Why I believe in industrial policy — done right

When I first came to Washington in 2011, “industrial policy” were dirty words. Democrats and Republicans alike viewed pro-manufacturing laws and regulations with almost religious suspicion. Today, that has started to change — although what replaces unfettered free trade remains hotly debated in Congress.

I believe our country needs industrial policy to rebuild our manufacturing sector, which has suffered decades of neglect and unfair competition. I also believe the Biden administration has done industrial policy wrong, throwing vast sums of money at questionable projects and arguably empowering Communist China in the process.

Some will eagerly use the administration’s failures to tarnish those of us who believe in a smart, common-sense approach to industrial policy. But let me set the record straight about what industrial policy is, what it isn’t (or shouldn’t be), and how it has been used successfully in the past.

The fact is, the United States has supported domestic manufacturers from our earliest days. Consider the national arsenal in Springfield, Mass. President George Washington selected the site for this defense industrial project to make the United States less dependent on imported arms. Over the following decades, it turned the Connecticut River Valley into the country’s first hub of commercial manufacturing and innovation.

Or look at NASA. The pinnacle of Cold War research and development, this government initiative harnessed American business know-how to put a man on the moon.

It also produced more than 2,000 commercial spinoff technologies, including baby formula and the integrated circuit.

In short, the America we know from the history books — the colonial backwater that grew into a world power in less than two centuries and bested Imperial Japan, Nazi Germany and Soviet Russia in existential struggle — was a country built by innovative private companies and judicious government policies alike.

But around the time the Berlin Wall fell, elites in Washington and on Wall Street created a one-sided narrative that free enterprise had done it all. And they subsequently neglected the policy levers that supported our great manufacturers in the private sector. Thirty years later, the evidence is clear that they went wrong.

The number of U.S. aerospace and defense general contractors has fallen from 51 to five. The situation among smaller defense manufacturers and machine shops is even worse. Our submarine fleet is shrinking at a rate manufacturers can’t make up for. And we’re dependent on China for many key components of our munitions and military semiconductors.

Meanwhile, deindustrialization has wreaked havoc on American society.

The working class has exchanged relative prosperity and social stability for downward mobility and political volatility. Marriage, childbearing and labor-force participation are declining. Loneliness, drug addiction and suicide are on the rise.

In response, the Biden administration has tried to reclaim industrial policy through the Chips and Science Act and the Inflation Reduction Act. The latter alone has authorized more than $1.2 trillion in federal subsidies, allegedly for domestic manufacturing. For the first time since the end of the Cold War, “the future is going to be Made in America,” as the president loves to tout.

Unfortunately, the results aren’t living up to the rhetoric. The Chips Act was supposed to help the United States compete with China on semiconductors, but because of lobbyist pressure, the bill was watered down so that U.S. companies can now receive subsidies to build factories at home while maintaining or even expanding “legacy chip” production in China. The initiative also offers few protections against foreign espionage and theft of intellectual property.

In addition, absurd diversity, equity and inclusion requirements and environmental regulations have hamstrung Chips’s implementation. TSMC and Intel have delayed the start dates for their planned U.S. fabrication plants by years because federal incentives can do only so much when federal disincentives stand in the way of development.

The Inflation Reduction Act is doing even worse than Chips. The president has waived the government’s Buy America standards for the program to expand U.S. access to electric-vehicle technology, which means our tax dollars are being spent on imported Chinese battery chargers. Chinese automakers, meanwhile, are poised to receive Inflation Reduction Act credits directly through legal loopholes. The law has created the “green manufacturing boom” the president promised, but in China, not in the United States.

There is a temptation, especially in the Republican Party, to respond by reverting to the old consensus — to resume a pre-2017 economic mind-set because the Biden administration has botched its economic efforts. But that mindset is why our industrial communities are dying and our military is in danger of being swamped.

In any event, we simply don’t have the option of doing nothing. Decisions about how we run our economy are always being made — the only question is by whom. In the past, Republicans outsourced such decisions to “the free market,” which meant some combination of nationless corporations and Communist China. Democrats have been more open to federal intervention, but often at the behest of special interests.

Biden has pushed industrial policy more aggressively than his Democratic predecessors. The evidence suggests, though, that he’s still beholden to Wall Street, Beijing and the environmental lobby. The task for conservatives is to chart a new course. But, to do so without merely ceding the lead to China, we can’t abandon industrial policy. Rather, we must strengthen it with genuine conservative insights.

This means focusing on the domestic industrial base and the working class, not fantasies such as the “green transition.” It means supporting critical industries such as mining, oil and gas, and metallurgy — all of which are vital to our security. It means tying generous subsidies to performance requirements such as export quotas. Finally, it means getting serious about deregulation and permitting reform to create a competitive business environment where industrial policy can actually work.

This won’t be easy, especially as long as Biden and his allies in Congress put the interests of lobbyists and activists above those of the nation. But if we’re ever going to compete with China and revitalize our society — if we’re ever going to bring back the America we know from the history books — we’ll need to get industrial policy right.