The Limits of “Back-Door Actions”

David Ignatius expresses delight with President Biden’s “back-door actions” in his Washington Post column:

These under-the-radar initiatives were outlined recently by White House officials familiar with the details. Most of the initiatives address basic economic problems stemming from the pandemic and global warming. The idea is to use the executive powers of the presidency to advance the White House agenda without legislation, just as President Donald Trump did in his first year.

The authority for these programs is an executive order Biden issued in February, directing federal agencies “to strengthen the resilience of America’s supply chains.” In Biden’s definition, that covers a lot of ground, from pharmaceuticals to electric vehicles to semiconductors and a thousand other things needed to build what the executive order describes as “a world-class American manufacturing base and workforce.”

Take pharmaceuticals, whose importance was so viscerally obvious during the pandemic. It turns out that as much as 90 percent of America’s supply of “active pharmaceutical ingredients,” the drugs that keep us healthy, is manufactured abroad. This offshoring exposed a vulnerability, not only in terms of supply but also of quality, during covid times.

So the Department of Health and Human Services is deciding which drugs the United States needs to produce at home. When that list is complete, the administration will consider how to encourage production in the United States — through government purchases, stockpiles or other incentives. The best strategy, obviously, would be a version of what happened with the coronavirus vaccines: U.S. companies were so innovative in drug design, testing and production that we didn’t need foreign drugmakers.

The United States’ power supply is vulnerable to disruption, too, as we saw in the freeze that crashed the Texas grid in February and the cyberattack that shut the Colonial Pipeline in May. The key to energy resilience (and also to reducing carbon emissions) is partly better battery technology.

So the Biden Energy Department launched a “National Blueprint for Lithium Batteries” in June, aimed at making the United States a dominant producer of this essential energy-saving tool by 2030. The document proposed public-private partnerships to secure raw materials, research and development and manufacturing capacity for a market that will grow five- to tenfold in this decade.

Electric vehicles are a big part of any rational attempt to lower carbon emissions. So in Biden’s first week in office, he issued a “Buy American” order with a provision to purchase “clean electric vehicles.” And in a subsequent order, he directed his National Climate Task Force to replace the federal fleet of more than 600,000 cars and trucks with zero-emission electric vehicles.

The White House also identified a potential shortage of critical materials used in high-tech products. The Defense Department is using grants, loan guarantees and other powers to ensure supplies. And working with Congress, the administration is drafting aggressive plans to keep innovation and production of advanced semiconductors at home.

but lurches uncontrollably in to one of the flies in that ointment:

Government intervention in the economy is a slippery slope. Policies that protect U.S. jobs at a cost of featherbedding and inefficiency are a mistake.

It’s not the only problem. Let’s consider a few, starting with electric vehicles. It is beyond the president’s authority to command the replacement of all 600,000 GSA vehicles. I believe he could direct that all replacement or new vehicles be electric vehicles. That would affect at most 20,000 vehicles per year, a far cry from 600,000. There are issues with that, too, since the president can block purchasing anything but electric vehicles but he can’t mandate the budget for doing so. That is solely within the Congress’s purview. If it were otherwise, we’d have a gigantic wall on our southern border alreaedy.

The average cost of an EV in the U. S. is about 50% higher than what is being spent for a car with an internal combustion engine. At the pace at which the GSA replaces vehicles, the job will be done in 2054 and will cost about $33 billion. That’s doable but it will require an act of Congress.

But wait! There’s more. A relatively small number of the batteries used in EVs are made in the U. S. Most are made in Japan and South Korea, as this document avers and there’s even more to it than that. The components used in building those batteries wherever they’re made frequently originate in China. Consequently, unless the entire supply chain from raw materials to off-the-assembly-line vehicle is mandated as well as the country of origin sticker the mandate will amount to a back-door subsidy to Japan, South Korea, and China which is presumably not the intention. How much more will that cost and how long? No one knows.

There’s a very similar situation with the active ingredients in pharmaceuticals. As much as 90% of them originate in either China or India. I advocate relocating all of that production to the U. S. That’s what I mean when I write about “basic production”. But it will take more than executive orders to do it including both time and money. Keep in mind that no one is going to invest in building a plant in the U. S. if they expect the executive order will be rescinded by the next president.

And I haven’t even gotten to the ghastly track record of public-private hybrid companies, e.g. Fannie Mae, Freddie Mac, etc. They’re great ways to provide cushy jobs to political cronies but they’re also constantly in need of bail-outs.