Is the United States capable of industrial policy in 2021?

Is the United States capable of industrial policy in 2021?

Washington Post

By 

Daniel W. Drezner

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and a regular contributor to PostEverything.

June 14, 2021 at 8:00 p.m. GMT+9

There is a new enthusiasm for industrial policy inside the Beltway. Will that enthusiasm be matched by competence?

Sameera Fazili, deputy director of the National Economic Council, speaks to reporters during the daily news conference at the White House on June 8. (Chip Somodevilla/Getty Images)

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Advocates for the United States to pursue a more active industrial policy had a good week. On June 8, the Senate passed the Endless Frontier bill, pledging about $250 billion over the next five years to bolster U.S. economic competitiveness toward China, with a special emphasis on semiconductors. The bill, co-sponsored by Democrat Charles E. Schumer (N.Y.) and Republican Todd C. Young (Ind.), had broad bipartisan support. Sen. Marco Rubio (R-Fla.) told the New York Times, “This type of targeted investment in a critical industry was unthinkable just a couple years ago, but the need for smart industrial policy is now widely accepted.” The bill is not yet law, but the 68-32 vote in the Senate suggests significant bipartisan support.

That same day, the Biden administration published, “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth,” a report in response to President Biden’s executive order to investigate supply-chain resiliency. That report lamented how “as U.S. investment in the domestic industrial base has declined, our allies, partners and competitors have adopted strategic programs to advance their own domestic competitiveness.” It also contained a statement as disruptive as anything in Donald Trump’s national security strategy:

Our private sector and public policy approach to domestic production, which for years, prioritized efficiency and low costs over security, sustainability and resilience, has resulted in the supply chain risks identified in this report. That approach has also undermined the prosperity and health of American workers and the ability to manage natural resources domestically and globally.

So it would seem that industrial policy is back for multiple reasons: ensuring post-pandemic resiliency, creating good manufacturing jobs, and ensuring that the United States retains its technological lead. Most of these reasons are at least China-adjacent, however. As Tom Wright recently noted in the Atlantic, “In Biden’s view, the United States and other democracies are in a competition with China and other autocracies. This is being exacerbated by a period of rapid technological change that could give China an opportunity to leapfrog the United States in certain areas.”

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The hard-working staff here at Spoiler Alerts has expressed concerns in the past about whether the federal government has the capacity to exercise such industrial policies with any kind of dexterity. Nothing that I have read in recent weeks has convinced me that these concerns are misplaced.

Let’s assume for the moment that the government is capable of selecting the sectors worthy of federal support (a big assumption, but bear with me). What would be necessary for the United States to implement policies that ensure those sectors will survive and thrive in a world of global competition? These policies would have to be sustainable across administrations, insulated from political capture, flexible enough to react to market shocks, wise enough to anticipate their second-order effects, and open enough to not alienate allies.

Can this administration — or any administration — meet these criteria? Color me skeptical. In this month alone there have been two longform stories about U.S. sectors that the Biden administration wants to bolster but that have been felled by inconsistent or counterproductive policies over the past decade.

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The New York Times’ Ivan Penn examines why the United States has been such a laggard in offshore wind turbines as compared to Europe (the United States has seven; Europe has 5,400). Why is the United States so far behind? According to Penn: “Problems abound, including a shortage of boats big enough to haul the huge equipment to sea, fishermen worried about their livelihoods and wealthy people who fear that the turbines will mar the pristine views from their waterfront mansions. There’s even a century-old, politically fraught federal law, known as the Jones Act, that blocks wind farm developers from using American ports to launch foreign construction vessels.”

The Jones Act, the bane of Spoiler Alerts for years now, is a particular doozy. That law bars foreign ships from transporting cargo between two U.S. ports. The problem is that since the United States does not have ships large enough to carry the turbines, U.S. wind producers have to contract European ships out of Canadian ports. The result? According to Penn, “The installations took a year. In Europe, it would have been completed in a few weeks.” This sounds like an industrial policy at cross-purposes with itself, which is true about much of Biden’s trade policies.

Policy consistency is also a problem. Bloomberg News’s Jennifer Diouhy examined how the United States has faltered at solar panel production over the past decade and a half. Her conclusion is that “the inconsistent, piecemeal policy of the U.S. was no match for a China-styled ‘industrial strategy’ to dominate solar manufacturing.” Diouhy explains how some of the investment tax credits designed to bolster solar factories were always on the congressional chopping block. She quotes a vice president of the Solar Energy Industries Association explaining, “It’s been a stop-start policy — one or two incentives, you build capacity, and then that was it.”

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The idea that successive administrations from both parties will back the same sectors from year to year seems implausible. The notion that policymakers will have the acumen to pick the winners in these sectors is also a stretch. The concept that this will not alienate allies interested in exporting to the United States is foolhardy.

Not all of the ideas put forward in these measures are awful. It looks like the Senate bill shifted in favor of basic R&D, which seems sound. On supply-chain resiliency, it makes sense to be concerned about geographic concentration. Bolstering strategic stockpiles is also sound (although, to be nitpicky, that is an example of promoting robustness rather than resiliency).

To believe that the United States can pursue a high-caliber industrial policy, however, requires assuming a more competent state than I have seen in the past decade.