‘Made in America’ is on (government) life support, and the prognosis isn’t good
Intel and Boeing, two of the pillars of American industry.
Intel makes some of the most impressive chips in the world and has for decades, driving high-performance computing to its limits while supporting a company with a market cap today of $200 billion and supporting more than 110,000 employees. Meanwhile, Boeing remains a global leader in aviation despite retiring the 747, with $66 billion in revenue backing a market cap of $90 billion and hosting more than 153,000 workers.
Like pillars of classic Rome though, they exist merely as a shell of their former function. They are weathered, tired, and crumbling, and it doesn't seem likely that they can hold up the American economy the way they have over the past generation, nor keep the country on the frontier of innovation any longer in their critical industries.
Deindustrialization has swept through the United States for decades of course. It started with the easy stuff - textiles, consumer widgets, appliances - but the sophistication of export-driven economies like Korea, Germany, Taiwan, China, Thailand, Turkey and others has pushed more and more of the manufacturing stack overseas.
Now, even the absolute finest pillars of American exceptionalism in industry are under deep threat. Intel is in the worst position between the two. The company's bombshell announcement that it is delaying its next-generation 7nm node and would also begin outsourcing some of its manufacturing caused waves on Wall Street, with the stock down nearly 20% in just two weeks. Analysts increasingly believe that Taiwan contract fab TSMC is taking a multi-year lead over Intel's technology.
Meanwhile, Boeing had and continues to have that whole 737 MAX debacle since the plane model's first crash in October 2018. That was debilitating enough, but then you add coronavirus and the global collapse of travel on top of it, and the company's very prospects are looking quite a bit more endangered than anyone could have anticipated two years ago.
For the United States, the first step in ameliorating these slow-motion train wrecks has been the classic policy crisis tool of the bailout. Intel is maybe the most prominent example of America's death in semiconductors, but it is hardly alone. So Congress is targeting the industry for heavy incentives to try to bridge the gap. Two weeks ago, Senator John Cornyn (R-TX) got widespread bipartisan support for his amendment to this year's defense budget bill that would appropriate billions of dollars of funding and incentives to propel American chipmaking.
Meanwhile, Boeing sought a $60 billion government bailout, before finding a debt consortium of private investors to fund operations. Yet, Boeing gets a different kind of support from the U.S. government, given that a third of its revenues from defense sales, which is obviously heavily driven by the Pentagon. A government bailout for the manufacturer this year is still not out of the question.
Smothering dollars on these companies isn't going to change the rot that is spreading within. Both companies have transformed engineering-focused cultures to profit-driven maximization, while facing keen global competition that has chipped away at their advantages. Boeing is again safer than Intel - Airbus hasn't been much better when it comes to innovation and bad strategic decisions like the A380, and China's airframe manufacturer Commercial Aircraft Corporation of China isn't really ready for primetime although it is certainly progressing.
It's not that industrial policy fails, it's that American industrial policy seems flagrantly incompetent.
Taiwan has made semiconductor excellence a critical aspect of its national economy. Korea has made cultural productions like K-pop and K-drama a top government priority, now a massive growing global industry. China has perhaps most notoriously made supporting flagship industries a key bedrock of its economic development, to much success over the past three decades. And the list continues.
What's the difference? In one word: strategy. In each of these successful cases, governments spurred the creation of new industries through incentives and policy changes, while ensuring that these industries built up differentiated intellectual property that would pay back those incentives in spades.
The United States on the other hand always jumps in with the handouts at precisely the wrong time. Rather than incentivizing the creation of new industries, it runs to the industries in decline and sprays that cash fertilizer across the weeds and deadwood.
While Congress spends billions to try to salvage the chip industry, the Trump Administration announced a $75 million quantum computing initiative aimed at spurring America to the frontiers of advanced computing. While China is investing billions in 5G wireless technologies, America is offering hundreds of thousands of dollars to start rural testbeds.
As an economic superpower, the United States has lived in a world where it was simply, by default, the best at whatever it and its citizens wanted to be. Industries could be fragmented, government policy could be out-of-whack, schools and universities could be horrifically inefficient in training, but none of that mattered since few other countries could compete across such a breadth of industry.
Today, plenty of countries can compete in manufacturing and cultural production. And not only can they compete, but they are willing to go all-in to ensure that they succeed in these endeavors. Taiwan is not great at semiconductors because of a random constellation of factors, it's great because it pushed its entire economy, education system, and government to prioritize its excellence on top of changes like the opening of the global economy and the rise of China.
Intel and Boeing still have a chance of course, they are still massive companies with cash and talent. Yet, one can't help look at the history of every other collapsed manufacturing company in the U.S. and not feel a startling sense of deja vu. We didn't get it right those times - do we have it in us to do it right this time?