May 24, 2022

Reboot: Framework for a New American Industrial Policy

By Martijn Rasser, Megan Lamberth, Hannah Kelley and Ryan Johnson

“Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.”

—Sir Winston Churchill

The relationship between American industry and the U.S. government must change. The nature of the U.S.-China strategic competition, one centered on technology, requires a reset in how America’s policymakers and corporate leaders engage. Matters of economic competitiveness and security are increasingly indistinguishable. Officials from former President Donald Trump’s administration articulated this in 2018. President Joe Biden followed suit in 2021. Recent events underscored this reality and accelerated the forces behind a broad realignment in global relations. The fallout of the COVID-19 pandemic shone the spotlight on widespread supply chain vulnerabilities such as out-of-balance economic interdependencies. Russia’s renewed invasion of Ukraine prompted the world’s leading democracies to align on wide-ranging sanctions and export controls; they accomplished both at extraordinary scale and speed.

A core takeaway from these events is that only governments can take certain actions, or prompt them. Also evident is that corporations do not provide of their own volition all that is needed for the national interest. These are statements of fact, not condemnations. Business leaders, especially since the end of the Cold War, have done what they were incentivized to do: maximize profits and shareholder value, streamline and globalize operations. For many years, this worked well. Now, however, the dynamic has changed, with the rise of China as an economic, technological, and military power that rivals, and in some cases surpasses, the capabilities of the United States and its allies. America’s current trajectory is perilous and uncertain, leaving at risk its status as the world’s leading economic and technological powerhouse.

U.S. leaders must take measures to correct the course. American government policies, largely laissez-faire for decades, indirectly and directly have encouraged offshoring of manufacturing. Corporate and individual tax laws and defined contribution plans have emphasized shareholder returns over pricey long-term capital expenditures. Growing reliance by the government on private sector innovations has shifted research and development (R&D) intensity away from important but risky basic research to safer applied research with better returns on investment. An era of renewed government involvement with industry is needed to address America’s changed reality. Critical manufacturing capabilities must be shored up, while building on U.S. leadership in service sectors.

This paper is not a proposal for a radical overhaul of the U.S. economy or how it is managed. Instead, it proffers a set of pragmatic concepts and actions to promote American competitiveness, actions for effective government engagement with industry within the confines of free market principles. In the past few years, Washington lawmakers have proposed legislation, such as onshoring semiconductor fabrication and critical minerals processing, that is rightfully considered industrial policy—distinct government intervention in economic activity previously left to private corporations. The goal of this report, and future reports as part of this project, is to lay out a coherent and comprehensive pathway for successful government engagement with industry to ensure long-term economic competitiveness while safeguarding U.S. national security.

This paper presents an initial framework for a new American industrial policy, a blueprint for what is needed to ensure the United States has the vision, goals, plans, and resources for an era of sustained strategic competition. The concept, informed by an overarching national technology strategy and a supply chain resilience strategy, is the initial contribution in a larger effort to provide policymakers with a comprehensive toolkit to navigate competition with China and engage with countries around the world, friend and foe alike. To provide tangible real-world examples of a new sensible American industrial policy and to illustrate how policies would vary by sector and over time, subsequent reports will detail what a new American industrial policy would look like in action for three key sectors: biotechnology, semiconductors, and green technologies.

The goal of this vision should be to secure the United States’ standing as the world’s premier technology power so that it can empower its citizens, compete economically, and secure its geostrategic interests without having to compromise its values or sovereignty.

The framework comprises six distinct yet connected actions that will form the foundation for future specific, actionable policy recommendations. The actions are as follows: (1) issue a clarion call; (2) analyze successes; (3) align government and industry; (4) create authorities to adjust policies as needed; (5) accept and mitigate risk; and (6) leverage allies. All of these draw from lessons learned throughout American history, and from past industrial policies of Japan, Taiwan, and Singapore. They are designed to shore up U.S. economic resilience and to contend with a rising China.

First, Biden must articulate what winning the strategic competition means for the United States. The country needs a rallying cry. Americans need to know what they are aspiring toward in order to make tangible abstract notions, such as strategic competition and the China challenge, and to support the renewal of America’s industrial capacity. The vision should explain how economic security is national security. The goal should be to secure the United States’ standing as the world’s premier technology power, so that it can empower citizens, compete economically, and secure its geostrategic interests without compromising its values or sovereignty.

Once that vision is established, U.S. policymakers must turn to monitoring and implementing industrial policy. This requires putting in place capacity to analyze and measure success and engaging with industry to execute these policies. Changes to the U.S. government’s structure by creating new positions and giving new authorities will be necessary and a government-wide task force must be set up to determine appropriate metrics. Congress must play its part by mandating and funding the sustained research and analysis of U.S. industrial policies.

Aligning the national interest with those of America’s private sector will be essential. Because public-private partnerships will be a central feature of a new American industrial policy, the administration and Congress should focus on funding new initiatives for research and development in priority scientific and technological areas.

Policymakers should be ready to adjust industrial policies to changing contexts. To sustain policies that have impact and meaning when conditions change, U.S. policymakers must understand how and when to adapt policies. The U.S. government currently lacks this capacity. In a previous report, CNAS researchers proposed a deputy national security advisor for technology competition; this person would be the government’s senior strategist for industrial and tech policy, and would serve as the chief advisor on industrial policy. Congress and the White House should work together to create and fund that position and the requisite staff.

A renewed engagement between government and industry will also require a mindset shift in how policymakers tolerate and manage risk. The technology areas that are of greatest consequence to economic growth, societal resilience, and military power—and that have the greatest disruptive potential—are often also those in which the most work remains to be done, and where unknowns are greatest. Fields such as biotechnology and quantum information science are developing rapidly, but acquisition pathways remain unclear. New cutting-edge capabilities require high-risk, high-reward research. America’s leaders need to be willing to embrace risk, tolerate failure, and trust the process.

Finally, American industrial policy cannot succeed without robust international partnerships. There are two reasons for this. One, the United States simply cannot go it alone. It rarely has all the pieces of the puzzle, and it needs its allies to play by the same rules. Two, the U.S. network of allies and trusted partners is an unmatched strategic advantage. It would be foolish not to capitalize on this strength. To improve America’s ability to collaborate with like-minded countries, Congress and the White House should commit to creating a large cadre of tech diplomats. Together, the world’s tech-leading democracies face much better odds of ensuring a beneficial, prosperous, and secure future.

Download the Full Report

Download PDF

  1. Erik Nelson, “OED Calls on Churchill,” The Baltimore Sun, September 25, 1991,https://www.baltimoresun.com/news/bs-xpm-1991-09-25-9113009996-story.html.
  2. Peter Navarro, “Why Economic Security Is National Security,” The White House, December 10, 2018, https://trumpwhitehouse.archives.gov/articles/economic-security-national-security/.
  3. The White House, Interim National Security Guidance, (March 2021), 24, https://www.whitehouse.gov/wp-content/uploads/2021/03/NSC-1v2.pdf.
  4. Martijn Rasser and Megan Lamberth, “Taking the Helm: A National Technology Strategy to Meet the China Challenge” (Center for a New American Security [CNAS], January 13, 2021), https://www.cnas.org/publications/reports/taking-the-helm-a-national-technology-strategy-to-meet-the-china-challenge; Martijn Rasser et al., “The Tangled Web We Wove” (CNAS, March 10, 2022), https://www.cnas.org/publications/reports/the-tangled-web-we-wove.
  5. Martijn Rasser, “The Missing Context in America’s Competition with China,” Inkstick, August 30, 2021, https://inkstickmedia.com/the-missing-context-in-americas-competition-with-china/.
  6. Loren DeJonge Schulman and Ainikki Riikonen, “Trust the Process: National Technology Strategy Development, Implementation and Monitoring and Evaluation” (CNAS, April 20, 2021), https://www.cnas.org/publications/reports/trust-the-process.

Authors

  • Martijn Rasser

    Senior Fellow and Director, Technology and National Security Program

    Martijn Rasser is a Senior Fellow and Director of the Technology and National Security Program at CNAS. Prior to joining CNAS, Rasser served as a senior intelligence officer a...

  • Megan Lamberth

    Associate Fellow, Technology and National Security Program

    Megan Lamberth is an Associate Fellow for the Technology and National Security Program at CNAS. Her research focuses on U.S. strategy for emerging technologies and the key com...

  • Hannah Kelley

    Research Assistant, Technology and National Security Program

    Hannah Kelley is a Research Assistant for the Technology and National Security Program at CNAS. Her work focuses on global semiconductor competition, U.S. national technology ...

  • Ryan Johnson

    Former Intern, Technology and National Security Program

    Ryan Johnson is a former Joseph S. Nye, Jr. Intern for the Technology and National Security Program at the Center for a New American Security (CNAS). Ryan recently graduated S...

View All Reports View All Articles & Multimedia