Making industrial policy “in”

MANY American pundits have described US President Joe Biden’s signing a US$280 billion bill aimed at bolstering the American chip manufacturing industry as a turning point of sorts in the nation’s economic policy.

Since the end of World War II, US presidents and lawmakers from both major political parties have criticised many of its economic partners for violating the principles of American-style capitalism by pursuing a national strategic effort, to encourage the development of leading sectors of their economies, in particular the manufacturing sectors, instead of allowing the free market to determine the outcome of the competition between their various industries.

That the East Asia tigers, led by Japan Inc; the mercantilist France and the social democratic Germany, actively intervened in their domestic economies through industrial policy was seen as harmful, since governments supposedly lacked the information and the capabilities to determine the cost-effectiveness of promoting any particular economic sector. Not to mention, as it was argued in Washington, that the policy of protecting and subsidising certain industries gave those countries an unfair trade advantage in their competition with American exports.