Industrial Policy: the “New Washington Consensus”
In September 2022, Biden National Security Adviser Jake Sullivan said the United States must pursue “as large of a lead as possible” in chips, quantum computing, artificial intelligence, biotech, and clean energy. Sullivan said the United States must also impede technological advances in countries like China and Russia.
This is driven by two key policies: (1) subsidies and other methods to shift supply chains away from geopolitical rivals and (2) stricter investment screening and export controls to keep advanced technology out of unfriendly hands.
In 2023, Sullivan called the Biden administration’s economic policy the “new Washington Consensus” and a “modern industrial and innovation strategy.” He argued that it will build “a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.” This strategy is being developed as the Biden administration is confronting four challenges: (1) reduced industrial base; (2) the rise of China, a geopolitical and security competitor; (3) the climate crisis; and (4) rising inequality and its impact on democracy. The administration’s response to the challenges include: (1) industrial strategy; (2) international cooperation; (3) trade; (4) investment in emerging economies; and (5) protecting foundational technologies.
Biden Policy Responses
First: Industrial Strategy: The Biden administration is pursuing a “modern American industrial strategy.” This includes support for sectors that are “foundational to economic growth” and that are “strategic from a national security perspective.” There is also the need for cooperation “with our partners to ensure they are building capacity, resilience, and inclusiveness.”
Second: International Cooperation: The administration is “working with our partners to ensure they are building capacity, resilience, and inclusiveness.” It is leveraging the Inflation Reduction Act to build “a clean-energy manufacturing ecosystem rooted in supply chains here in North America, and extending to Europe, Japan, and elsewhere.” The administration is “working with partners—in Europe, the Republic of Korea, Japan, Taiwan, and India—to coordinate our approaches to semiconductor incentives.”
Third: Trade: The administration is “moving beyond traditional trade deals to innovative new international economic partnerships focused on the core challenges of our time.” This includes:
creating diversified and resilient supply chains;
mobilizing public and private investment for “the clean energy transition”;
ensuring “trust, safety, and openness in our digital infrastructure”;
stopping a race to the bottom in corporate taxation;
enhancing protections for labor and the environment;
tackling corruption.
The principles are decoupling from China, redundancy and resilience in supply chains, and trade deficits.
Fourth: Investment in Emerging Economics: The administration is “mobilizing trillions in investment into emerging economies.” It is protecting “foundational technologies with a small yard and high fence.” Restrictions on advanced semiconductor technology exports to China are premised on straightforward national security concerns and cooperation with key allies and partners. It is imposing enhanced screening of foreign investments in “critical areas relevant to national security.”
Fifth: Protecting Foundational Technologies: The administration is “protecting our foundational technologies with a small yard and high fence.” Restrictions on the most advanced semiconductor technology exports to China premised on straightforward national security concerns. There will be enhanced screening of foreign investments in critical areas relevant to national security. They will address outbound investments in sensitive technologies with a core national security nexus.