The death of U.S. industrial policy and the tragedy of Joe Biden

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John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).

The tragedy of Joe Biden is that after setting out to be the most transformative American president since Ronald Reagan, he will ultimately be of little consequence, remembered mainly for foreign-policy failures such as the crisis in Gaza or the Taliban’s return to Afghanistan. Domestically, his successful revival of industrial policy, which appeared to have launched a genuine renewal of the country’s productive capacity, will be quickly shelved by Donald Trump.

And given how easily Bidenomics will go the way of Betamax and the BlackBerry, it seems unlikely a future president will ever want to try something similar again. But it would be premature to conclude that the United States’ brief but ill-fated experiment with industrial policy signals its demise. It continues to be used elsewhere, most notably in China. This will be to the United States’ detriment.

Mr. Trump’s belief is that in a competition with China, the U.S.’s best hope lies in a small-state, free-market approach. Take his approach to Mr. Biden’s Inflation Reduction Act, which subsidized renewable energy and electric-vehicle producers to speed up the country’s energy transition. The president-elect wants to roll it back. Mr. Trump, who is on record inexplicably saying climate change is a Chinese hoax, also maintains that Mr. Biden’s promotion of EV sales would lead to the “complete obliteration” of the American automobile industry.

The incoming president is instead saying that his “energy dominance” strategy will make American industry great again. He aims to cut taxes, roll back government and ease environmental restrictions on oil companies, in the stated hope that a flood of cheap energy will reinvigorate American car companies, stir new investment, open the door to a revival of manufacturing and stimulate the growth of artificial intelligence (whose energy demands are ravenous).

This is not a bet without considerable risks. A growing body of analysts maintains that the end of the internal-combustion engine is upon us. They say EVs are a superior technology that’s destined to render cars with internal-combustion engines obsolete, the way those cars once made horse-drawn carriages obsolete. A recent report by Goldman Sachs went so far as to say that the tipping point – the point at which it becomes more expensive to run a vehicle with an internal-combustion engine – could come in as little as two years.

Thereafter, as happened when home computers came on the scene and some people clung to their typewriters as desktops and then laptops took over the world, some will still nostalgically cling to their gas-guzzlers whilst rapidly becoming a dying breed.

Thanks to its own industrial policy, China has raced ahead of Western countries in renewable technology. This happened so fast it took Western countries by complete surprise – in large measure because CEOs, shut out of China by COVID lockdowns for a couple of years, returned to find the Chinese had completely overtaken them. Some analysts now believe Western countries are so far behind that there’s no hope of ever catching up.

Mr. Biden was hoping that subsidies and targeted protection would accelerate the development of the U.S.’s EV and renewables sector. Admittedly, the results were mixed, since industrial policy is hard and the U.S. bureaucracy may not have been up to the task of implementing it. But things were starting to move forward.

The looming reversal of Bidenomics just as it was starting to bear fruit may, in fact, produce a short-term boom that appears to vindicate Mr. Trump. But it could also leave Tesla, whose chief executive Elon Musk is a prominent backer of Mr. Trump, as the lone domestic EV champion. That would largely abandon the growing market for EVs to China, which means that if a tipping point does come and Tesla isn’t able to out-compete Chinese producers, the U.S. may ultimately end up going backward.

Meanwhile, a manufacturing revival looks to be at most a short-term cure. While Mr. Trump’s proposed tariffs will in fact lead to some import-substitution, many of the firms that benefit will not be globally competitive, resulting in higher prices for American consumers. As for AI, behind the hype, there are growing signs that a killer app that transforms the economy, the way the energy transition is currently doing in China, may never emerge.

If the AI boom goes the way of the turn-of-the-millennium dot-com boom – lots of excitement, soaring stock markets and an eventual crash – just as China’s manufacturers take ever more global market share, it will vindicate Mr. Biden, albeit too late.

In that case the epitaph will say industrial policy is dead, long live industrial policy. Unfortunately for the U.S., it will be China’s industrial policy.