The Architecture for A Comprehensive US Industrial Policy

Long-Term Success Requires Institutionalization

The Fed has now joined the IMF, the World Bank, and other pillars of the neoliberal establishment in acknowledging, after decades of denial, the potential of industrial policy. Industrial policy is increasing in industry after industry in this country, with more almost certainly to come.

The need now is to transcend this scattering of ad hoc measures and make US industrial policy comprehensive, coherent, institutionalized, and a fixture of our national policy consensus. Otherwise, the industrial policy revival may ebb like previous episodes of interest in the early 1980s and early 1990s.

The consensus we need is not a rigid doctrine or an ideology – indeed it would be a disaster if it became one. Instead, that consensus should contain room for partisan differences, accommodate debate about specifics, and incorporate independent reviews to weed out failed programs. It should be flexible enough to adapt over time to changing technologies, markets, and foreign-country policies.

This consensus must be grounded in a generally agreed understanding of why industrial policy is desirable, what its major elements are, and why they need to be coordinated. Industrial policy for economic purposes should be based on a rigorously defined vision of what economic objectives are worth achieving, why markets cannot realize them on their own, and why industrial policy can sometimes help. Often these policies will also serve other important objectives such as public health, national security, or environmental protection. When there tradeoffs, they should be made with a full understanding of costs and benefits.

We have explained our version of this economic foundation here. In a nutshell, industrial policy should be about the pursuit of what we term “advantageous” industries. These industries have the scale, pricing power, and technological dynamism to be the basis of a high-wage, high-profit economy. They are often rife with the non-market dynamics that open the door for policy interventions to add value. American industrial policy should seek to establish or retain leading positions in almost all such industries: positions of size, technological sophistication, and sustained profitability matching or exceeding the best foreign competitors.

The policies America will need to achieve this fall into three broad categories:

1. Managing international flows of goods, services, and capital with tariffs, quotas, capital controls, and related policies.

2. Managing international flows of capital with moderate, variable capital controls to bring the dollar to a trade-balancing value.

3. Nurturing the entire innovation pipeline, from pure science to production of commercial products at scale, to fill in gaps where markets cannot suffice.

The US needs not just new laws, but new standing authorities with the ability to maneuver and shift gears when needed. Now is a uniquely fluid moment to start establishing the practices and building the institutions we will need for decades to come.

Reflecting Political Realities

Political power in this country is dispersed: between the president, the courts, and congress; within congress itself; and between the states and the federal government. Social solidarity is weak due to regional, cultural, and political diversity. There are few limits on interest groups’ ability to bend policy to private ends.

American industrial policy will therefore never be as smooth as in, say, Japan, with its strong social solidarity, preference for consensus, and deference to technocrats. So, there will never be a single official, agency, or committee able to impose a centrally directed and prescriptive US industrial policy. Instead, policies from trade to technology to education will have to be developed through our existing multi-player political process.

But for the result to be coherent – or sufficiently coherent, as industrial policy doesn’t need to be perfect any more than any other kind of policy – these players will have to behave differently than they have done in the neoliberal era. Successful industrial policy will require a shift of mentality at the federal, state, and local levels, one that is already starting to occur.

To keep all these disparate players pulling on the same rope, strong, consistent presidential is critical. Donald Trump and Joe Biden both believed, imperfectly but with breakthrough accomplishments, in proactive industrial policy, so we know this can come from either party.

Over time, the US should consolidate many of the existing offices whose functions will require coordination. In the longer term, for industrial policy to have staying power and efficiency, it should be institutionalized. (We discuss proposals for both below.)

Eventually, a dedicated corps of civil servants should exist for day-to-day administration, to maintain institutional memory, and to track ongoing changes in technologies, the strategies of other governments, and the competitive positions of US and foreign companies. As institutional design scholar Ganesh Sitaraman has written,

“This is not work that can be done on an occasional basis by politically appointed advisors who serve for a couple of years before their next gig.”

Industrial policy is no different in this respect from other major governmental missions such as defense, environmental protection, transportation, and energy. The US graduated from “no standing armies” to a professional military a long time ago.

What the President Should Do

Industrial policy will require coordination of many executive branch agencies and the congressional committees overseeing them. The only government official with the electoral mandate, legal authority, and broad purview to lead this effort is the president.

Therefore, all relevant White House staff, cabinet secretaries, agency heads, and members of the Council of Economic Advisers should be chosen, in part, for their commitment to industrial policy as a core component of the administration’s economic program, and have the skills and experience to contribute.

The President should establish a new Industrial Policy Council (IPC) modelled on the existing National Security Council and National Economic Council. It would coordinate the work of the executive branch agencies while consulting with congressional leaders of both parties.

The IPCs diverse membership would ensure that all relevant administration voices are heard and that its policy choices are understood and accepted. It should include the Secretaries of the Treasury, Commerce, Defense, Energy, Labor, and Education; the US Trade Representative; the Directors of National Intelligence, the National Science Foundation, the National Institutes of Health, and the National Institute of Standards and Technology; and the Assistant to the President for Science and Technology. It should also have high-level participation by the Council of Economic Advisers and the Council on Environmental Quality.

The IPC’s staff should have expertise in the many policy areas that will require coordination, including technological research, manufacturing, commercial lending, and venture capital. But to reduce the risk of capture by private sector interests, the IPC’s director should not come from the business community.

Industrial policy offices should be established in each department and agency whose head serves on the IPC. The chiefs of these offices should report directly to the departmental secretary or agency head and liaise with the senior staff of the IPC. To support coordination with the NSC and NEC, select staff from these councils could serve jointly on the IPC.

Of course, other staff structures are possible, so long as they include institutionalized cross-disciplinary expertise and leadership with direct access to the president.

What the Industrial Policy Council Should Do

The IPC would produce an indicative multi-year industrial policy for the US. “Indicative” means that it does not embody prescriptive authority, is not intended as an exhaustive description of US industrial policy and is not designed for adoption as a single comprehensive bill. Instead, it would be analogous to the existing National Defense Strategy drawn up by the Defense Department, laying out fundamental realities, objectives, and the means of achieving them.

This document would provide a shared vision and a division of responsibilities for the agencies involved. It would offer a coherent baseline for congressional oversight. And it would communicate the US government’s intentions to key audiences at home and abroad. The president could direct the production of this document by executive order, but it would have more impact if authorized by and delivered to congress.

It should include:

1. A list of advantageous (in the sense the we explained here) and otherwise economically critical industries, such as those (rare earths) that serve as chokepoints for many others..

2. A list of those industries critical for the major non-economic industrial policy objectives: national security, public health, and environmental protection.

3. An assessment of where the US stands in each of the above industries, including the percentage of its domestic market, including supply chains, held by imports.

4. An assessment of the same for major competitor nations.

5. Trade balances in these industries by sector, product and counterparty nation, with assessments of their effects on US employment and manufacturing capacity.

6. Statistics by counterparty nation on public and private inbound and outbound investment in these industries.

7. An assessment of the main industrial policy tools being used by major competitor nations in these industries, with evaluations of their effectiveness and their effects on the US.

8. An assessment of the policy tools being used by the US in these industries, also with evaluations of their effectiveness.

9. A report on currency manipulation by economically significant trade counterparties.

10. A report on the volume and composition of gross and net debt, and capital inflows (equity and debt) into the US, and on their impact on the undervaluation of foreign currencies.

11. Estimates of effect of different levels of taxation of incoming foreign capital on the US trade balance over a 5-year period

12. Proposals for new or changed policies and programs to meet the needs identified by the foregoing analyses.

The process of developing this document will be at least as important as its recommendations. The interagency consultations required will sharpen awareness of the interconnectedness of, and tradeoffs between, different elements of industrial policy and help establish channels of communication and protocols for coordination.

What Congress Should Do

Congress should develop its own nonpartisan capacity for industrial policy analysis. For example, using the US-China Economic and Security Review Commission as a model, it should establish a commission with members from the private sector appointed by the majority and minority leaders of the House and Senate. This should be supported by a small permanent staff with the capability to model the economic effects of existing and proposed technology, trade, and exchange rate policies.

Expert staff focused on industrial policy, who should liaise with the IPC, should be added to all relevant Congressional committees. The Congressional Research Service should add staff experts in industrial policy. The 1972-1995 Congressional Office of Technology Assessment should be reactivated. Project Socrates, a technology analysis platform developed in the 1980s by the CIA and DIA, should be restored.

The National Institute of Standards and Technologies should establish an office to monitor and analyze American and foreign innovation capabilities in key industries. Its output should include a detailed digital map of the technological capabilities of companies, universities, and government labs around the world, including current and potential supply chains.

The House Ways & Means Committee and the Senate Finance Committee control tax and trade policy. They are thus deeply involved in developing and enacting industrial policy legislation, and therefore should have staff with an understanding of and commitment to industrial policy.

Despite agency turf-guarding and Congress’s sensitivity about committee jurisdiction, large-scale governmental restructurings have taken place after major crises, most recently post-9-11. Therefore, when the political stars align, many of the agencies and functions that should be coordinated for a maximally effective industrial policy should be consolidated.

With its many existing industrial policy-related agencies, the Commerce Department is the most suitable center for US industrial policy. It should therefore take on the Small Business Administration, the Trade Adjustment Assistance program, the State Department’s several trade bureaus, the Trade and Development Agency, the Export-Import Bank, and the International Development Finance Corporation.

A new Economic Security Agency in the Commerce Department should assume the existing fragmented controls over sensitive exports, technology transfers, and outbound investments. It should take on the Committee on Foreign Investment in the United States, State’s Directorate of Defense Trade Controls, the Bureau of Industry and Security, and the Office of Foreign Assets Control.

The US Trade Representative should also become part of Commerce, but with the USTR retaining his or her cabinet position. Commerce should have an Office of Policy Planning that, like the State Department’s equivalent, reports to and advises the Secretary.

The economic intelligence functions of the Central Intelligence Agency, Defense Intelligence Agency, National Security Agency, and Treasury Department should be centralized in a new Economic Intelligence Agency.

General Guidelines for Industrial Policy

Industries should be supported not only by economy-wide policies, but also by programs tailored to their specific needs. Industries’ internal economic and technological structures differ, how much help they merit differs, and what helps them differs.

Industrial policy programs should be assigned to agencies with the technical skill, underlying inclination, and statutory missions to execute them. The US has a diversity of governmental institutions and program types for good reason.

Programs should be lodged at the appropriate levels (sometimes more than one) of government. For example, however welcome state-level support may be, nurturing internationally competitive regional clusters requires the money and policy authority of the federal government, because only it can, for example, impose tariffs to protect the cluster’s market.

To ensure buy-in and commitment, funding responsibility should ideally be split among the parties benefitting from the program. Often these parties will be the federal government, private industry, a state, and a region or municipality. State and local commitment should be important criteria for determining where place-specific federally funded programs are sited.

Time scales should be appropriate. Regional clusters usually take decades to become internationally competitive and self-sustaining. Development projects applying existing technologies to specific commercial uses sometimes take only weeks. A sense of urgency has helped agencies like DARPA, but a long-term view has been essential for agencies like the NSF.

Projects involving technologies close to or already at the stage of commercialization, should have the involvement of, and co-direction by, the private sector. It generally has the expertise and the right incentives for this stage, and the government generally does not.

Programs should reflect structural differences between the industries they nurture. For example, hard-science-intensive manufacturing, such as new materials, advanced semiconductors, renewable energy systems, and large aircraft, requires more capital than software development.

Which initially promising technologies will pan out is inherently uncertain for radical innovations, so multiple technology paths should be supported. This process should be disciplined by tools, such as required performance levels, to enable timely culling of failing approaches.

Programs should have structured protocols, with consistent, albeit evolving, criteria for selecting, modifying, and continuing projects. Programs should draw on business and technical experts from both inside and outside government. For pure science and science-intensive technology development (not deployment), peer review should be used.

The “eternal life” of government programs should be preempted by building in termination dates or periodic reauthorization reviews. But these reviews should not be so frequent as to deprive programs of the stability needed for long-term investments and credible commitments from the private sector. There should be funding for effectiveness assessments.

For programs for which appropriate criteria of success were established at the outset, government should stick to them. Conversely, programs should not be terminated on inappropriate grounds such as a failure of precompetitive technologies to turn a profit, a failure to hit budgetary estimates in the face of scientific and technological uncertainty, or a failure to consider indirect benefits such as environmental protection.

Audit and oversight to reduce both hard and soft corruption should be funded, because the close collaboration between government and business required for many industrial policies to work increases the risk of political capture by the industries involved.

Programs should be held accountable for their performance at the aggregate level, but insulated from political interference at the detail level. Some projects of even the best programs will fail, so programs should be judged by the success of their overall portfolios.

Marc Fasteau and Ian Fletcher are the coauthors of Industrial Policy for the United States: Winning the Competition for Good Jobs and High-Value Industries (Cambridge University Press, 2025). Both are connected with the Coalition for a Prosperous America. There is more about Marc on his personal website here, and about Ian on his personal website here. Their book’s website is here.