United States, explained.
Solar panels photographed by drone, Florida, United States (Getty Images)
Washington’s geopolitical strategy threatens to entrench economic hierarchies and undermine the global green transition.
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Is US industrial policy headed in the wrong direction?Is US industrial policy headed in the wrong direction?
The Biden administration’s “modern American industrial strategy” marks a striking departure from prevailing economic orthodoxy. The United States is now championing muscular government intervention to combat the climate crisis, rebuild America’s industrial base and counter China’s rise. Yet rather than signalling the beginning of a post-neoliberal era, the US industrial policy turn – and the nascent European response – may foreclose green development pathways and exacerbate disaffection with the existing global economic order.
US National Security Adviser Jake Sullivan is right to concede that “trickle-down” economics has enabled “unchecked corporate concentration” and “hollowed out” national industrial bases. Recent speeches by Sullivanand US Treasury Secretary Janet Yellenformalised the United States’ shift away from neo-liberal policy prescriptions, which originated in the passage of the Inflation Reduction and CHIPS and Science Acts.
Friendshoring ensures that the economic benefits of the US industrial policy turn are concentrated among “trustworthy” allies.
But the “new Washington consensus” goes far beyond revising US economic policy positions. Instead, the United States has integrated its economic and national security strategies through a geoeconomic approach to US–China competition. The United States – and indeed the entire G7 – now seeks to de-risk from China. Yellen speaks of a “friendshoring strategy” to create “redundancies in our critical supply chains with the large number of trading partners that we can count on”. This approach constitutes a concerted attempt to diminish Western dependency on China, while creating new economic opportunities for the United States and its allies.
Friendshoring ensures that the economic benefits of the US industrial policy turn are concentrated among “trustworthy” allies. The United States has now promised to add Australia – a potential green mining superpower – as a “domestic source” under the Defence Production Act, matching the preferential economic treatment provided to Canada and Mexico. Australian Trade Minister Don Farrell has subsequently lauded a coming “golden age of mineral exploration” for Australia.
US National Security Adviser Jake Sullivan (pictured) is right to concede that “trickle-down” economics has enabled “unchecked corporate concentration” and “hollowed out” national industrial bases (Drew Angerer/Getty Images)
Yet for US industrial policy to be effective, only very few countries can receive such treatment. Most of the world will instead be required to compete with the United States and its chosen “friends” – a formidable task given the sheer size of the US subsidy regime. Even Europe is now facing the prospect of protracted transatlantic industrial policy competition. Nevertheless, Europe’s economic strength means that it will at least be competitive in a green industrialisation race.
The same cannot be said for the many low- and middle-income countries that lack the revenue base to implement similar government subsidy regimes. Historically, countries such as South Korea, Taiwan, and China have implemented targeted industrial strategies to fast-track their development, while Western states hued to neo-liberal orthodoxy. Industrial policies served as a corrective to global economic inequalities, creating development opportunities that otherwise wouldn’t exist. But a Western industrial policy race to the bottom would render low- and middle-income country industrial strategies at best defensive economic survival measures, rather than drivers of sustained development.
It is hard not to see the Western industrial policy turn, in its current form, as an ambitious attempt to sustain Western predominance.
Even Brazil, Indonesia, Peru and Türkiye, which are poised to benefit the most from the unique resource demands of the green transition, could be eclipsed by well-resourced US “friends”. A much worse fate awaits any country perceived to be a national security threat to the United States, as evidenced by the United States’ essential decoupling from China on so-called critical technologies – a policy that Sullivan terms “a small yard and high fence”. And national security is a notoriously broad and malleable concept, providing the United States with a justification for expanding the “yard” if needed.
To promote global “green” development, the G7 has so far done very little. The Partnership for Global Infrastructure and Investment remains incremental, especially in comparison to China’s Belt and Road Initiative. Climate finance spending has lagged behind pre-existing commitments. Regardless, these measures fail to meet the aspirations of middle-income countries such as Brazil, India, Indonesia and South Africa, which see US–China competition and the green transition as opportunities to redistribute global economic and political power. Instead, current commitments essentially leave development pathways to the discretion of Western powers, enshrining existing economic hierarchies and inequalities.
It is hard not to see the Western industrial policy turn, in its current form, as an ambitious attempt to sustain Western predominance, with exceptions for countries such as India that pledge their geopolitical allegiance, albeit imperfectly. This suspicion is heightened by the recent US-led denouncement of “non-market” industrial policies and “pervasive subsidisation” – an organised hypocrisy so flagrant that co-signatories such as Australia have been remarkably muted in promoting the declaration.
The most likely outcome of the US-led attempt at “defying gravity” is, intuitively, responsive geoeconomic counter-balancing, such as the proposed creation of an “OPEC for lithium”. This approach is evident in Indonesia’s non-World Trade Organisation compliant ban on raw nickel exports, which has supercharged its domestic nickel refinement industry but remains an obstacle to any future US–Indonesia critical minerals trade deal.
The United States should recognise the inevitability of economic multipolarity and instead lead the trillion-dollar global investments required to deliver both rapid decarbonisation and sustainable development globally, rather than rely primarily on invoking the alleged positive spillovers of its domestic investments. Such leadership would be incredibly costly but generationally important. It would overcome the false dichotomy between sustainable development and the green transition and cultivate a positive-sum logic of North–South green transition collaboration rather than inciting cycles of geoeconomic competition.
About the author
Connor O’Brien
Connor O’Brien is a PhD student at the University of Cambridge, specialising in international political economy.
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