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My analysis of American dependence on capital goods imports June 18 drew a wide range of reader comments on Twitter, including this from Hudson Institute fellow and former NSC staffer Arthur L. Herman:“Brilliant and concise read on why the current decoupling hysteria, won't succeed without a major shift in how the US invests in capital goods esp the private sector. We can't do this using the remote from the couch.” Herman wrote a fine book on America's industrial mobilization for World War II.
Other readers asked how to reconcile a reported surge in US factory construction with very weak numbers for capital equipment production. Part of the answer is inflation.
In deflated dollars, the construction boom looks more like a boomlet.
Another part of the answer is that the factory construction data are distorted by a few big chip fabrication projects subsidized by the Biden Administration's CHIPS Act. The semiconductor industry association claims that $200 billion of chip investments are underway thanks to Washington subsidies. That's a national security decision, not an economic one. TSMC says that it will cost 30% more to produce high-end chips in the US than in Taiwan, and the additional cost will be passed on to American consumers.
And the final part of the answer, as I wrote in the June 18 story, is that imports of capital goods have surged to $350 billion in 2022 from $200 billion in 2020.
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