The likely configuration of the new Senate represents a potential obstacle toward some of the grander Democratic Party policy visions outlined in President-elect Biden’s program. Almost certainly, we can forget about a Green New Deal (barring the possibility of a few wind turbines and solar panels being thrown into a broader policy that emphasizes public infrastructure). And it’s also the case that many GOPers are likely to become born-again deficit hawks now that a Democrat is going to sit in the White House again.
Does that mean that national industrial policy is also dead on arrival? Much like the GND, that very much depends on the framing. With the Democrats in the White House, many in the GOP, notably the Majority Leader, Mitch McConnell, may well oppose industrial policy unless it’s hidden in the defense budget or framed explicitly in the context of US-China concerns, an approach which I would probably recommend Biden to adopt.
That should hardly constrain Biden’s professed goal of reviving American manufacturing might. Indeed, it is consistent with much of the history of American industrial policy that has often been married to defense considerations. A huge percentage of US industrial policy during World War II and its aftermath was predicated on various initiatives funded in the defense budget and justified as anti-Germany and then latterly as anti-Soviet. Indeed, the first word in DARPA is Defense and Arpanet, the forerunner to today’s Internet, was originally created by the Advanced Research Projects Agency, an entity of the United States Defense Department, and began operation in 1969.
At times, national defense considerations have also superseded America’s default stance in favor of global free trade. Such considerations lay at the origin of Sematech, a government-industry consortium created in the 1980s to successfully revitalize American semiconductor manufacturing, after the Pentagon deemed it to be a strategically key industry. At the time of the creation of the Sematech consortium, Japan’s lead in memory chip production, both in market share and in the quality of its products represented the strategic vulnerability for the U.S. as it raised fears the U.S. could lose not only a highly innovative industry but the components crucial for everything from computers to weapons systems. By the 1990s, this trend had been reduced and U.S. manufacturers had regained dominance in the industry.
When assessing the “efficiency” or “cost” of redomiciling homegrown industries with dual-use capacities (such as semiconductors), it’s not unreasonable to assess those in relation to the costs of an actual military conflict (as opposed to mere “efficiency gains”). Likewise the existence of the Covid-19 pandemic has understandably led many in the Pentagon to consider the risks and strategic costs posed by the disruption of spare parts for its equipment. Indeed, many champions of free trade, including former Treasury Secretary Lawrence Summers, now acknowledge the need for some degree of national redundancy to be built into the American economy on national security grounds going forward, even if it creates some diminution of efficiency or profitability.
By the same token, if U.S. trade policy is linked more explicitly to national security concerns, it is conceivable that some form of bipartisan consensus could be achieved in regard to a policy that gives primacy to the homegrown strategic industries necessary to maintain U.S. military supremacy. Given its strong ties to the defense establishment, that would seem to be a more likely scenario for the GOP, but there are Democratic Senators, such as Mark Warner and Chris Coons who have long been sensitized to these issues and would likely find common ground with Republican senators such as Marco Rubio or Tom Cotton.
As historians come back to ponder the post-Cold War era, they may find that America’s “unipolar moment” – during which free trade and the so-called “Washington Consensus” prevailed as the norms – was actually an aberration in the broader sweep of history. Before World War II, America emphasized free trade mostly in raw materials, not finished goods. Even during the Cold War, the U.S. only adopted one-way “free trade” with its Asian and European allies, in order to accelerate their development and keep them firmly secured within the American strategic orbit.
Accordingly, in responding to both the changing state of global markets and the stresses of the coronavirus pandemic, the new Biden Administration should not operate under the false historical assumption that the system that prevailed from 1990 to the onset of Covid-19, is somehow a natural or desirable status quo ante to which the country should return. The Biden Administration must bear this in mind if it wishes to avoid Congressional gridlock. The future president might find that there are creative bipartisan ways to avoid “fighting like hell” if he wishes to get anything productive done during the onset of his new administration.
The White House is discrediting its promotion of domestic semiconductor production by linking it to childcare
Ever since the concept of a national industrial policy was proposed in the 1970s, it has received scorn from most neo-classical economists, with those advocating it treated as the economic equivalent of chiropractors.
On this episode of Talkin’ (Policy) Shop, Oren and Chris discuss our third Issues 2024 brief and the importance of a strong industrial base.