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

Western efforts to change the industrial policy of the People’s Republic of China (PRC) by targeting specific industries including biotechnology, lithium batteries, semiconductors, and solar panels, with numerous tax incentives and procurement and direct financial subsidies were in vain. 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 is focusing on its “Belt and Road Initiative”, including a land economic belt of the Silk Road and a 21st Century Maritime Silk Road, aimed at promote foreign investment and foster 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, launched their own national 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 domestic 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 direction of the executive office of the president. In December 2014, the “Revitalize American Manufacturing and Innovation Act” (which included the goals set out 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” – on progress in achieving national manufacturing goals cutting edge 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 “national security” problem became evident when the United States Food and Drug Administration announced in March 2020 that there was a shortage of vital antibiotics to respond to peak cases of Covid-19 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 resulted in supply shortages. medical essentials in the United States due to limited national stocks and insufficient US industrial stocks. 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 build a semiconductor manufacturing plant in Arizona. Joe Biden ran for president in 2020 on an economic development platform supporting a “comprehensive manufacturing and innovation strategy.” In March 2021, the Biden administration announced the “US Jobs Plan,” underscoring its commitment to revitalize US manufacturing, secure US 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 United States Senate passed the United States Innovation and Competition Act (USICA) with 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. A March 2021 report released by the U.S. National Security Commission on Artificial Intelligence recommends $ 35 billion in federal semiconductor subsidies and export controls on semiconductor manufacturing equipment. advanced drivers.

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 turn into a de facto industrial policy where the government chooses “the winners and the 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 in the event of Taiwan’s forced reunification with the PRC, as the United States manufactures in its country 12% of all semiconductors requested 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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