Old-fashioned industrial policy makes a comeback

Jun 02, 2022 View in browser   By Adam Behsudi and Lorraine Woellert THE BIG PICTURE Can the supply chain be saved? | Spencer Platt / Getty Images For generations, Washington has treated the term "industrial policy" like a four-letter word. But amid an escalating U.S.-China power struggle, the worst global pandemic in a century and a war launched by a commodity-rich aggressor, the thinking is changing. Government-driven policies to support innovation and growth in certain sectors or even among specific companies could be necessary, especially if the U.S. hopes to repair the global supply chain, lead on climate change and reap the economic rewards of a green energy transition. Let's start with the state of play. Supply chain disruptions had eased at the beginning of the year, but took a turn for the worse in April, according to data from the Federal Reserve Bank of New York. New stresses emerged in Asia and Europe related to the coronavirus and Russia's invasion of Ukraine. Federal Reserve Bank of New York Now, after two months of coronavirus-related shutdowns, Beijing and Shanghai began reopening last week. Peak shipping season is upon us, and port hubs are piled high with containers. Overflow capacity for thousands of customs-blocked containers destined for Russia is maxed out, according to shipping publication The Loadstar. Shipping giant AP Moller-Maersk AS described Asia-Pacific networks as "under severe pressure." So how do we fix it? In one of his first acts after taking office, President Joe Biden ordered an examination of U.S. supply chains by sector. The resulting studies suggest that a new policy approach to global trade is in the works, one focused not just on commerce, but also climate goals. The Department of Energy, one of seven agencies ordered to issue reports, laid it out in stark terms: "U.S. decarbonization goals are reliant on both Chinese firms and the Chinese government." In an analysis of the administration's supply chain reports, Todd Tucker of the Roosevelt Institute, a liberal think tank, found it notable that departments set  clear targets for electric vehicle production, clean energy generation, battery storage costs and other goals. It might be the first time since President Franklin D. Roosevelt that the U.S. government has inventoried resources and set industrial policy targets to meet certain objectives, he said. "What the reports do is shift the climate conversation away from the humanitarian or ecological arguments for actions, which are appealing among Democrats, and really just talking plainly about what it's going to take to make the stuff that we need," Tucker said. The Roosevelt Institute The administration's more than 1,300 pages of work — which were released the day Russia invaded Ukraine — contain multiple threads examining what's needed to meet clean energy goals and what's at risk economically from climate-related events. The Agriculture Department, for example, found that if one critical lock and dam on the upper Mississippi River north of St. Louis, Mo. was forced to close suddenly it would cost the farm economy about $1.57 billion and impact 132 counties in 17 states with the added costs of shipping grain by rail or truck. The report also notes the additional environmental impact — railroads generate 30 percent more CO2 per ton-mile and trucks 100 percent more compared with barges. The take-away: Don't think that supply chain problems will magically disappear when (if?) the coronavirus pandemic ends. In important sectors such as clean energy and food, changes must be made to ensure the system's sustainability. China alone accounts for 80 percent of global production and refining of rare earth minerals, 61 percent of global lithium refining for batteries and EVs, and 100 percent of graphite processing for batteries. It controls 97 percent of production of silicon wafers for solar energy. To put it in perspective, OPEC states control only 40 percent of the world's petroleum production. "The levels of geographic concentration are just unlike anything we've seen for something as vital as energy supplies," Tucker said. "These reports showcase that the U.S. is finally waking up to that." YOU TELL US Lorraine never got to hitch a ride on the Regina Maersk. Now she's set her sights on a post-Suezmax ship. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn, and reporters Lorraine Woellert and Jordan Wolman. Reach us at gmott@politico.com, dkahn@politico.com, lwoellert@politico.com and jwolman@politico.com. Want more? You can have it. Sign up for the Long Game. Four days a week and still free. That's sustainability!   DON'T MISS THE 2022 GREAT LAKES ECONOMIC FORUM:  POLITICO is excited to be the exclusive media partner again at the Council of the Great Lakes Region's bi-national Great Lakes Economic Forum with co-hosts Gov. JB Pritzker and Mayor Lori Lightfoot. This premier, intimate networking event, taking place June 26-28 in Chicago, brings together international, national and regional leaders from business, government, academia and the nonprofit sector each year. "Powering Forward" is this year's theme, setting the stage to connect key decision-makers with thought leaders and agents of change to identify and advance solutions that will strengthen the region's competitiveness and sustainability in today's competitive climate of trade, innovation, investment, labor mobility and environmental performance. Register today.     WHAT WE'RE CLICKING — Jamie Dimon isn't woke. The JPMorgan Chase CEO on Wednesday pushed back against critics of stakeholder capitalism, calling himself "a red-blooded free-market capitalist." "All we're saying is when we wake up in the morning, what we give a shit about is serving customers, earning their respect, earning their repeat business," Dimon said. The Financial Times has more. — House Republicans have ideas for taming gasoline prices and combating climate change. But few of them are new. POLITICO's Josh Siegel reports.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Lorraine Woellert @Woellert Jordan Wolman @jordanwolman   Follow us

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