ECONOMIC POLICYThe Curse of Nostalgia: Industrial Policy in the United States

By Inu Manak

There is no longer any doubt that industrial policy is back. Governments around the world are ramping up spending in an effort to achieve a diverse set of policy goals through the direct subsidization and expansion of certain economic sectors over others. The motivations for this raft of new spending vary widely. Strategic competition, creating jobs for the future, fighting climate change—industrial policy is pitched as the cure for both geopolitical and societal ills. It is also being sold as the main tool by which those challenges can be addressed with the urgency they require. However, what is most surprising about industrial policy today is that the United States has taken the lead in advocating for strategic public investments at home and abroad. This has left many countries on edge, not least because it is a departure from longstanding U.S. skepticism toward government intervention in markets.  

This is not to say that industrial policy in the United States is new. Agriculture and aircraft have long been subsidized. What is striking, however, is that the Joe Biden administration has packaged industrial policy as a core pillar of “Bidenomics,”which has pledged more than $805 billion in new subsidies for semiconductor manufacturing and research, climate and energy investments, and infrastructure spending. The full cost of those programs will be much higher than these initial investments. The climate and energy provisions of the Inflation Reduction Act, celebrated as the president’s signature climate initiative, is estimated by the Congressional Budget Office to cost U.S. taxpayers $391 billion between 2022 and 2031. A more recent estimate by Goldman Sachs puts the cost much higher at $1.2 trillion.^[1]

Amid consumer anxiety over inflation, increasing geopolitical tension, and a sense that the international trading system has unfairly constrained the policy space countries have to address pressing global concerns, experts have been grappling with what the impact of this policy shift will mean for long-term growth and stability in the United States and around the world. Meanwhile, some U.S. officials have emphasized that this is not “an American retreat from the global economy,” but “a new stage in how and why we engage—which will better serve the American middle class and American workers, while prioritizing our key global partners.”^[2] However, U.S. trading partners are not convinced that they will be prioritized, not least because senior U.S. officials have called on them to follow suit and introduce subsidies of their own.^[3]