In the national debate on economic policy, an unsound notion is taking hold. Some politicians are suggesting that technological innovation alone can meet our future needs.
No one doubts that the technology revolution in the United States is the envy of the rest of the world. It already has changed things in Ohio, where technological advances strengthened the economy, at least until the Covid-19 pandemic set in, and did it in the unlikeliest of places: the traditional industries of oil and natural gas.
Starting in 2005, companies began to unlock massive new supplies of natural gas, and then oil, from shale basins, thanks to two new technologies: hydraulic fracturing and horizontal drilling. Automation and data analytics also helped remake the energy industry, boosting the productivity of oil and gas companies. Today, the United States is the top producer of oil and gas in the world, undercutting the ability of OPEC and Russia to influence global oil prices.
The mission now is to counter an unprecedented economic challenge from China. But there is a limit to what Ohio and the United States can reasonably achieve from technological advances. We would be taking a huge gamble to think we could grow our economy and compete in international markets without an industrial policy based on the need to rebuild and strengthen high-tech manufacturing.
There’s no time to lose.
China is already outpacing the United States in the production of electric cars. Those who regard the electric car as a luxury for upper income people ignore that the smartphone was derided when it first came on the market 10 years ago. Today virtually every American owns a smartphone and those who don’t dream of the day when they will. Likewise, the electric car is the basis of a new global market for automobiles.
The Chinese government is investing heavily in electric cars, providing support and billions in subsidies. In 2010, there were only 17,000 electric cars on the world’s roads. By 2019, the number had swelled to 7.2 million, 47% of which were manufactured in China. And China is expected to account for 54% of global sales by 2025.
China dominates in the production of lithium, which is critical for making batteries. China produces eight times more lithium than the U.S. While the United States leads in battery innovation, China controls the supply chain, accounting for more than 80% of the world’s battery manufacturing capacity.
What’s most troubling about this is China’s grip on the global production and processing of industrial materials. A lithium-ion battery weighs about 1,000 pounds. According to Mark Mills, a physicist at the Manhattan Institute, a battery typically contains about 25 pounds of lithium, 30 pounds of cobalt, 60 pounds of nickel, 110 pounds of graphite, and 90 pounds of copper, along with about 400 pounds of steel, aluminum and various plastic components. A battery also contains rare earth minerals, which are ingredients of many high-tech consumer goods and weapons systems. China is a major supplier of these metals and rare earths — and is poised to use its control of the supply chain as a tactic against US companies.
China’s emergence as the world’s fastest growing industrial power is a significant strategic issue for the U.S. By using the electric car to leapfrog ahead, China can use its formidable resources to overtake established automakers and gain leadership in global markets.
Despite the enormous stakes, the United States has failed to come up with an answer to China’s march toward industrial domination. The only way for the U.S. to head off this dangerous trend is to offer a viable alternative. That means adopting an industrial policy with robust government investment in critically important industries, including domestic production of minerals like lithium, nickel, graphite and rare earths, which are needed for electric cars and other high-tech consumer products. We can strengthen domestic manufacturing by requiring some businesses to buy technology that is made in the U.S. Such made-in-America purchasing would include electric cars, semiconductor chips, telecommunications gear, and medical equipment.
The United States cannot beat something with nothing. A collective national effort would stimulate the economy, help sustain and grow our manufacturing infrastructure, achieve progress on clean energy production and health care, and benefit every American.
Dr. Robert W. Chase holds B.S., M.S., and Ph.D. degrees in Petroleum and Natural Gas Engineering from Penn State. He served as professor and chair of the Department of Petroleum Engineering and Geology at Marietta College from 1978 to 2015. He worked previously for Halliburton Services, Gulf Research and Development Company, and the Department of Energy and has consulted for numerous companies. You can reach him at firstname.lastname@example.org