Building the Future: How China and America Differ in Industrial Strategy

Building the Future: How China and America Differ in Industrial Strategy

Bipartisan support for an U.S. industrial strategy focusing on expanding and protecting domestic advanced manufacturing has emerged not only from the perspective of enhancing global economic competitiveness, but for critical national security reasons.


Western efforts to change the Peoples Republic of China’s (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 been for naught. They were doomed to fail, as China’s ruling Communist Party was never sharing its political power with its “private sector,” as it is ideologically wedded to five-year economic plans and a “state capitalism” model where Chinese companies (often government-owned) dominate its domestic economy. Further, for economic and national security reasons, the PRC is focused on its “Belt and Road Initiative,” including a land-based Silk Road Economic Belt and a twenty-first-century Maritime Silk Road, aimed at promoting foreign investments and fostering collaboration.

Responding to China’s economic ascendancy, other competitor countries are now actively engaged in their own versions of industrial policy—with a difference. The United Kingdom and Germany, both market-oriented economies, initiated their own national industrial strategies in 2017 and 2019 respectively. Unlike the Chinese state capitalism model, these Western governments do not permanently control shareholder interest in their domestic industrial enterprises or their corporations’ access to financial credit. This “lighter touch” to government intervention is described as national “industrial strategy.”


In the United States, there have been examples of industrial policy practices engaged in 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 terrorist attacks in 2001; and most recently, widespread direct financial support to U.S. industries in 2020 as a result of the forced government business shutdowns resulting from the Covid-19 pandemic. Other less successful examples of the U.S. government “picking winners” in recent decades include the economic development of supersonic commercial aircraft, fast breeder nuclear reactors, and solar energy panel manufacturers.

The policy antecedents for a U.S. industrial strategy began in February 2012 with the release of “A National Strategic Plan for Advanced Manufacturing“ (including recommending five major national objectives) by the National Science and Technology Council under the Executive Office of the President. In December 2014, the “Revitalize American Manufacturing and Innovation Act” (which included the objectives found in the 2012 report) became law, and required the Obama administration to institute a national manufacturing strategy every four years.

In October 2018, as per the requirement of the 2014 legislation, the Trump administration released the first quadrennial report—“Strategy for American Leadership in Advanced Manufacturing”—addressing the progress made on achieving the national advanced manufacturing objectives in the 2012 report. This report notes the various federal government programs that have been successful in promoting technology development and transfer to the U.S. manufacturing sector; advances in American manufacturing workforce development; and the expansion in public-private partnerships between the manufacturing sector and the federal governments’ 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 for American leadership in advanced manufacturing across industrial sectors to ensure national security and economic prosperity” (emphasis added).

The issue of “national security” became evident when the U.S. Food and Drug Administration announced in March 2020 that there was a shortage of life-saving antibiotics to respond to spiking Covid-19 cases due to a shortage of raw components manufactured in the PRC. Because of China’s role as a global supplier of personal protection equipment (PPE), medical devices, antibiotics, and active pharmaceutical ingredients, this supply chain reality led to shortages of critical medical supplies in the United States due to limited domestic stockpiles and insufficient U.S. industrial capacity

In 2020, the Trump administration persuaded Taiwan Semiconductor Manufacturing Company (TSMC), the world’s No. 1 semiconductor chip manufacturer (which controls the majority of the global foundry market) to build a semiconductor fabrication facility in Arizona. Joe Biden ran for the presidency in 2020 on an economic development platform supporting a “comprehensive manufacturing and innovation strategy.” In March 2021, the Biden administration announced “The American Jobs Plan” emphasizing its commitment to revitalizing American manufacturing, securing U.S. supply chains, investing in technology research and development (R&D), and training Americans for the jobs of the future. Also in this plan, President Biden called on Congress to allocate $50 million for semiconductor manufacturing and research.

In June, the U.S. Senate passed the U.S. Innovation and Competition Act (USICA) by a bipartisan vote of 68-32. This act adds a technology directorate to the National Science Foundation that will financially “seed” technology development hubs across the United States, directly appropriate $52 billion for a domestic semiconductor initiative, and establish new controls on foreign involvement in the U.S. R&D system. The U.S. House of Representatives is now developing and discussing counter proposals to some provisions of the USICA. A March 2021 report issued by the U.S. National Security Commission on Artificial Intelligence recommends $35 billion in federal government semiconductor subsidies and export controls on advanced semiconductor manufacturing equipment.

Bipartisan support for a U.S. industrial strategy focusing on expanding and protecting domestic advanced manufacturing has emerged not only from the perspective of enhancing global economic competitiveness but for critical national security reasons. Yet it must be tempered with the reality that many industries will be vying for federal government largesse on tenuous claims. A U.S. industrial strategy must not devolve into a de facto industrial policy of government picking “winners and losers”; consequently, the evidence for narrow government intervention must be both compelling and convincing in the national interest.

There is no question that national security concerns are generating increased political support for U.S. industrial strategy. With the PRC vigorously calling for a unified China, this places the United States in a potentially catastrophic position if forced reunification of Taiwan with the PRC occurs, as the U.S. domestically manufactures 12 percent of all semiconductors demanded by U.S. consumers. This is the stark reality of the new political economy reality driving U.S. industrial strategy—and the renewed policy imperative to home shore 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.