What to make of the new US tech industrial policy?

The U.S. has embarked on an industrial policy in the tech sector that could be among the largest in our history. Consider that within the past year, in response to an announced threat from China, the U.S. Government has approved around $280 billion in spending/tax incentives for the American semiconductor sector, most of which is targeted to support American businesses and has imposed unprecedented restrictions on semiconductor exports to and imports from China, a perceived adversary and semiconductor competitor. Together, these major initiatives paint a picture of a U.S. tech industrial policy aimed to support the American semiconductor sector.

The United States is no stranger to tech industrial policy (by my casual definition, direct Federal Government financial, trade or regulatory support for specific industries and businesses and the technology that enables them.) Our nation was founded partly because colonials opposed being forced to remain economically dependent on Britain — and much of our history during the 19th Century involved government efforts to build an economy independent of Britain/Europe. Technology — whether the design of looms, mills, railroads, telegraph, telephone, or military weapons — always played a central role in what we now call American 19^th Century industrial policy. 

And yet, tech industrial policy historically ebbs and flows, usually in response to real or perceived international threats.

While recognizing long-term international threats is important, concocting or exaggerating international threats so government will intervene can sometimes be a goal of the economic, political and career interests of those who directly benefit from resulting government spending and protection. A key way to either identify genuine international threats or to concoct/inflate them to stimulate targeted spending is through sympathetic scholars, media, writers, officials and celebrities. This is not unique to America.

It’s important to note that recognizing that international threats might sometimes be concocted or inflated to generate targeted government spending or protective regulation is not to say that genuine international threats do not often actually arise … or that targeted government spending is not an effective response when they do. Without 19^th Century tech industrial policies supporting tech in railroads, telegraph, electricity, telephone, manufacturing and more, America would probably have remained dependent on Britain and Europe through the end of the century and thus subject to their economic and political priorities. 

Distinguishing between concocted and genuine international threats that require major government spending and protection, unfortunately, is both extremely important and nearly impossible. Each will produce a bevy of respected media/scholars/officials/celebrities to support their proposition that major spending and protective regulation is essential to respond to the threat.  Scholars to the contrary notwithstanding, the long-term results of such industrial policies could only be assessed with the long hindsight of history and, even then, by examining such impossible, “alternate history” questions as “Where would we be technologically today if Kennedy had set some other goal than putting a man on the moon?”

Moreover, some economists and their followers oppose non-military, tech industrial policy as a matter of principle: They believe that tech industrial policies probably retard — not enhance — technological innovation because bureaucracies move deliberately, have multiple conflicting goals and are subject to capture by interest groups. American tech industrial policies also will inevitably stimulate competing tech industrial policies by other countries, friends and foes alike, reducing the benefits of international trade. This camp tends to cite the benefits of a near-absolute uninhibited marketplace for technological innovations (and often cites the post-NSFNET internet as their example.) 

In contrast, other economists and their followers support the idea of non-military, tech industrial policy in order to address what they view as marketplace failures (e.g. tech offshoring to increase profits, ignoring its impact on employment or national security) or to respond to heavily-subsidized foreign competition. This camp believes that sound tech industrial policies can both promote national security and social/economic objectives like education, income distribution, equity, inclusion, and economic independence (and often cites the moonshot/space initiative as their example.)

Complicating any evaluation of America’s new tech industrial policy is the fact that civilian government spending amounts to around $4 trillion a year and — as a result — unavoidable, tech-related procurement and operations decisions alone become a major de facto tech industrial policy. Similarly, there’s little debate over the important role that tech plays in any nation’s military or that, consequently, our military must significantly spend on tech. Most of this can only be done through military procurement from the tech industry … another de facto tech industrial policy. Beyond these two, the debatable issue is mostly whether tech industrial policies are wise.  

Consequently, whenever we’re told by a bevy of scholars, media, officials, and celebrities that there is a major international threat requiring government to spend a lot of money and impose industry protective regulations, we should probably keep an open mind. 

Explaining America’s new, quarter-trillion-dollar, semiconductor industrial policy, Commerce Secretary Gina Raimondo recently explained to Georgetown University’s School of Foreign Service (full disclosure, I happen to be an alum) that “Semiconductors form the foundation of all advanced technology … which can be used for good or malign purposes … global competition” has become  “increasingly about technology and chips, rather than tanks and missiles” and “In 1990, the U.S. accounted for 37 percent of global chip manufacturing capacity. Today, that number is only 12 percent … Taiwan alone produces 92 percent of the world’s leading-edge chips … it’s a threat to our national security.”   

International response to this industrial policy has not been particularly favorable.

The initiative has been criticized by the head of Taiwan’s largest semiconductor company, many Taiwanese government officials speaking off the record, French President Emmanuel Macron and other European leaders, and — not surprisingly — China, which has filed formal, unfair trading practices charges against the U.S. with the World Trade Organization. Perhaps more relevant, the EU has embarked on its version of semiconductor autarky, as has China.     

While domestic supporters and beneficiaries of this new tech industrial policy emphasize its near-term benefits for national economic security, job-creation, education, the geographical spread of the benefits of the tech industry and R&D spin-offs, its impact on global relations and American national security will probably take decades to assess.

Roger Cochetti provides consulting and advisory services in Washington, D.C. He was a senior executive with Communications Satellite Corporation (COMSAT) from 1981 through 1994. He also directed internet public policy for IBM from 1994 through 2000 and later served as Senior Vice-President & Chief Policy Officer for VeriSign and Group Policy Director for CompTIA. He served on the State Department’s Advisory Committee on International Communications and Information Policy during the Bush and Obama administrations, has testified on internet policy issues numerous times and served on advisory committees to the FTC and various UN agencies. He is the author of the Mobile Satellite Communications Handbook.