The Return of US Industrial Policy: A Belated Reindustrialization Race?

Introduction: From the Margins to the Center

The United States is experiencing a remarkable resurgence of industrial policy. From the Trump administration's embrace of trade barriers to the Biden administration's push for the CHIPS and Science Act (CHIPS Act) and the Inflation Reduction Act (IRA), Washington has made a clear declaration: the government is no longer just a neutral referee of the market but will actively "step onto the field" in strategic industries such as semiconductors, electric vehicles, and clean energy. This marks the most profound shift in U.S. industrial policy since the end of the Cold War.

Back to the Hamilton Era: Industrial Policy in History

Industrial policy is nothing new. In his 1791 Report on Manufactures, Alexander Hamilton argued for supporting domestic manufacturing through tariffs and subsidies. Later, Henry Clay's "American System" combined tariffs, a national bank, and infrastructure investment. During the Cold War, DARPA created the seeds of the internet and GPS, and massive government procurement drove the rise of the semiconductor industry. In response to Japan's challenge in the 1980s, the United States formed Sematech, a public-private consortium, to coordinate research and development and standards. ARPA-E, founded in 2009, and Manufacturing USA in 2016 continued this tradition. Yet in peacetime, the United States has generally been cautious about industrial policy, embracing it only when external threats are clear. The current resurgence is based on the convergence of three external pressures.

Three Pressures: China, Supply Chains, and Climate

First, China's state-led economic model is the direct catalyst. Through subsidies, state-owned enterprises, market protection, and other means, China has rapidly achieved global leadership in high-tech fields such as photovoltaics, electric vehicles, and batteries. U.S. policymakers realize that if they continue to adhere to free-market principles, it will be difficult to compete with China-style industrial policy.

Second, the fragility of global supply chains was fully exposed during the COVID-19 pandemic. Shortages of key goods such as medicines and chips made the United States realize that relying too heavily on overseas production, especially on geopolitical rivals, is a national security risk.

Third, the urgency of climate change requires a transformation of the energy system, and the manufacturing capacity for clean energy technologies (such as solar panels and batteries) is crucial to that transformation. If the United States lacks these production capacities, it will lose competitiveness in the future green economy.

The Evolution of Policy Tools: From "Punishment" to "Incentives"

Early industrial policy consisted mainly of tariffs and government procurement, but today's toolbox is more extensive. The passage of the CHIPS Act and the IRA shows that subsidies and tax credits have become mainstream. This shift reflects an evolution in policy thinking: rather than simply setting up barriers, the government guides capital toward strategic sectors by lowering corporate investment costs. At the same time, R&D spending and public procurement still play important roles—for instance, the Department of Defense's early purchases of advanced technologies can create initial markets for emerging industries.

Learning from Others: East Asia's Success and Latin America's LessonsThe United States is not alone. Germany, Japan, and South Korea all have deep traditions of industrial policy. After World War II, Japan supported steel and semiconductors through the Ministry of International Trade and Industry (MITI), creating the "East Asian Miracle"; from the 1960s, South Korea promoted steel, shipbuilding, electronics, and automobiles, nurturing chaebols such as Samsung and LG; Taiwan, with government support, built a world-leading semiconductor industry. These success stories show that industrial policy, when combined with market mechanisms and export orientation, can produce significant results. In contrast, Latin American import-substitution industrialization, due to excessive protection, led to inefficiency and corruption—a lesson equally worthy of caution. The United States' new industrial policy should draw on the experience of both: it needs strategic orientation, but must avoid closed markets and excessive intervention.

Beneficiaries and Risks: Who Is Riding the Wind, Who Is Swimming Against the Tide?

Under industrial policy, the beneficiaries will be those industries defined as "strategic." The first is semiconductor manufacturing: the CHIPS Act will directly subsidize wafer fab construction, promoting the localization of advanced and mature process nodes. The second is the electric vehicle and battery supply chain: the tax credits provided by the IRA will stimulate EV production, battery manufacturing, and charging networks. The third is clean energy, including solar, wind, hydrogen, and related grid infrastructure.

However, there are also potential pressure points. Consumer manufacturers that rely on imported raw materials may face rising costs; industries that do not receive subsidies may fall into financing and hiring disadvantages because government resources are concentrated in a few sectors. In addition, industrial policy may provoke retaliation from trading partners, leading to fragmentation of global markets.

Supply Chain Restructuring: From Efficiency First to Security First

The deeper logic of the new policy is supply chain security. The CHIPS Act requires companies receiving subsidies to restrict expansion in "countries of concern," and the IRA also imposes requirements on battery material sources. These all show that the United States is placing resilience above cost. This will promote "friend-shoring" and localized production, and global supply chains will be reorganized around geopolitical blocs. In the long run, the United States is attempting to build a "China-free" closed loop in key industries, but it cannot completely escape China's supply chains, especially in critical minerals.

The Unfinished Road: Implementation, Labor, and Costs

The success or failure of industrial policy depends not only on legislation. First, the executive branch needs to allocate subsidies efficiently and transparently to avoid rent-seeking behavior. Second, advanced manufacturing requires a highly skilled workforce, and the United States has long faced a shortage of STEM talent; it must expand vocational training and immigration pathways. Third, the cost of domestic production may be higher than overseas, ultimately passed on to consumers and triggering political backlash. These factors will determine whether industrial policy reshapes American industry or degenerates into an expensive illusion.

Core Observations## Core Observations

1. The return of industrial policy is an institutional response by the United States to the triple challenges of geopolitics, supply chains, and climate. 2. Subsidies and tax credits are replacing traditional tariff barriers as the primary policy tools. 3. Semiconductors, electric vehicles, and clean energy will be the direct beneficiaries, while other industries may face the risk of being squeezed out of resources. 4. East Asian experience proves that industrial policy can succeed, but the Latin American lesson also suggests that overprotection can be counterproductive. 5. Supply chain security logic will prompt the United States to accelerate the "friend-shoring" and localization of key industries, but it cannot completely eliminate dependence on the Chinese market.

Outlook for US Industrial Trends

Over the next three to five years, we may see:

• Semiconductor manufacturing facilities coming online in the United States one after another, but yields and costs for advanced process nodes remain challenging.
• Rapid expansion of electric vehicle and battery production capacity, with charging infrastructure and power grid upgrades becoming bottlenecks.
• Clean energy manufacturing continues to grow under policy incentives, but may face international trade disputes.
• Supply chain restructuring will give rise to new regional industrial clusters, but the geographic distribution may exacerbate domestic regional imbalances.
• Industrial policy will become a focus of US economic diplomacy, triggering strategic competition among allies and competitors.