What An Enduring Industrial Policy Requires
The future of American innovation can’t be vulnerable to the stroke of a president’s pen.
By Charles Yang, founder and executive director of the Center for Industrial Strategy
In an era defined by great power competition, the United States faces an unavoidable truth: global free markets will not secure the nation’s economic security and technological superiority If the United States is to maintain its global leadership, it must commit to a national agenda that incorporates U.S. industrial power as a key indicator of economic health and which is directly supported by robust policymaking. But succeeding in this generational competition in economic statecraft will require building a durable, bipartisan consensus on industrial strategy.
The central challenge is that investments in the heavy industry and advanced manufacturing that America needs, ranging from auto manufacturing to shipbuilding to critical minerals, require enormous capital outlays for long periods of time. A semiconductor fab, for instance, takes billions of dollars to build and decades to pay off. Our opponent in this race, China, has recognized the capital intensity of these critical sectors and heavily subsidizes them, ranging from over $50B in investment and loans for semiconductor fabs to covering up to 20% of the cost of new shipyards.
As a result of these considerations, companies do not look to only today’s policy incentives when projecting their future plans, but also try to assess whether such support will last throughout the lifetime of the project. If fiscal and trade policies to support certain industries are perceived to shift across administrations, firms will hesitate to commit capital. This ultimately hamstrings our industrial aims and wastes taxpayer dollars by reducing the impact of public investment incentives. For industrial policy to shift corporate investment decisions, it must rest on a durable foundation of bipartisan consensus. Getting this right is essential. American leadership in foundational technologies will determine our position in the global economy and our ability to shape the future on our own terms.
In a Congress where partisanship is increasingly a defining characteristic, the United States’s success in supporting strategic industries will require a bipartisan consensus not just conceptually but specifically around the kinds of tools and kinds of industries that are meant to be supported. The industrial policies that Congress authorizes for economic statecraft must be wielded for economic security and national competitiveness, not for ideological battles, if they are to provide the necessary continuity needed to support strategic industries.
Beneath the headline-catching partisan vitriol, we’re seeing this start to take shape. Consider the case of tariffs: the first Trump administration made a historic decision to use Section 301 tariffs (which are country-specific tariffs for exporters violating fair trade practices) to counter China’s unfair industrial subsidies. When President Biden took office in 2021, promising to undo Trump’s agenda, his administration not only maintained these tariffs but even expanded certain provisions, demonstrating a continuity rarely seen today. In part, the success of these tariffs is that their legislative authorization lends itself toward policies specifically focused on decoupling supply chains from China, leaving little room for other kinds of partisan-tinted policy objectives. The future success of tariffs as a tool in the industrial policy toolkit rests on their ability to credibly signal long-term and enduring shifts in supply chain costs and inputs.
An example of what that bipartisan support looks like in legislative form is is the bipartisan CHIPS and Science Act, which provided over $50B of investments in both advancing semiconductor R&D and a combination of loan and grant-based manufacturing incentives for semiconductor fabs. This historic legislation is perhaps the clearest signal of Congress both recognizing the tremendous importance of a key industrial sector and actually putting a significant amount of funding behind incentives for onshoring manufacturing and industrial investments, in addition to more traditional R&D funding. Despite the success of the bipartisan legislation, the Biden administration also at times tried to tie CHIPS awards to other policy aims, such as promoting corporate childcare, a move which earned bipartisan criticism.
This “everything bagel” policymaking distracts from the key purpose of industrial strategy legislation: to create favorable environments for investment decisions. Despite this push, the CHIPS Office has still been for the most part successful in supporting a broad portfolio of key projects, divorced from partisan interests. As a result of CHIPS funding, the United States is now the only country in the world with semiconductor fabs from every leading edge semiconductor manufacturer. And the bipartisan consensus around the importance of semiconductor manufacturing helped Congress make progress on related issues, such as exempting CHIPS grant awardees from procedural federal environmental reviews.
This emerging industrial consensus continues to grow. This congressional session has already seen the introduction of a number of substantial bipartisan bills for industrial strategy, including the SHIPS for America Act and the Critical Minerals Future Act. But for these kinds of bills to not be standalone victories but the first fruits of a generational realignment on industrial policy, it will require a common understanding that the implementation of these programs should be laser-focused on promoting U.S. industrial competitiveness.
For too long, bipartisanship in Congress has been relegated to secondary issues—incremental bills on consumer safety and legacy infrastructure—rather than core animating issues at the heart of America’s economy and national competitiveness. Forging a new consensus around industrial renewal, with concrete policies that build American manufacturing capacity, will not only support economic and industrial competitiveness but help revive a Congress operating in the interest of American workers. The same factors that require enduring bipartisan support for these industrial anchor projects also make such investments uniquely transformative. A new semiconductor fab or shipyard not only directly creates a generational investment in thousands of manufacturing jobs, but also spurs the growth of an ecosystem of regional suppliers and reorients a regional economy’s center of gravity back to the virtues of production and invention.
Now is a critical time for the United States to act and bolster its industrial capacity to confront China’s exploitation of the globalist status quo to vault ahead in advanced manufacturing. Today, just one of China’s shipyards surpasses the annual ship production capacity of the entire United States. Nearly all refining and processing of critical minerals, essential for everything from semiconductors to missile systems, are universally processed and refined in China. If the United States does not act, we will find ourselves wholly dependent on a peer adversary for the industrial technologies that undergird our economy—and our military. Indeed, in many sectors, we already are.
China was able to succeed in cornering the market on these industrial technologies through directing massive state funding toward strategic sectors. While it has clearly been successful in creating leadership positions in key industrial sectors over the past two decades, Chinese state-driven approaches also generates significant waste. The United States can bring the market-oriented innovation America is known for to support domestic industrial development. Our uniquely deep private venture markets can reduce the risk for innovators developing early-stage technologies, helping give the best ideas more room to grow. Private capital, able to select the most promising of these, can support scaling them up to compete in global markets. When combined with trade policy and targeted fiscal tools, such as tax credits, loans, and grants, and with industrial development accelerated by removing regulatory blockers, it can chart a path toward an American industrial strategy that leverages our economy’s natural strengths.
Meeting our present challenge will demand a new generation of policymakers who understand the policy levers that advance techno-industrial progress and bring a fresh vision for American industrial strategy. The stakes are clear: America’s ability to compete with China depends on whether we can forge a new approach to national industrial strength. Succeeding is the only way to beat China in the race for the future.