Can industrial policy revive manufacturing?

[MILAN] THE United States has decisively outperformed most other advanced economies over the last decade or so. As many – including former European Central Bank President and Italian Prime Minister Mario Draghi in his influential report on European competitiveness – have recognised, the US owes its “exceptional” performance largely to the dominance of large American companies in high-tech sectors. US manufacturing, however, has been struggling.

The basic facts are not in dispute. Though the US economy has grown at a healthy clip over the last decade, US industrial production (comprising manufacturing and construction) has not increased: the industrial-production index remains at almost exactly the same level – about 100 – today as in 2017 (and even 2014).

US President Joe Biden’s administration sought to change this by introducing major subsidy programmes, including the Inflation Reduction Act (IRA) and the Chips and Science Act, both of which were passed in 2022. Since then, construction activity, especially in industrial structures, has surged, with non-residential construction spending reaching record highs in 2023. OECD data shows that, since 2015, US construction activity has increased by about 80 per cent, compared with less than 20 per cent in the EU.