2 David Dayen, “First 100: How Biden Must End Corporate-Run Industrial Policy,” American Prospect, February 12, 2020.
3 See Mo Hu and Yi-Hua Lee, “US Conservatives Find New Merit in Industrial Policy,” Voice of America, September 22, 2020; Ethan Paczkowski, “America Needs a Comprehensive Industrial Policy,” Medium, September 11, 2020.
4 For a history of U.S. industrial policy over time, see Christian Stensrud, “Industrial Policy in the United States,” Civitas, October 2016.
5 President Biden’s national security adviser acknowledged this when he wrote, “advocating industrial policy was once considered embarrassing . . . now it should be considered close to obvious.” See Jennifer Harris and Jake Sullivan, “America Needs a New Economic Philosophy. Foreign Policy Experts Can Help,” Foreign Policy, February 7, 2020. A former Reagan administration official recently argued for an industrial policy appropriate for the “post-cloud era.” See Mark Mills, “Industrial Policy: Old-Think in the New Cloud Era,” Manhattan Institute, February 18, 2021.
6 Others have begun to acknowledge this emerging industrial policy. See David Ignatius, “The US Is Quietly Mobilizing Its Economy against China,” Washington Post, March 5, 2021.
7 Catie Edmonson, “Senate Overwhelmingly Passes Bill to Bolster Competitiveness with China,” New York Times, June 8, 2021.
8 According to the U.S. Federal Reserve, employment in the U.S. manufacturing sector dropped from 19.5 million in May 1979 to 12.2 million in November 2020. The first decade of the twenty-first century saw the most precipitous drop, of nearly six million employees. The manufacturing share of nominal GDP has dropped from 28.5 percent in 1953 to 11 percent today. According to the U.S. Bureau of Economic Analysis, the U.S. trade deficit in goods grew steadily from $447 billion in 2000 to $916 billion in 2020. The trade deficit in high-R&D-intensive goods steadily increased from $100 billion in 2006 to $300 billion in 2018.
9 Keith B. Belton, J. D. Graham, and Suri Xia, Made in China 2025 and the Limitations of US Trade Policy, working paper, Indiana University, Paul H. O’Neill School of Public and Environmental Policy, 2020.
10 In 1980, Milton Friedman appeared on episode one of the PBS show Free to Choose, in which he borrowed from Leonard Read’s essay to illustrate the power of free enterprise.
11 Hidalgo and Hausman created a map of thousands of product types and grouped product types by related competencies; products requiring similar competencies are located close to each other on the product map. Because every nation possesses a unique set of capabilities, each nation exports a particular subset of products on the product map. The more advanced economies export a greater array of products, and the most complex products are exported only from advanced economies. Economic growth occurs when a country expands its capabilities to make new product types on its product map. These new product types typically leverage a nation’s existing capabilities. For example, it would not be surprising for a nation with capabilities in materials science and aerospace engineering to develop a commercial airliner made of lightweight carbon fiber composites. See Cesar A. Hidalgo and Ricardo Hausmann, “The Building Blocks of Economic Complexity,” Proceedings of the National Academy of Sciences 106, no. 26 (2009): 10570–75.
12 Ricardo Hausmann presented a twenty-minute overview of his thinking at the World Economic Forum in 2015. This instructive video can be found on YouTube, entitled, “Secrets of Economic Growth.”
13 Sridhar Kota and Thomas C. Mahoney, “Loss of the Industrial Commons Is an Existential Threat to U.S. Manufacturing,” Indiana University, Paul H. O’Neill School of Public and Environmental Affairs, Manufacturing Policy Initiative, 2020.
14 Gary P. Pisano and Willy C. Shih, Producing Prosperity (Boston: Harvard Business School Press, 2012).
15 Robert D. Atkinson, “Who Lost Lucent?,” American Affairs 4, no. 3 (Fall 2020): 99–135.
16 The value of economic espionage to a nation is best illustrated by the former East Germany, which stole industrial secrets from West Germany for decades. Glitz and Meyersson determined that, between 1970 and 1988, the benefits of the espionage exceeded the cost by more than tenfold. See Albrecht Glitz and Erik Meyersson, “Industrial Espionage and Productivity,” American Economic Review 110, no. 4 (2020): 1055–1103.
17 John J. Fialka, War by Other Means (New York: W. W. Norton, 1997).
18 Gary P. Pisano and Willy C. Shih. “Restoring American Competitiveness,” Harvard Business Review (July–August 2009).
19 Lars Bruno and Stig Tenold, “The Basis for South Korea’s Ascent in the Shipbuilding Industry, 1970–1990,” Mariners Mirror 97, no. 3 (2011): 201–17.
20 John D. Graham, Keith B. Belton, and Suri Xia, “How China Beat the US in Electric Vehicle Manufacturing,” Issues in Science and Technology 37, no. 2 (2020): 72–79.
21 César A. Hidalgo, et al. “The Principle of Relatedness,” in Unifying Themes in Complex Systems (Springer, Cham, 2018).
22 Pisano and Shih argue that loss of the industrial commons cannot be easily reversed. See Pisano and Shih, Producing Prosperity.
23 Sridhar Kota and Thomas C. Mahoney, “Loss of the Industrial Commons Is an Existential Threat to U.S. Prosperity,” Manufacturing Policy Initiative, Paul G. O’Neill School of Public and Environmental Affairs, Indiana University, 2020.
24 Constantinos C. Markides and Norman Berg, “Manufacturing Offshore Is Bad Business,” Harvard Business Review 66, no. 5 (1988): 113–20.
25 Author conversation with Harry Moser, 2018. See also: David Finegold, et al., The Decline of the US Machine Tool Industry and Prospects for Its Sustainable Recovery (RAND, 1994).
26 See Pisano and Shih, Producing Prosperity.
27 Ricardo Hausmann, “The Tacit-Knowledge Economy,” Project Syndicate, October 30, 2013.
28 The examples provided were taken from the following government reports: Interagency Task Force in Fulfillment of Executive Order 13806, Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States, 2018 unclassified report. U.S. Department of Defense, Fiscal Year 2019 Industrial Capabilities Report to Congress, Office of Industrial Policy, 2020.
29 Cybersecurity has not become a norm in manufacturing, especially in small and medium-sized manufacturers. Defense contractors and subcontractors are required to implement the information security protections described in the National Institute of Standards and Technology (NIST) Special Publication 800‑171 Rev 1, “Protecting Unclassified Information in Nonfederal Information Systems and Organizations.” Compliance with the requirement by sub-tier suppliers remains relatively low.
30 U.S. Department of Defense, “DoD Announces Rare Earth Element Awards to Strengthen Domestic Industrial Base” (press release), 2020.
31 U.S. Department of Defense, “DoD Has Pedal to the Metal on Hypersonics” (press release), 2020.
32 “Semiconductor Industry Applauds NDAA Enactment, Urges Full Funding for Semiconductor Manufacturing and Research Provisions” (press release), Semiconductor Industries Association, 2021.
33 Tom Temin, “NDAA Requires Pentagon to Secure Circuit Board Supply Chain,” Federal News Network, January 20, 2021.
34 Farhad Jalinous, et al., “Cfius Reform Becomes Law: What Firrma Means for Industry, White & Case, 2018.
35 Thomas McVey and Christopher Skinner, “Developments in Export Controls on ‘Emerging’ and ‘Foundational’ Technologies,” J.D. Supra, September 17, 2020.
36 David Shepardson, “US Moves to Cut Huawei Off from Global Chip Suppliers,” Reuters, May 15, 2020.
37 Chuin-Wei Jong, “Pandemic Lays Bare U.S. Reliance on China for Drugs,” Wall Street Journal, August 5, 2020.
38 Rosemary Gibson, and Janardan Prasad Singh, China Rx: Exposing the Risks of America’s Dependence on China for Medicine (Amherst, N.Y.: Prometheus Books, 2018).
39 M. Rose and S. Kar-Gupta, “France Must Seek Greater Economic Independence after Virus, Says Macron,” Reuters, June 11, 2020.
40 T. Escritt, “Germany Would Like to Localize Supply Chains, Nationalization Possible, Minister Says,” Reuters, March 13, 2020.
41 S. Tan, “Australia Sees Partial Economic Decoupling from China as Canberra Weighs Risk of Over Reliance after Coronavirus Disruptions,” South China Morning Post, July 4, 2020.
42 I. Reynolds and E. Urabe, “Japan to Fund Firms to Shift Production Out of China,” Bloomberg, April 8, 2020.
43 S. Yonhap, “S. Korea seeks to Ease Factory Regulations for More Re-Shoring,” Korea Herald, May 17, 2020.
44 This framework for resilience is borrowed from the work of M. Christopher and H. Peck, “Building the Resilient Supply Chain,” International Journal of Logistics Management 15, no. 2 (2004):1–13; M. Christopher, “The Mitigation of Risk in Resilient Supply Chains,” International Transport Forum Discussion Paper, 2018–19, 2018.
45 See the following sources for more details: B. Aylor, et al., Designing Resilience into Global Supply Chains, Boston Consulting Group, 2020; Willy Shih, “Is It Time to Rethink Global Supply Chains?,” MIT Sloan Management Review (2020); J. Smith, “Post-Pandemic Supply Chains seek ‘Resilience,’ Report Says,” Wall Street Journal, June 23, 2020.
46 Mar Lapedus and Ann Steffora Mutschler, “Regaining the Edge In US Chip Manufacturing,” Semiconductor Engineering, October 26, 2020.
47 Shane Lasley, “Strategic Metals Firepower for Pentagon,” Metal Tech News, December 14, 2020.
48 Defense Media Network, “US Department of Defense Awards Contract to Launch Defense Electronics Consortium,” January 27, 2021.
49 Rick Mullin, “US Backs Domestic Drug Production,” Chemical & Engineering News, January 27, 2021.
50 U.S. Customs and Border Protection, “DHS Cracks Down on Goods Produced by China’s State-Sponsored Forced Labor,” CBP Public Affairs Office, September 14, 2020.
51 On July 5, the Biden presidential campaign website posted, “The Biden Plan to Rebuild U.S. Supply Chains and Ensure the U.S. Does Not Face Future Shortages of Critical Equipment.” On September 9, 2020, Biden released a plan to leverage the tax code and amend federal rules to discourage outsourcing, encourage reshoring, and promote domestic manufacturing.
52 President Joseph Biden, Executive Order 14017, “America’s Supply Chains,” February 24, 2021.
53 Associated Press, “In a First, Congress Overrides Trump Veto of NDAA,” Federal News Network, January 1, 2021.
54 Burt Braverman, “Congress Enacts the Export Controls Act of 2018, Extending Controls to Emerging and Foundational Technologies,” David, Wright, and Tremaine, LLP, September 26, 2018.
55 Farhad Jalinous, et al., “Cfius Reform Becomes Law: What Firrma Means for Industry,” White & Case, August 13, 2018.
56 Editorial Board, “Biden’s Buy American Plan Is Good Politics—and Awful Economics,” Washington Post, January 28, 2021.
57 Tyler Pager, “Biden Says He Supports Usmca, Citing Provisions for Labor,” Bloomberg, December 20, 2019.
58 President Trump’s adviser and “manufacturing czar” Peter Navarro famously complained that candidate Biden was a “poll-driven plagiarist” with his proposed manufacturing policies.
59 Revealed comparative advantage is calculated as a nation’s export share of a product divided by the product’s share of world trade. Values greater than one “reveal” a comparative advantage for a nation.
60 Dani Rodrik, “Normalizing Industrial Policy,” World Bank 2008.
61 D. Simchi-Levi and E. Simchi-Levi, “We Need a Stress Test for Critical Supply Chains,” Harvard Business Review, April 28, 2020.
62 Keith B. Belton, Michael Mandel, and Thomas J. Duesterberg, “Policies to Enhance the Resilience of US Manufacturing,” working paper, Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, 2020.
63 President Joseph Biden, Executive Order 14017, “America’s Supply Chains,” February 24, 2021.
64 Keith B. Belton and Ryan Olson, “The Promise of Smart Manufacturing,” in Smart Factories: Issues of Information Governance, (Manufacturing Policy Initiative, School of Public and Environmental Affairs, Indiana University, 2019).
65 Keith B. Belton, David B. Audretsch, John D. Graham, and John A. Rupp, “Who Will Set the Rules for Smart Factories?,” Issues in Science and Technology 35, no. 3 (2019): 70–76.
66 The usmca, enacted in 2018, contains numerous provisions reflecting a U.S. posture on digital trade policy and information governance for smart manufacturing. See Keith B. Belton, “usmca through the Lens of Smart Manufacturing,” in Insight into Manufacturing Policy (Manufacturing Policy Initiative, School of Public and Environmental Affairs, Indiana University, 2019).
67 Boston Consulting Group and Semiconductor Industries Association, Government Incentives and US Competitiveness in Semiconductor Manufacturing (2020).
68 Debby Wu and Ian King, “TSMC Wins Approval from Phoenix for $12 Billion Chip Plant,” Bloomberg, November 18, 2020.
69 Deloitte, Deloitte and the Manufacturing Institute Skills Gap Study (National Association of Manufacturers, 2018).
70 Oren Cass, “A Better Model for Worker Training,” American Compass, 2020.
71 Lauren N. Smith, et al., “Registered Apprenticeship Programs Serving Indiana Manufacturers: The Sponsor’s Perspective,” working paper, Manufacturing Policy Initiative, Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, 2018.
72 Keith B. Belton, Michael Mandel, and Thomas J. Duesterberg, “Policies to Enhance the Resilience of US Manufacturing,” working paper, Paul H. O’Neill School of Public and Environmental Affairs, Indiana University, 2020.
73 S. Tobocman, “Trump’s New Restrictions on Work Visas Will Hurt Michigan Businesses,” Detroit Free Press, July 8, 2020.
74 Richard Sanders, “A Layered Look at Canadian and US Immigration,” Wilson Center, 2020.
75 Sridhar Kota and Tom Mahoney, “Reinventing Competitiveness: The Case for a National Manufacturing Foundation,” American Affairs 3, no. 3 (Fall 2019): 3–17.
76 Research by Marianna Mazzucato showed that private sector will underinvest in pre-commercial R&D and that past U.S. federal investments are responsible for the creation of most breakthrough drugs and many of the capabilities embodied in the smart phone. Such government investments are needed to overcome the so-called technological “Valley of Death.”
77 Through the sharing of best practices, the Manufacturing Extension Partnership, which operates at the state level, offers assistance to small and medium manufacturers to increase firm-level productivity.
78 For a description of U.S. industrial policy in World War II, see Arthur Herman, “American Needs an Industrial Policy,” American Affairs 3, no. 4 (Winter 2019): 3–28.