Bidenomics: an ESG scorecard

Stuart Mackintosh examines what effect the Biden Administration’s industrial policies have had on the US economy and discusses whether some of those ideas might also be useful in other countries

The outgoing Biden Administration initiated three major place-based industrial policies, designed to upgrade the US’s infrastructure, reshore jobs, tackle the climate crisis, help left-behind communities and revitalise the country’s semiconductor industry. This “modern American industrial strategy”, as outlined by National Security Adviser Jake Sullivan, was a step change.

The three main policies were: the $1.2tn Infrastructure Investment and Jobs Act, the $370bn Inflation Reduction Act and the $50bn Chips Act.

Together, they dramatically altered market incentives and business opportunities across the US economy both quickly and decisively. The questions at the end of the Biden presidency, though, are whether the effects are visible and potentially lasting, what tentative conclusions can be drawn about this change in US policy and whether there are any policy lessons for other jurisdictions.

Blaming Bidenomics for price rises was wrong. Instead, the US has seen a strong labour market, rising wages and faster productivity growth

The numbers point to a swift and significant on-the-ground impact of all three acts:

According to the White House, three years into the Infrastructure Investment and Jobs Act, as of year-end 2024, there had been funding of $568bn into more than 66,000 projects across the country. A significant proportion ($62bn) was aimed at the green transition and related technology and capital investment.
The Inflation Reduction Act alone has helped finance an additional 235 projects worth $132bn, generating 137,880 jobs on the clean energy supply chain in the US, according to researchers in the Environmental Studies Department at Wellesley College.
The Chips Act has crowded in approximately $300bn in private investment in new capital and plants, according to the National Institute of Standards and Technology, with 15 preliminary memoranda of terms, in 15 states across 23 projects. The Act, together with export prohibitions to China, aims to jump-start chip manufacturing in the US. Early indications suggest this is working.

These are huge figures. Critics, including those within the Democratic party, such as Larry Summers and Jason Furman, said they would be inflationary and were too large, risking overheating. So, what did the policy step change actually mean in practice?

Inflation did leap. But much of that was due to Covid 19 supply-shift factors, as evidenced by inflation in every major advanced economy, including those (such as the UK) that did not enact massive new industrial strategies. Inflation was not only a pandemic supply shock story but also a central banking failure, with many policymakers behind the curve on the not-so-transitory inflationary spike. But, once galvanised, central banks acted fast, raised rates and addressed inflation successfully. So, as of the end of 2024, inflation appears to be returning towards target in the US, the EU and the UK. Blaming Bidenomics for price rises was wrong-headed. Instead, what the US has seen is a strong labour market, rising wages and faster productivity growth.

Strong labour markets

US policies appear to have supported a tight labour market. Unemployment stood at 4.1% in October 2024 – a near historic low that has been maintained for almost three years. In December 2024, the US economy added 256,000 jobs, far above expectations. Unemployment rates for African Americans and other minorities are at extremely low levels and employment opportunities remain abundant. Companies must pay premiums for workers and in wage negotiations, and unions have gained more leverage. Boeing factory workers, for example, negotiated a 43% cumulative wage rise over the next four years in November 2024.

Green policies are creating jobs

Since the passing of the Inflation Reduction Act, nearly 37,000 jobs have been created in making electric vehicles in the US, according to a database put together by the Environmental Studies Department at Wellesley College. That is just one example. Importantly, green industries such as electric vehicle manufacturing do not necessarily displace jobs, as had been feared. Research by the University of Michigan has found that, even after the ramp-up phase, the number of workers needed per vehicle was still higher.

Higher wages

The industrial strategy also drove up wages. Over the past 12 months wages have risen 4.6% according to the Bureau of Labor Statistics. Median annual salaries now stand at $59,384, significantly higher than UK levels. Importantly, lower wage workers saw their income grow the most. Real wages of low-wage workers grew 13.2% between 2019 and 2023, according to the Economic Policy Institute. Wage growth among low- and middle-wage workers outpaced higher wage groups, who saw increases not enjoyed for decades.

Productivity is up

Employers, paying more to get workers and incentivised by policy, have made investments in capital goods to increase productivity. Workers, who were being paid more, responded. This is the Akerlof and Yellen Fair Wage Theory in action. Conversely, low wages and high unemployment foster lower business investment and slower, if any, productivity growth.

US third quarter 2024 productivity figures reflect this, growing at 2.2% according to the Bureau of Labor Statistics. This rate is above that of other advanced economies. This result, driven by green tech and massive investment, is (perhaps) a rebuttal of Professor Robert Gordon’s overly pessimistic end of US productivity hypothesis.

Some of the economic dynamism may be driven by SME creation and innovation, as well as by the tech and digital sectors

A growth leap

These macro-economic results arguably reflect the positive dynamics of the US industrial strategy under the Biden Administration. Since 2020, the US has seen approximately 7.5% annual growth in gross national income per capita. In terms of real growth rates, this is three times the average for the G7 countries.

US economic growth rates illuminate how the country is running away from its competitors: in the third quarter of 2024 US growth was 2.8%, according to the Bureau of Economic Analysis. IMF forecasts predict that the US will continue to outperform other major economies this year.

Not all this economic dynamism may come from the US place-based industrial strategy. Some may be driven by small and medium-sized business (SME) creation and innovation, as well as by tech and digital sectors. A boost may come from improved service industry productivity. Nonetheless, it would be economically shortsighted to suggest that the investment and policy step change is meaningless in these impressive US economic outcomes.

What next under Trump II?

A key question for investors, employers and allies is: how resilient will the investments made as part of the Inflation Reduction Act (IRA) be to deconstruction by a Trump presidency and a Republican Congress?

Looking at the investments, locations and political geography, we can immediately see that Infrastructure Investment and Jobs Act spending is bipartisan and is unlikely to be cut wholesale.

The engine for employment, wages, productivity and growth in the US has been the Biden place-based industrial policies

The Biden Administration has aimed to future-proof the IRA investments by embedding most of the benefits and most of the job creation in Republican districts. Clean energy pre-IRA investments worth $136bn, supporting 241,000 jobs, were seen in 276 projects. Post-IRA investments added a further 269 projects, worth $162bn, supporting approximately 158,000 jobs, according to researchers in the Environmental Studies Department at Wellesley College. Most of this investment and job creation is in Republican-held districts. This is not an accident but an insurance policy for the industrial strategy. The on-the-ground capital spending picture has implications for the longevity of certain parts of the IRA. Rather than reaching for a hatchet, sensible locally-focused politicians want a scalpel approach to changes.

Tax credit worries

While electric battery plants are already established and employing hundreds of thousands of Americans in better paying jobs, the tax credit side of the IRA may be subject to cuts and reversals. For instance, the $7,500 per car tax credit for EV purchases could be threatened. However, Donald Trump’s favourite billionaire, Elon Musk, will likely be alarmed if a major source of wealth is hit by a removal of the tax credits that drive Tesla’s sales.

Innovations are at risk

Other IRA tax credits could be slashed. At particular risk are the programmes focused on product and process innovation, on production that has not (yet) come on stream and on employment goals. Specifically, they include green hydrogen production, long-term energy storage solutions, carbon capture and sequestration, direct air capture and small nuclear reactors. This early-stage technology innovation is riper for reversal.

Chips will be resilient

China remains a target of tariffs and export bans under Trump II. The Chips Act, therefore, is Trump-proofed. There is little likelihood that funds already committed will be reversed. Here the policy distance between Biden and Trump is indiscernible.

Real impact despite loss

The consensus among US economists is that the US economy will continue to outperform Europe and the UK throughout 2025 and possibly beyond. The engine for employment, wages, productivity and growth in the US has been the Biden place-based policies. Many of these will remain under Trump II. Even those that shrink or lapse will not affect the economy in the short term. Although a growing US economy did not persuade US voters to back Biden and the Democrats, what’s certain is the strong state of the economy after four years of the Biden Administration’s industrial strategy.

Possible lessons for other jurisdictions

What are the takeaways for Europe and the UK? The biggest lesson is that well designed strategic industrial and green investment policies, coordinated with regulatory shifts, incentives and tax credits, can influence business plans and outcomes. A crowding-in of private funds can result, and a self-reinforcing economic cycle may occur. CapEx pushes firms to raise wages, higher wages reward workers, employees then work harder and smarter, resulting in improved productivity. This increases the maximum potential growth rate. UK Prime Minister Keir Starmer and EU leaders appear to understand this lesson and are implementing new or adjusted industrial policies, hoping for similar effects in the UK and EU.

Stuart Mackintosh is Executive Director of the G30 and author of Climate Crisis Economics: A Race of Tipping Points