BIG IDEA | ‘Biden and his more activist advisers hope to modernize key industries and counter an economic threat from China, swiftly emerging as the world’s other superpower. “The package that they put together is the closest thing we’ve had to a broad industrial policy for generations, really,” says Scott Paul, the president of the Alliance for American Manufacturing.’

‘The Biden Team Wants to Transform the Economy. Really.,’ a recent long piece in The New York Times, contends:

• ‘What Biden wants to do represents a rethinking of the country’s economic posture:’
• ‘Seeking to promote certain sectors — like green-energy production and the manufacture of wind turbines, say — so as not to cede them to competitors in Europe and Asia.’
• ‘ “The package that they put together is the closest thing we’ve had to a broad industrial policy for generations, really,” says Scott Paul, the president of the Alliance for American Manufacturing, a trade association founded by the United Steelworkers union and a handful of large manufacturers.’
• ‘Biden and his more activist advisers hope to modernize key industries and counter an economic threat from China, swiftly emerging as the world’s other superpower.’

Reading this article, one big question came to mind: Has the time really come for Americans on the left and right to agree that the U.S. needs an industrial policy? (If so the contours of that policy remain to be seen.)

• And, if it has, it has been a long time coming.

Questions about free-market capitalism began in earnest during the 2008 financial crisis.

• The failure of the market coupled with China’s fast economic growth (and its resilience during the crisis) led to a discussion about the merits of State-Capitalism.
• I remember especially a 2012 article in The Economist, ‘The Rise of State Capitalism,’ that explained the attraction of State Capitalism to emerging countries.
• And I remember around the same time a U.S. lawmaker (but can’t remember who) came back from a trip to China saying that the U.S. should change its economic model to more resemble that of China’s.
• But as the U.S. recovered talk of such government intervention in the economy faded.

Faded until Mr. Trump (in his greatest achievement in my book) alerted everyone to the dangers and challenges China posed.

• And just as Mr. Trump was being taken seriously, China began trumpeting its ‘Made in China 2025’ and other plans aimed at taking the unassailable lead in the technologies of the future – and generally scaring the pants off the U.S. and other developed economies.
• The issue then became how to meet this threat.

A few weeks ago in a panel on the U.S. and China I put together for a major hedge fund, one of the speakers noted that to win a race you can either trip the opponent or run faster.

• During the Trump administration, the emphasis was on tripping China but without much success.

At the same time, though, voices were being raised calling for America to run faster.

• To do that, they said, the United States needs an industrial policy of some sort.
• And loudest voices were those of Republicans, who a decade earlier would have pilloried anyone suggesting such a thing.

The Republican I watched with the greatest fascination was Senator Marco Rubio.

• In 2019, his Committee on Small Business & Entrepreneurship published an 80-page report, ‘Made in China 2025 and Future of American Industry,’ that set forth the challenge from China.
• And in 2019, he delivered a speech titled, ‘American Industrial Policy and the Rise of China.’ The header on his website: ‘To Counter China We Must Invest in America.’

Here is part of that speech:

• “American policymakers must pursue policies that make our economy more productive by identifying the critical value of specific industrial sectors and spurring investment in them.”
• “The depletion of America’s manufacturing sector has left us with a tremendous national security vulnerability.”
• “I am not advocating for a government takeover of our means of production.”
• “What I am calling for us to do is remember that from World War II to the Space Race and beyond, a capitalist America has always relied on public-private collaboration to further our national security.”
• “And from the internet to GPS, many of the innovations that have made America a technological superpower originated from national defense-oriented, public-private partnerships.”
• “This kind of collaboration is not a rejection of capitalism. It is a call to encourage and harness the dynamism of our economy’s most productive private industries to further our national security and ultimately our national economic development.”
• “It is a call for a 21st -century pro-American industrial policy.”

‘What Alexandria Ocasio-Cortez and Marco Rubio Agree On,’ a NYT’s op-ed highlighted the bi-partisan convergence of views:

• ‘A growing number of politicians and intellectuals — left and right, “populist” and “establishment,” from Senator Marco Rubio to Senator Elizabeth Warren, Representative Alexandria Ocasio-Cortez to Senator Josh Hawley — are finding common ground under the banner of industrial policy.'

But, as pointed out in the NYT’s article:

• ‘There is good reason to doubt whether these bipartisan concerns will result in cooperation on actual policy.’
• ‘Still, after decades of free-market orthodoxy in which protectionism became taboo among both parties’ elites, it is the rise of China, above all else, that is bringing nationalistic management of the economy back into the political mainstream.’
• ‘ “Twenty years ago, we would have had a huge ideological fight that this was ‘industrial policy,’” Chris Coons told me, referring to Biden’s economic agenda.’
• ‘ “Today our No. 1 competitor globally is — look up ‘industrial policy’ in the dictionary: It’s a unitary, state-controlled economy.” ’

If the U.S. does adopt some form of industrial policy, what will look like?

• There is no shortage of essays from think tanks, speeches by politicians, and op-eds from pundits arguing the pros and cons of industrial policy.

But for now, industrial policy will be mostly what the Biden administration decides it is.

• What it decides will of course be influenced by the disparate voices in the Democratic Party and also by the views of Republican leaders like Mr. Rubio.
• And as the NYT article notes: ‘With Democrats in control of Congress, the problem for Biden may not be passing some version of his economic agenda so much as sorting through the sheer volume of asks suddenly pouring in from hundreds of members and industry groups.’ Or, that is, politics as usual.

Don’t dismiss the Biden administration’s efforts to trip China, but for now anyway running faster appears to be the preferred mode of meeting the China challenge.

• That’s what to watch.