INDUSTRIAL POLICYIs Industrial Policy Making a Comeback?

By Anshu Siripurapu and Noah Berman

Published 1 December 2022

Industrial policy refers to government efforts to support particular industries that are considered strategically important, such as manufacturing. It has been employed in many countries, including the United States, though it fell out of favor in the 1980s. The Biden administration has pushed to support advanced manufacturing amid the COVID-19 pandemic, tumult in global supply chains, and the rise of China., in the process renewing the debate about the U.S. government’s role in shaping the economy.

As the United States confronts a series of challenges—the COVID-19 pandemic, global supply chain instability, climate change, and the rise of China foremost among them—there is renewed debate about the role of industrial policy, or government support for particular industries that are deemed strategically important. 

To its supporters, a new U.S. industrial policy is essential to respond to China’s state-led development, secure a supply of critical materials and products, and develop technologies that could preserve the planet. They point to the use of industrial policy not only in China, but also in countries such as Germany, Japan, and South Korea, as well as its historical use in the United States. To critics, such a policy inevitably distorts the free market and rewards companies not for the quality of their products and services but for their skill at lobbying lawmakers. President Donald Trump upended the Republican Party’s traditional stance on trade and economic policy,  while President Joe Biden has overseen the passage of major industrial policy legislation, including the CHIPS and Science Act and the Inflation Reduction Act.

What Is Industrial Policy?
Industrial policy generally refers to efforts to promote specific industries that the government has identified as critical for national security or economic competitiveness. The Roosevelt Institute’s Todd Tucker has defined industrial policy [PDF] as: “any government policy that encourages resources to shift from one industry or sector into another, by changing input costs, output prices, or other regulatory treatment.”

Industries often included are those with heavy manufacturing or that have military applications, such as aerospace, semiconductors, and shipbuilding. Policy measures could be protective tariffs or other trade restrictions, direct subsidies or tax credits, public spending on research and development (R&D), or government procurement (goods and services, such as military equipment, that the government buys). “It’s about the government putting a thumb on the scale, rather than just assuming that market outcomes are going to produce the maximum benefit,” says CFR’s Edward Alden.

How Has It Previously been Used in the United States?
Alexander Hamilton is widely considered to be the first major proponent of industrial policy in the United States. In his famous 1791 “Report on the Subject of Manufactures,” the nation’s first treasury secretary advocated supporting the fledgling U.S. manufacturing sector through a combination of tariffs and subsidies.