Chips, Everything Bagels, and American Industrial Policy
Jake Sullivan & Others (Tejas Sathian)
June 2023
The Prompt
One thing that’s stuck with me in recent years is that amidst the backdrop of intense political polarization, a new bipartisan political economy consensus seems to have formed. It goes something like this: the American middle class has been let down; China’s rise has been disruptive to the global order in ways the system wasn’t ready for; and therefore the era of believing in the power of free trade / globalization / the Washington Consensus is over. Remarkably, the transition from Trump to Biden has seen a lot of continuity around the US’s economic approach to China - but Republicans and Democrats frame the topic and the stakes differently.
For a primary reading, I’ve gone to a (accessible) primary source - a recent speech delivered by one of Biden’s top policy minds, National Security Advisor Jake Sullivan, on a topic that’s been in the mix since the early days of the Administration: ‘a foreign policy for the middle class’. According to Sullivan, the US should approach foreign policy with a mindset of tackling 3 key issues in concert, rather than treating them as distinct competing priorities:
Revitalizing the middle class
Countering China
Responding to climate change
Some commentators (such as Ezra Klein) have dubbed this approach ‘everything bagel liberalism’, arguing that bundling together too many different priorities into a single policy area risks paralysis and inefficient policymaking - illustrated by America’s failure to build things.
I’ll also highlight the importance of two key areas of technology for the 21st century which need to be top of mind for economic policymakers: 1) semiconductors (where production is highly concentrated in a geopolitical flashpoint in Taiwan) and 2) clean tech (where the US needs to build more capacity and lags behind China, but can’t benefit from trade with China given geopolitical dynamics).
Where is the right balance for policy in tackling these different goals? What are the main foreign policy goals that should in turn drive domestic economic policy? How can the US advance its national security aims (securing semiconductor supplies), its climate aims (promoting a green infrastructure transition), and its domestic policy aims (revitalizing the middle class) in a world of increased technological competition and decreased trade?
Primary Reading
National Security Advisor Jake Sullivan on Renewing American Economic Leadership
Additional Materials
Noah Smith: The new industrial policy, explained. We're starting to learn what replaces the old free-trade consensus.
Odd Lots Podcast: This is how we’ll know if the CHIPS act is working.
