Rebuild: Toolkit for a New American Industrial Policy

Executive Summary

As economic security comes to the forefront of U.S. foreign policy, the U.S. strategy has been largely reactive and focused on playing defense rather than offense. Actions have centered on slowing down competitors—namely China—rather than defining an affirmative vision for growing American strength in the economic domain. A uniquely American industrial policy is the missing piece of the U.S. economic security strategy.

Pursuit of industrial policy must recognize the immense benefits of free markets while also grappling with their limitations. Policymakers must promote the efficiency and productivity gains of a competitive open market while also seeking resilient and secure supply chains, fair and reciprocal trading relations, and uninterrupted access to those goods and services critical to the national defense, critical infrastructure, and smooth functioning of the society writ large.

Industrial policy advocates must also get comfortable with a new way of thinking about global competition. They must be clear-eyed about the fact that the security of the United States and its allies may be threatened by China’s technological and economic advances. Simply leveling the playing field with China is no longer enough. The United States needs to play to win.

The first report in this Center for a New American Security (CNAS) project outlined the intellectual framework for a uniquely American industrial policy, one that can “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 compromising its values or sovereignty.”¹ This report gets specific. It lays out the tools available to the U.S. government for implementing industrial policy effectively, categorizing three separate types of industrial policy interventions:

1. Defensive industrial policies that address economic or security harms caused by external economic actors.
2. Proactive industrial policies that support cutting-edge technological development and the competitiveness of specific sectors.
3. Emergency response industrial policies that bolster America’s crisis response capability.

The toolkit analysis notes the difficult tradeoffs that policymakers must face when assessing the practicality or effectiveness of deploying any particular tool or set of tools.

The report concludes with a series of pragmatic actions that the U.S. government should take to implement an American industrial policy, one that advances U.S. prosperity and growth, leverages U.S. comparative advantages and values, and positions the United States and its allies to prevail in a strategic competition with China.

Key Actions for Activating the Industrial Policy Toolkit

Build the government’s capacity to implement industrial policy.

• Expand and strengthen the Department of Commerce’s Office of Industry and Analysis.
• Establish the position of industrial policy coordinator within Commerce.
• Mandate publication of sectoral strategies.
• Strengthen industrial policy quantitative analysis.
• Establish oversight mechanisms.
• Access private-sector industry expertise.

Deepen federal-state-local cooperation.

• Cultivate state and local catalysts.
• Create national-level demand signals.
• Condition national-level incentives on local support.

Innovate financing for industrial policy.

• Authorize the Industrial Finance Corporation of the United States.
• Establish Defense Production Act-like authorities for nondefense sectors.
• Establish best practices for subsidies.

Build the workforce for industrial policy.

• Map industrial policy workforce needs.
• Integrate workforce needs into sectoral strategies.

Build economic alliances.

• Develop joint approaches to nonmarket economies.
• Disarm on the subsidies race with allies.
• Develop new frameworks for strategic competition, including a new regime for investment and export controls.
• Spark joint innovation.
• Grant emergency regulation exemptions.