The Industrial Arms Race: Pros and Cons of Manufacturing Subsidies

There is currently a global industrial arms race to boost domestic manufacturing, particularly in high-tech and green sectors. Governments are spending massive amounts of money on subsidies, with the estimated cost in the US alone reaching over $1 trillion. While the main reasons for this push are to enhance independence from geopolitical rivals, address climate change, create jobs, and promote growth and innovation, there are economic dangers to consider. Subsidies could lead to duplication in production, reduce specialization gains, raise costs, and hinder economic growth. Additionally, the promised manufacturing jobs may not materialize, as these industries require little low-skilled labor. An alternative approach would be to diversify supply chains through collaborations with third countries, focus on creating good jobs through bottom-up processes, and implement more targeted strategies to address climate change.