfect, but it attempted to
broaden the--you know, it attempted to implement good tax
policy that provided a broad benefit, that grew the economy,
that encouraged innovation. It is pretty difficult to look at
that and say it did not work.
Middle income, real household income had increased by 5,000
per household. The economy was growing at a much faster clip
than it had been before, which by the way helps to address, I
think what is one of the biggest existential problems and that
is the growing debt and the fiscal trajectory that we are on.
And so--and more people were employed, typically
disadvantaged populations had the lowest employment rate ever,
and one of the numbers I am most proud of is we had the lowest
poverty rate ever in the history of the country after just
several years of implementation of the Tax Cuts and Jobs Act.
So Mr. Lincicome, am I looking at this correctly? Would you
want to--do you want to expand on what I said or react to what
I said? It seems to me there are two very clear examples of
policy, economic policy that was put in place. We have a pretty
good record of the impact after a few years in each case. So am
I--you want to respond to that?
Mr. Lincicome. Well, I mean I think you are directionally
correct. I think the reality you have, and I think it is
correct, that we all share the same objectives. We want good
jobs, a strong labor market, a strong economy. The question is
what is going to actually generate that in a sustainable way,
while minimizing the distortions.
Not just the economic distortions, but the political
distortions as well, that your free market approach not only
avoid taxing certain jobs. So we tax solar panels that hurt
solar installation jobs; we tax, you know, half of all imports
are manufacturing inputs. So those are inputs used by American
manufacturers, support American jobs.
You not only are taking from consumers and raising the
costs and shrinking their budgets, but you also put Washington
in charge of making decisions about what factory gets money and
what factory does not, what place gets those dollars as well.
And that over the long term creates enormous problems.
I think it also creates a risk for even more subsidies and
protectionism in the future. We had solar panels in 2012 that
have then--tariffs in 2012 that have just steamrolled, and now
have another solar panel tariff case now pending. The Intel CEO
is now talking about the CHIPS ACT 2.0, just weeks after the
first subsidies were implemented.
These things have a way of simply sticking around forever,
if not being expanded, because the industries that we are
supporting are not actually globally competitive.
Representative Smucker. I have more questions, but thank
you Mr. Vice Chairman.
Vice Chairman Schweikert. Thank you, Congressman Smucker.
And I apologize to the panel and everyone in the room, because
there is--we would love to dive down into this. We have votes
on in the House, so it is the tyranny of the calendar.
Please understand, I think actually there may be--I think
even the Chairman may also have some other questions. Three
days we have to sort of submit some additional questions to. I
know I have a couple of allocation ones I want to send to the
good doctor, and with that, the hearing is adjourned.
[Whereupon, at 3:53 p.m., the hearing was adjourned.]
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