Reboot: Framework for a New American Industrial Policy

“Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.”¹

—Sir Winston Churchill

The relationship between American industry and the U.S. government must change. The nature of the U.S.-China strategic competition, one centered on technology, requires a reset in how America’s policymakers and corporate leaders engage. Matters of economic competitiveness and security are increasingly indistinguishable. Officials from former President Donald Trump’s administration articulated this in 2018.² President Joe Biden followed suit in 2021.³ Recent events underscored this reality and accelerated the forces behind a broad realignment in global relations. The fallout of the COVID-19 pandemic shone the spotlight on widespread supply chain vulnerabilities such as out-of-balance economic interdependencies. Russia’s renewed invasion of Ukraine prompted the world’s leading democracies to align on wide-ranging sanctions and export controls; they accomplished both at extraordinary scale and speed.

A core takeaway from these events is that only governments can take certain actions, or prompt them. Also evident is that corporations do not provide of their own volition all that is needed for the national interest. These are statements of fact, not condemnations. Business leaders, especially since the end of the Cold War, have done what they were incentivized to do: maximize profits and shareholder value, streamline and globalize operations. For many years, this worked well. Now, however, the dynamic has changed, with the rise of China as an economic, technological, and military power that rivals, and in some cases surpasses, the capabilities of the United States and its allies. America’s current trajectory is perilous and uncertain, leaving at risk its status as the world’s leading economic and technological powerhouse.

U.S. leaders must take measures to correct the course. American government policies, largely laissez-faire for decades, indirectly and directly have encouraged offshoring of manufacturing. Corporate and individual tax laws and defined contribution plans have emphasized shareholder returns over pricey long-term capital expenditures. Growing reliance by the government on private sector innovations has shifted research and development (R&D) intensity away from important but risky basic research to safer applied research with better returns on investment. An era of renewed government involvement with industry is needed to address America’s changed reality. Critical manufacturing capabilities must be shored up, while building on U.S. leadership in service sectors.

This paper is not a proposal for a radical overhaul of the U.S. economy or how it is managed. Instead, it proffers a set of pragmatic concepts and actions to promote American competitiveness, actions for effective government engagement with industry within the confines of free market principles. In the past few years, Washington lawmakers have proposed legislation, such as onshoring semiconductor fabrication and critical minerals processing, that is rightfully considered industrial policy—distinct government intervention in economic activity previously left to private corporations. The goal of this report, and future reports as part of this project, is to lay out a coherent and comprehensive pathway for successful government engagement with industry to ensure long-term economic competitiveness while safeguarding U.S. national security.

This paper presents an initial framework for a new American industrial policy, a blueprint for what is needed to ensure the United States has the vision, goals, plans, and resources for an era of sustained strategic competition. The concept, informed by an overarching national technology strategy and a supply chain resilience strategy, is the initial contribution in a larger effort to provide policymakers with a comprehensive toolkit to navigate competition with China and engage with countries around the world, friend and foe alike.⁴ To provide tangible real-world examples of a new sensible American industrial policy and to illustrate how policies would vary by sector and over time, subsequent reports will detail what a new American industrial policy would look like in action for three key sectors: biotechnology, semiconductors, and green technologies.