Emerging U.S. Industrial Security Policy Must Tap America’s Core Strengths
Energy policy should tap America’s core natural resources, too.
Emerging U.S. Industrial Security Policy Must Tap America’s Core Strengths
December 06, 2022
The influence of laissez-faire economics on American policymaking is waning because of the evolving geo-political struggle with Communist China. Democrats and Republicans are increasingly turning to industrial policy to enhance competitiveness, as reflected in the bipartisan CHIPS and Science Act. Chinese President Xi Jinping’s recent warning that Beijing will prepare for war guarantees that even a divided U.S. government will back increased industrial security.
While both parties agree on bolstering the U.S. supply chain and competitiveness, consensus on how to achieve those goals has been complicated by the partisan reconciliation process, which resulted in the Inflation Reduction Act (IRA). There will be no appetite on the part of Republicans in the next Congress to back another round of IRA-type industrial subsidies – an unintentional good outcome of the IRA’s politicization.
Doubling down on this approach is not an effective, long-term economic security strategy. Unlike the Cold War with the Soviet Union, America cannot outspend China’s non-market, behemoth economy and win. In a war of subsidy attrition, Beijing also has an arsenal of non-spending options that it can exploit, including intellectual property theft, forced labor utilization, and relaxation of environmental standards.
Instead, Democrats and Republicans must embrace a comprehensive approach that harnesses core U.S. comparative strengths to not only check, but to beat China.
First, entrepreneurship sparks innovation that can catapult America into first place – even when it appears far behind. Regulatory and tax policies must be aligned to fully harness this advantage. Crucially, U.S. trade policy requires overhauling to ensure innovation produces domestic commercialization and not offshored. Under the current trade regime, many taxpayer dollars meant to bolster U.S. industry have ultimately subsidized overseas job creation. A new trade policy must protect public investments and incentivize private sector spending in America’s work force and industrial sector.
Second, U.S. natural resource abundance holds significant promise in enhancing American and allied economic, energy, and environmental interests. Converting these assets valued in the trillions of dollars into a geopolitical benefit, however, requires infrastructure development, which cannot happen without substantial permitting reform. Current Congressional discussions are tangled up in partisan climate politics, but Democrats, in particular, should recognize that ambitious decarbonization goals are unachievable if America cannot build and modernize its infrastructure.
Third, America’s alliance structure represents a considerable force multiplier. In contrast to Beijing’s client states, U.S., European, and Asia Pacific allies enjoy significant influence in the global economy. U.S. policymakers must avoid unilateral action and develop strategy in concert with them. Effective diplomacy should avoid serious disagreements – the type of which occurred with Trump’s tariff agenda and with the IRA’s domestic content incentives that failed to give credit to critical production in U.S. treaty allies. America must adapt to the fact that it cannot go it alone if it intends to beat China.
The quest for industrial security offers opportunities to generate transformative bipartisan domestic and foreign economic policy. As is true with most decision-making, there is a right and wrong way.
Choosing the right way based on tapping U.S. core comparative advantages can lay the foundation for a successful, sustainable strategy. A combination of smart policymaking designed to enhance U.S. competitiveness and curtail China’s ability to leverage its non-market, authoritarian attributes could enhance U.S. relative economic power.
The wrong way, however, would be detrimental and only further undermine America’s economic interests. Basing a U.S. industrial security policy on a losing long-term strategy, such as a subsidy-only approach, and failing to address major problems, such as the inability to build anything at home, would only strengthen the hand of Beijing.
George David Banks is a fellow at the Bipartisan Policy Center and previously served as special assistant for International Energy and Environment at the National Economic and National Security councils in the Trump administration.