Bidenomics seems increasingly likely to play a pivotal role in US President Joe Biden’s upcoming 2024 presidential election campaign. With great fanfare in a June 28 speech in Chicago, he offered a stirring endorsement of “industrial policy” as the centerpiece of his economic strategy. The President stressed that, “We’re now investing in key industries of the future, making targeted investments to promote domestic production of semiconductors, batteries, electric cars, clean energy.” The legislative accomplishments of the first two years of the Biden Administration—the Bipartisan Infrastructure Law, the Inflation Reduction Act, and the CHIPS and Sciences Act—leave little doubt of the actions behind these words.
I have long held the view that strength at home is the most important pillar of international competitiveness and global power for any nation. That resonates with the broad thrust of Bidenomics—in the President’s words, “to restore the American Dream.” National Security advisor, Jake Sullivan has provided a more detailed articulation of Bidenomics, stressing it is premised on “A Modern American Industrial Strategy” that focuses on technology, innovation, and supply chain diversification and resilience. The Sullivan framework connects the dots between industrial policy and so-called de-risking efforts that are now center stage in the great decoupling debate over China.
For the US, there is a certain irony, possibly even hypocrisy, in embracing industrial policy as an effective strategy to counter China. Washington has long been critical of Chinese industrial policy as one of its most egregious anti-competitive sins. That was a key allegation in the Trump Administration’s March 2018 Section 301 report that quickly became the foundational evidence for tariffs and the broader trade war that was to follow. The Section 301 report argued that China was unique in relying on the subsidies and targeting of industrial policy—a conclusion I took strong issue with in Chapter 4 of Accidental Conflict, in which I presented evidence of a legacy of industrial policy strategies in Japan, Germany, and, yes, the United States. And now the Biden Administration, which has endorsed most of the tactics of Trump’s trade war with China, is embracing the very same industrial policy approach that China has long practiced.
Yes, there are important differences between the two strains of industrial policy—the most notable being China’s reliance on state-owned enterprises. But the point I am trying to make here is that both approaches rely on the government’s ability to target the so-called vital, strategic industries of the future. Japan failed miserably at that, and the US didn’t exactly distinguish itself the last time it tried—ironically aimed at the same semiconductor industry that is getting all the attention today. Indeed, the failure of the then widely-heralded Sematech effort of the late 1980s seems all but forgotten. There are those that still argue that that there were some positive benefits from this effort—but America’s sharply declining market share in world semiconductor production says otherwise. There is no guarantee that the recently enacted $52 billion of support in the CHIPS Act will turn this story around, especially with only about 20% of this funding aimed at R&D, what this innovations-intensive industry needs the most.
The US economy is performing well by many accounts. Competitiveness, however, always remains a major challenge. Bidenomics is aimed at addressing this key challenge, a goal I certainly applaud. But is industrial policy, one of China’s hallmark tactics that we, ourselves, have been so critical of, really the best way to pull it off?
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