BREAKINGVIEWS-Muddled US meddling grinds factory gears

By Gabriel Rubin

WASHINGTON, June 25 (Reuters Breakingviews) - Trying to reshape the U.S. economy around manufacturing is hard enough without helter-skelter industrial policy. Cancelled subsidies, shredded contracts and unpredictable tariffs should be partly countervailed by tax and regulation breaks. On balance, however, President Donald Trump’s highly personal and protectionist approach to investment and trade adds up to a losing proposition.

These business interventions are coming to a head. Republicans imposed a July 4 deadline to pass budget legislation that includes a repeal of most of President Joe Biden’s climate-related initiatives and another July 8 cutoff date to reach deals with U.S. trading partners. Without those international pacts, the U.S. average effective import duty rate would increase tenfold to more than 20% from its pre-Trump rate, stifling companies of all stripes.

The U.S. president’s impulse to denigrate and eliminate his predecessor’s efforts is also getting in the way of sound economic development. Emblematic of them was Trump prodding legislators earlier this year to repeal the CHIPS and Science Act, which already has doled out some of the $39 billion earmarked to prop up the domestic semiconductor industry.

Although undoing the program is not included in a $4.5 trillion tax package passed by the House of Representatives last month, a separate shadow review is playing out in Howard Lutnick’s Commerce Department. Even agreed deals are on shaky ground. The agency’s secretary has suggested that grants under the CHIPS Act were “overly generous,” and he is trying to renegotiate them.

The strange part is that there’s no real debate in Washington about whether such high-tech know-how is essential for a modern economy or national security. Renewable energy and electric vehicle manufacturing, however, are contending with a stiffer challenge. The tax package would derive roughly $500 billion in “savings” by repealing and altering credits from the 2022 Inflation Reduction Act, Biden’s signature climate legislation.

Republicans have trod a tortuous path on such matters. The fiscally conservative Tea Party movement during the Obama administration built a following partly by opposing federal outlays for companies, including Export-Import Bank financing for Boeing BA.N. It also made collapsed solar-cell producer Solyndra, which had received $535 million from the Energy Department, a poster child for supposed horrors caused by the government “picking winners and losers.” The campaign effectively drained public support for federal clean energy funding, even though a $465 million U.S. loan helped propel Elon Musk’s fledgling Tesla TSLA.O to success.

Trump has reoriented such populism toward a more nationalist and ideological end. Rather than swear allegiance to the free market or directly dole out taxpayer money during his first term, he tried to bully companies from Whirlpool WHR.N to General Motors GM.N to move production to the United States, and dangled tax benefits for doing so. With Biden in the Oval Office, the GOP reflexively rejected initiatives aimed at beefing up the most promising and domestically important areas of manufacturing.

If the party has its way, a $7,500 consumer tax credit for battery-powered cars and trucks will vanish. Eliminating it would hurt GM and Ford Motor F.N, which have redesigned product lines to focus on electric vehicles. Entrepreneurs in other nascent areas also are angling to preserve recently provided aid. Advanced nuclear reactors, green hydrogen and ammonia, electric heat-pumps and carbon-capture technology all face rapid phaseouts of production and investment tax benefits.

Removing so much support could set back the U.S. renewables boom. Solar and battery power accounted for 82% of newly installed energy generation connected to the grid in the first quarter of 2025, but rooftop solar demand could fall by 85% through 2030 if the House legislation passes, Morgan Stanley analysts estimate.

A trade group representing Microsoft and others makes the case that existing energy tax credits are linchpins for developing artificial intelligence, which devours electricity. With China making big strides in machine learning, it is clearly at least as important to U.S. national interests as other areas Trump is eagerly promoting. Domestic shipbuilding, for one, produced just 0.1% of worldwide tonnage in 2023, down from 5% in the 1970s.

The vexing interventionism took another odd turn with Nippon Steel’s 5401.T $15 billion acquisition of U.S. Steel. After initially siding with Biden and rejecting the Japanese buyer’s takeover on national security grounds, Trump seemed to grasp that the deal amounted to a lifeline for the 124-year-old national champion. He allowed the merger to proceed, but with the extreme industrial-policy step of a “golden share” giving the U.S. government veto power over a range of corporate decisions.

Other sorts of burdensome meddling also threaten to scare off overseas investors. International companies, for example, are scrapping to remove a section of the tax bill, which would give the president power to impose an additional 20% levy on U.S.-owned assets. Some $2.3 trillion of foreign direct investment in the United States, or 40% of the total, is in manufacturing.

Repercussions are starting to emerge. U.S. manufacturing contracted for a third straight month in May and suppliers took the longest time in nearly three years to deliver raw materials and other inputs, according to the Institute for Supply Management’s regular survey. Tariffs are the leading source of complaints in the Dallas Federal Reserve’s measure of factory activity.

To give the illusion of movement, Trump has relied on his personalist dealmaking strategy, which is inefficient at best and exaggerated and cozy at worst. He touts massive investment pledges from Roche ROG.S to Saudi Arabia. Like many of these promises, however, the $500 billion one from Oracle ORCL.N, SoftBank 9984.T and Sam Altman’s OpenAI for their Stargate AI project should be regarded skeptically given the murky financing and wild fluctuations in AI data-center projections.

However eye-catching the numbers may be, including those from Apple AAPL.O and Microsoft MSFT.O, they don’t offset the slowdown in growth from import levies and unpredictable policy. As of April 8, which accounts for Trump’s global 10% tariff but not the lowered 55% rate on Chinese goods, White House trade policy would shave 2.4% off GDP by 2044, according to a median scenario from the nonpartisan Penn Wharton budget model.

Destroying Biden’s manufacturing legacy also will prove costly, especially regarding renewables, chips and EVs. And that’s before even tallying the long-term costs of gutting U.S. support for scientific research. For a president who claims to value jobs in factories above all others, he’s throwing a lot of sand into the gears.

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