To Reindustrialize America, Make Industrial Equipment More Accessible

Today, American Compass released a policy brief focused on shoring up America’s industrial capacity through the financing and deployment of industrial equipment.

Reindustrialization is a matter of economic and national security, the difference between crisis readiness and dependence on foreign adversaries for essential goods. In 2000, the United States accounted for 25% of global industrial production, while China accounted for only 6%. By 2030, projections suggest the United States will account for just 11%, while China’s share will be 45%.

Restoring America’s industrial capacity will require hundreds of billions of dollars in industrial equipment, and the equipment finance market is not up to the challenge. Driven in part by rules that make equipment financing less affordable to offer, many banks have pulled back from this market in recent years. This means that American industrial borrowers are faced with fewer options, high rates and short payback periods—terms that fall hardest on small- and medium-sized businesses.

The policy brief argues that federal agencies should use their existing loan authorities to bridge the gap as part of a comprehensive industrial investment strategy. Specifically, the policy brief suggests:

• The Treasury and Commerce Departments should conduct a comprehensive market study, assessing the products (rates, duration, etc.) offered by different institutions; how different institutions (banks vs. private credit) have changed their participation and exposure over time; the profiles of borrowers seeking equipment and their varying ability to access capital based on their size, stage, risk, and equipment needs; and the different types of equipment for which financing is sought, including their depreciation curves and secondary market liquidity.
• Agencies with existing loan guarantee authorities such as the Department of War’s Office of Strategic Capital, the Department of Energy’s Office of Energy Dominance Financing, the Export-Import Bank, and the Small Business Administration should create loan guarantee programs that guarantee a portion of the value of the underlying equipment (e.g., collateral value for equipment loans and residual value for equipment leases).

You can download the full policy brief here.