America’s Hamiltonian Revival and New Industrial Policy

President Joe Biden visits a Wolfspeed semiconductor manufacturing facility in Durham, North Carolina, to kick pff the Investing in America Tour on March 28, 2023. (Peter Zay/Anadolu Agency via Getty Images)
President Joe Biden visits a Wolfspeed semiconductor manufacturing facility in Durham, North Carolina, to kick pff the Investing in America Tour on March 28, 2023. (Peter Zay/Anadolu Agency via Getty Images)

The 2022 passage of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act and the inartfully-named Inflation Reduction Act (IRA) mark a decisive move toward industrial policy (IP) in the United States. The Acts clearly compromise long-standing US support for the open trade and market driven economic framework erected in the aftermath of the Second World War and the autarchic tendencies of the 1930s. Nonetheless, robust backing for domestic industry is not unknown in American history and some contemporary proponents of this policy orientation argue that it is the dominant strain of US economic policy over the last 200 years.1 The many conservative-leaning contributors to Journals such as Compass and American Affairs often invoke the precedent of Alexander Hamilton’s famous Report on Manufacturing as the founding document of their framework for a new IP. They join the traditional Rooseveltian “New Deal” coalition of the Democratic Party in the US which has long favored some form of IP since the 1930s.

Whether the embrace of even a narrowly focused program of industrial policy in the American context can succeed is an open question.     

The Impetus for Industrial Policy

One can adduce three principal reasons for the turn toward IP.  First, many on the more liberal and Democratic side of the political spectrum have long lamented what they perceive as the decline of US manufacturing. This started in the 1980s as Japan and Europe recovered from the wartime devastation of their economies and began to compete effectively in industries such as metals, autos and machinery. This side of American politics has long supported more direct aid for US industry than prevailed during the Cold War years and the heyday of the short-lived Washington consensus years. Second, as first the Pacific Rim “tigers” joined the global competition for industrial leadership, and then the Chinese colossus entered the world’s economic stage, recognition of the destructive impact of state subsidies and the general mercantilist tendencies of these and other global powers began to sway some conservative opinion and Republican policy toward more active economic engagement and questioning of doctrinaire market economics. Third, the many supply chain disruptions of the Covid era followed by wartime disruptions led to efforts to “derisk” the US economic and make it more resilient in the face of growing political, military and economic confrontation from powerful adversaries. The mercantilist thrust of the Chinese economy, first recognized by the Trump administration as a policy challenge, and then the alliance of Presidents Xi and Putin (joined by other authoritarian powers) reinforced the perception of a clear threat to the Western led economic and political architecture. Adding a pressing national security element to the perceived need for a stronger industrial sector deepened support for domestic IP.

The CHIPS and IRA Acts enjoyed considerable bipartisan support in the US Congress and were a key component of the Biden administration concept of an integrated foreign and domestic policy. National Security Advisor Jake Sullivan made the case for linking domestic IP and foreign policy in an influential article in Foreign Policy in the election year 2020.2


The CHIPS act symbolizes the bipartisan determination to protect high technology industries from Chinese competition which is fueled by subsidies and illicit technology acquisition. Its headline goal is to stimulate relocation of both fabrication plants and their supply chains to the US. The specific language of the bill authorizes nearly $280 billion in spending to support semiconductor plants, their supply chains, and research associated with high technology industries in general. It is important to note that around $200 billion of this total is for basic science research, the training of scientists and engineers, and the development of a skilled workforce for advanced technology industries. $39 billion is earmarked directly for building new fabrication plants in the US and the equipment needed for these facilities, and for expanding existing plants.

Although the US dominated the early history of semiconductor technology and production, by 2021 its global share of total fabrication of integrated circuit chips had fallen to 12%, and it built none of the most advanced chips used in computers and communication devices. However, the US has maintained leadership in design and equipment production. The most advanced chips are made in Taiwan and South Korea. China has become a significant and growing player in the less powerful “legacy chips,” which are the workhorses of everything from autos and appliances to military weapons and medical devices. The product shortages revealed during and immediately after Covid lockdowns were linked largely to lack of US (and allied) production or access to legacy chips.

The various types of support for the domestic manufacturers has resulted in planned investment or “serious study” of projects worth between $223 and $260 billion for fabrication plants in the US.  This includes at least 15 new fabrication plants in the US over the next 10 years. Nine of these projects with total investments projected at $44 billion are currently underway with anticipated completion in the next two years.3 Several of the new plants will make the more advanced generation of chips now produced in East Asia. Another 30-to-40 projects are devoted to the “ecosystem” for this sector. Local government incentives often supplement the new as well as expanded plant projects.

IRA Program

The IRA provides a variety of loans, grants, and tax incentives for making and selling renewable energy products in the US, and in some cases simply bought or installed in the US. Total spending over 10 years is estimated by McKinsey at $500 billion.4 Some $43 billion of this total is for tax incentives for consumer purchases of renewable energy products, especially electric vehicles (EVs). Incentives for the corporations producing renewables in the US are just over $350 billion over the next 10 years. Headlines for the IRA have focused on subsidies for EV production since increasing competition from China has come to public attention. Other energy sources such as nuclear, sustainable aviation fuel, heat pumps, biomass and hydrogen are also eligible for support.

Will the Two Initiatives Succeed?

An early assessment of the prospects for the CHIPS act is encouraging, but that for the IRA, at least for those aspects designed for EV and other renewables production the US, is less so.

As the numbers for investments in new domestic plants and supply chains to support them indicate, the prospects for renewal of production in the US of advanced and legacy semiconductors are quite positive. Not all the anticipated investments will be completed, especially in the near term as interest rates remain elevated and major global economies, including the US, are weakening. But the global footprint of semiconductor manufacturing is shifting for many components of the ecosystem back to the US and its close allies. Several of the new US plants are being financed (with CHIPS support) and built by current advanced chip leaders TSMC and Samsung, and others by established US firms Intel, Micron and Texas Instruments. Plants for the most advanced integrated circuits on domestic soil are yet to be finalized, but the parallel investment in research and talent development from the CHIPS program enhance the prospects for reaching this goal.

It is also worth noting that the domestic IP revival is being assisted by US trade and export control policy.  Export controls on basic technologies, final products and equipment have been successful in slowing down the advance of Chinese producers, despite the massive subsidies lavished on this sector by the PRC. Both inward and outbound investment restrictions also assist in limiting Chinese success in developing technology and manufacturing know-how.

Unfortunately, China now dominates the production and supply chains for renewables products to such an extent that it will hinder the effectiveness of US efforts to recover competitiveness in these important manufacturing industries. Despite the enormous size and scope of IRA support, it will not be sufficient on its own to offset the Chinese dominance in EVs, and in wind and solar products. PRC dominance is based on both costs and control over relevant supply chains such as rare earths and battery minerals. The Chinese have already threatened to cut exports of key minerals to Western producers, although they have not systematically implemented their controls in the last year.

The competitiveness problem with the domestic EV industry is especially instructive in understanding the challenges ahead for US producers.  The president of Ford Motor noted earlier in 2023 that the firm lost $32,000 on each EV it was selling, and in the last few months this number has been much higher as the overall market weakens and US consumers remain reluctant to try the new technology. Ford and the other historical top three auto giants, GM and Stellantis, are already at a disadvantage to Tesla and the German, Japanese and South Korean automakers building products in the US.  The big three now have total labor costs averaging around $65 per hour, compared to $45-55 for Tesla and the foreign-owned firms operating in the US. This discrepancy is partly due to the fact that they are all non-union companies. The settlements reach in the fall strikes against the big three will raise labor costs by more than the 25% headline hourly wage rise due to higher pension costs, more rapid advancement for new workers, and annual cost-of-living raises in the new contracts. Average hourly wages will reach the $87-90 level, which is around $150,000 at an annual rate. 

Subsidies and tax benefits for Chinese automakers, control over battery supply chains, and fierce domestic competition between its nearly 100 manufacturing firms translates into price advantages of nearly 60% for these producers over those in the US. Even a 27.5% tariff and $7500 per vehicles tax rebate cannot offset the structural costs advantages for Chinese carmakers. Tesla was compelled to make several rounds of prices cuts in 2023 due to domestic competition in its market. Average prices in China have fallen by 45% since 2015 for Chinese built EVs. 

As a result of these dynamics, sales of US-made EVs have not met expectations. The Biden goal of reaching 50% of the domestic market by 2030 is in danger as that share stands at barely 8% in 2023 and sales growth is slowing. The incentives to produce in the US under the IRA have not led to any significant jump in new or expanded parts or assembly facilities. Investment in battery plants has grown, in large part because of Korean and Japanese (and some Chinese) producers investing in the US to avoid being excluded from IRA subsidies.

The Chinese dominance of production in wind and solar equipment is similarly so large that little impact from the new IRA incentives for domestic production is evident. Some new domestic wind production announced this year is largely due to European and Chinese producers aiming to benefit from IRA subsides, but most are small in scope.

What has become apparent in the latter part of 2023 is widespread abandonment of existing plans for new US production facilities. Honda and GM dropped a $5 billion plan for an EV plant in October. GM has also scrapped its EV production goals and Ford postponed a $12 billion EV investment. Tesla “paused” development of a new EV plant in Mexico. In the wind sector, Danish renewables giant Orsted dropped a $5.6 billion project for offshore wind in New Jersey and threatens to do the same for other New England offshore projects unless subsidies are increased to 50% of project costs.

Europe also feels the imact of Chinese competition in wind and EVs. Siemens lost $4.8 billion in its wind business this year.5 Total Chinese exports of EVs doubled in 2022 to over one million vehicles and reached 900,000 in the first half of 2023. Chinese firms captured 8% of total European auto sales in 2022. When exports of European and Tesla EVs from China are added the total market share in Europe reaches 16%.

Impact of CHIPS and IRA on Trade Policy

Because of the significant Chinese cost advantage for renewables production, it is likely that trade policy will be called upon to achieve the goals articulated by the new, Hamiltonian IP advocates as well as historical supporters of government support for domestic manufacturing dating back to the New Deal era. The US already relies on trade and investment policy to support the semiconductor industry and is likely to join the recent European anti-dumping case on EVs, and a potential case for solar products. As noted earlier, subsidies under the IRA for renewables are insufficient to counter Chinese cost advantages. Either prohibitive tariffs or very sizable anti-dumping or countervailing duties in both the US and EU will likely be needed to avoid the sort of outright bailouts that have been used twice in the US to save the domestic auto industry. The presence of President Biden on the picket lines during the fall, 2023 UAW strike is a sign that such bailouts would have significant political support.

The two key IP acts now in effect in the US, along with the new European and Japanese subsidy programs mirroring (but not matching) the signal US programs, also undermine the credibility of the so-called “trilateral” process among the three allies in the WTO. This exercise was undertaken during the Trump years as part of an effort to reform the WTO subsidy rules to better cover the systematic industrial subsidies of China. In place of the competitive IP race among Western allies, I argued in an earlier AspeniaOnline article that a better approach would be for like-minded allies to cooperate in developing the technologies important to national security and resilience and redouble efforts to create a more effective trade regime effectively limiting broad reliance on industrial subsidies.6

This article originally appeared in Italian as “Il Revival Hamiltoniano,” Aspenia 4, 2023 (December 2023),