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America’s New Era of Industrial Policy

Under President Joe Biden’s leadership, the US federal government has created major new programs to support supply-side investments in America’s economic capacity. But success will require close coordination with state and local governments, which must respond with their own complementary measures.

BERKELEY – A new breed of industrial policy is taking hold in the United States. Under President Joe Biden’s leadership, the federal government has created major new programs through the Infrastructure Investment and Jobs Act ($550 billion), the CHIPS and Science Act ($280 billion), and the Inflation Reduction Act ($394 billion). These are not traditional spending measures to stimulate demand. Rather, as Secretary of the Treasury Janet Yellen explains, they are supply-side investments to boost US economic capacity, both overall and in key sectors such as semiconductors and renewable energy.

While the individual provisions and funding processes differ, all three programs are based on the public-private model that has been critical to US competitiveness over the past century. They are designed to crowd-in and accelerate private investment, not substitute for it. Hence, a significant part of their funding – in fact, the majority, in the case of the IRA and CHIPS – comes in the form of tax credits for businesses.

The programs also will encourage more supportive regulatory changes – for example, in the permitting and siting of green-energy projects – by state and local governments, which are responsible for the bulk of economic development in the US. And they share various features that have come to define a new “sustainable and equitable” approach to industrial policy. These include a focus on regional economic development based on local priorities, with an emphasis on capacity-building in marginalized communities; explicit links to post-secondary education and workforce development; and cross-sector integration with key services, such as health care and education.