Building the future: how China and America differ in their industrial strategy

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Western efforts to change the People’s Republic of China (PRC) industrial policy by targeting specific industries – including biotechnology, lithium batteries, semiconductors and solar panels – with extensive tax and procurement incentives and direct financial subsidies have gone to nothing. They were doomed to failure, as the ruling Chinese Communist Party has never shared its political power with its “private sector”, as it is ideologically tied to five-year economic plans and a model of “state capitalism.” Where Chinese companies (often state-owned) dominate its national economy. In addition, for economic and national security reasons, the PRC focuses on its “Belt and Road Initiative” including a land economic belt of the Silk Road and a Maritime Silk Road of the 21st century, aimed at promoting foreign investment and fostering collaboration.

Responding to China’s economic ascendancy, other competing countries are now actively engaged in their own versions of industrial policy, with one difference. The UK and Germany, two market economies, have launched their own industrial strategies in 2017 and 2019 respectively. Unlike the model of Chinese state capitalism, these Western governments do not permanently control the interests of shareholders in their national industrial enterprises or their enterprises’ access to financial credit. This “lighter touch” to government intervention is described as a national “industrial strategy”.

In the United States, there have been examples of industrial policy practices undertaken by the federal government since World War II, including loan guarantees for Lockheed and Chrysler in the 1970s; cash assistance and loan guarantees for the airline industry after the 2001 terrorist attacks; and more recently, widespread direct financial support to U.S. industries in 2020 following the forced shutdowns of government businesses resulting from the Covid-19 pandemic. Other less successful examples of the US government’s “pick of winners” in recent decades include the economic development of supersonic commercial aircraft, fast breeder nuclear reactors, and manufacturers of solar power panels.

The political antecedents for a US industrial strategy began in February 2012 with the publication of “A national strategic plan for advanced manufacturing“(including the recommendation of five major national goals) by the National Science and Technology Council under the leadership of the President’s Executive Office. In December 2014, the “Revitalize the US Manufacturing and Innovation Act” (which included the targets found in the 2012 report) became law and required the Obama administration to institute a national manufacturing strategy every four years.

In October 2018, in accordance with the requirements of the 2014 legislation, the Trump administration released the first quadrennial report— “Strategy for U.S. leadership in advanced manufacturing”—Discussing progress in achieving national advanced manufacturing goals in the 2012 report. This report notes the various federal government programs that have been successful in promoting the development and transfer of technology to the US manufacturing sector; progress in the development of the US manufacturing workforce; and the expansion of public-private partnerships between the manufacturing sector and the federal government’s Manufacturing USA institutes, the National Institute of Standards and the Technology Manufacturing Extension Program. In this 2018 report, the National Science and Technology Council also announced its “vision of US leadership in advanced manufacturing in industrial sectors to ensure national security and economic prosperity(Emphasis added).

The issue of “national security” became evident when the United States Food and Drug Administration announced in March 2020 that there was a shortage of life-saving antibiotics to respond to peak Covid-19 cases due to a shortage of raw components made in the PRC. Due to China’s role As a global supplier of personal protective equipment (PPE), medical devices, antibiotics and active pharmaceutical ingredients, this supply chain reality has led to shortages of essential medical supplies in the United States in due to limited national stocks and insufficient American industrial capacity

In 2020, the Trump administration persuaded Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor chip maker (which controls the majority of the global foundry market) to to build a semiconductor manufacturing plant in Arizona. Joe Biden ran for president in 2020 on a economic development platform support a “global manufacturing and innovation strategy”. In March 2021, the Biden administration announced “The American plan for employment”Underscoring its commitment to revitalize American manufacturing, secure American supply chains, invest in research and technological development (R&D) and train Americans for the jobs of the future. Also in that plan, President Biden called on Congress to allocate $ 50 million for semiconductor manufacturing and research.

In June, the US Senate passed the U.S. Innovation and Competition Act (USICA) by a bipartisan vote of 68-32. The law adds a technology directorate to the National Science Foundation that will financially “prime” technology development centers across the United States, directly allocate $ 52 billion to a national semiconductor initiative, and establish new controls over it. foreign participation in the US R&D system. The United States House of Representatives is currently developing and discussing counterproposals to certain provisions of the USICA. To March 2021 report published by the United States National Security Commission on Artificial Intelligence recommends $ 35 billion in federal semiconductor subsidies and export controls on advanced semiconductor manufacturing equipment.

Biparty support for a US industrial strategy focused on expanding and protecting domestic advanced manufacturing has emerged not only with the prospect of improving global economic competitiveness, but for critical national security reasons. Yet he must be tempered by the fact that many industries will compete for the largesse of the federal government on tenuous claims. An American industrial strategy must not degenerate into a de facto industrial policy of government picking “Winners and losers”; therefore, evidence of close government intervention must be both compelling and compelling in the national interest.

There is no doubt that national security concerns are generating increased political support for US industrial strategy. With the PRC strongly calling for a unified China, this places the United States in a potentially catastrophic position if Taiwan’s forced reunification with the PRC occurs, as the United States manufactures locally 12 percent of all semiconductors demanded by American consumers. It is the harsh reality of the new reality of political economy that guides U.S. industrial strategy and the renewed political imperative to welcome the advanced manufacturing supply chain.

Thomas A. Hemphill is David M. French Distinguished Professor of Strategy, Innovation, and Public Policy in the School of Management at the University of Michigan-Flint.

Image: Reuters.


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