An industrial policy with American characteristics
This is a re-posting from Foreign Affairs, where this essay first appeared:
Competition between China and the United States has long been framed as a contest between two countries with opposite roles in the global economy: China as the world’s leading producer and the United States as the world’s leading consumer. Now, however, each country is attempting to become more like the other in a race to rebalance its economy. Can the United States substitute for lost production from China faster than China can substitute for lost consumption from the United States?
Uncertainty about the answer to this question has shaken Washington out of its complacency. In a recent Foreign Affairs essay, former U.S. officials Kurt Campbell and Rush Doshi warned against underestimating China and its industrial capacity. Diagnosing the United States’ main deficiency as a lack of scale, which they defined as “the ability to use size to generate efficiency and productivity,” Campbell and Doshi argued that Washington must gather a team of allies to address this problem and compete with Beijing.
Assembling an economic Team America might help solve the scale problem, but it will not be enough. Scale alone won’t yield the integrated supply chains the country will need to build the way China has built for the last three decades. To get there, the United States will also need to do the hard work of digging up raw materials, building infrastructure, and deploying technology inside its own borders.
If the United States wants to achieve results like China, it will have to build more like China by replicating certain aspects of how Beijing organizes and mobilizes its production economy, prioritizing speed and agglomeration. What Washington needs is an industrial policy with American characteristics.
POWERING THE FUTURE
An exemplar of China’s model is its decades-long electrification push. When China launched its quest to deploy a nationwide electric-powered high-speed rail network around 20 years ago, it also needed to build the accompanying electrical infrastructure to accommodate the rail network. Later, Beijing’s investment in electric vehicles further increased demand for electricity, prompting more updates to the grid and the construction of more infrastructure, such as charging stations. The creation of an electric vehicle industry catalyzed the emergence of an advanced electrification supply chain, including batteries, permanent magnets, and energy storage. At each stage of development, China invested not only in advanced technologies but also in its grid infrastructure—a decision that has proved fruitful.
China has achieved advanced electrification with astonishing speed in part because of government support and in part because of its competitive and vertically integrated firms. Consider the Chinese automaker BYD: the conglomerate’s operations span the entire value chain, from securing raw materials to manufacturing batteries to producing electric vehicles. Similarly, leading Chinese solar companies such as LONGi and Trina Solar control each step of the supply chain in the manufacture of solar panels and their components. Vertical integration allows companies to rapidly iterate and optimize their processes to accelerate research and development, minimize supply disruptions, and reduce costs. As a result, solar panels are up to 65 percent cheaper to make in China than in the United States or Europe. The cost of lithium iron phosphate batteries, preferred by electric vehicle makers for their balance between power and efficiency, fell by 30 percent in 2024 alone. Industries adopt cheaper technologies more quickly, which in turn boosts production volumes and lowers costs for consumers—accelerating technological advancements.
In many cases, state support has dramatically shortened production cycles for energy technologies. Chinese central government and state-owned enterprises coordinate innovation, regulation, and deployment under a unified strategy. To develop an important next-generation nuclear technology, the small modular reactor, such firms partnered with universities to cultivate talent, directly funded labs to guide research, and aligned design and compliance timelines to speed up the regulatory process. As a result, China moved from conceptualizing to commercializing such reactors in just a decade—an unthinkable timeline in the U.S. regulatory environment.
China’s model has also produced results in renewable energy. In 2024 alone, the country installed enough solar panels to produce approximately 280 gigawatts of energy, more than the entire U.S. solar capacity. China’s solar capacity now exceeds one terawatt—enough to supply global demand through 2032. Partly as a result, China has more capacity to generate electricity than the United States and the European Union combined.
China’s massive investment in electrification has positioned the country for success in a key front in its competition with Washington: artificial intelligence. Because AI data centers require uninterrupted baseload power, the outcome of the global AI race will depend in no small part on reliable access to large amounts of electricity. Although the United States has the most advanced chips to train frontier AI models, China is well ahead in deploying the electrification infrastructure necessary for the widespread adoption or diffusion of AI.
GROWTH ZONES
Another ingredient in China’s recipe for manufacturing success is regional industrial clustering, a form of agglomeration in which businesses colocate to tap into concentrated labor pools and supplier networks. In this environment, firms can expand operations more quickly, increasing in value as they grow. In the Pearl River Delta, for example, the Chinese government designated special economic zones, built massive port and logistics infrastructure, and offered tax incentives to attract suppliers and assemblers. Firms benefit from reduced transaction costs and faster commercialization timelines, leading high-value manufacturers to concentrate in the zones. Companies such as Apple and the Chinese drone maker DJI, for example, have placed a significant portion of their supply chains in the region.
Industry clustering has also fueled the growth of electrification technology hubs across China. For more than a decade, China has fostered a hub dedicated to producing permanent magnets—which are used in electric vehicle motors, wind turbines, and sophisticated machines such as the F-35 fighter jet’s electric drive systems—around Inner Mongolia’s Baotou, a resource-rich city the government designated as a high-tech zone. As part of that designation, the government gave the Baotou-based China Northern Rare Earth High-Tech Company, the country’s largest rare-earth producer, crucial access to rare-earth reserves as well as tax breaks and other incentives. Baotou is now home to a fully integrated rare-earth supply chain and seven of China’s top ten magnet firms.
Similarly, in Anhui Province in eastern China, the city of Hefei has transformed from a poor backwater into a crucial hub for the electric vehicle industry. The local government coinvested with major electric vehicle companies and built a supplier park with housing and transit links. Software developers, advanced display vendors, and manufacturers have colocated in the city, creating a clustered automobile industry supply chain. Global automakers have taken notice. In 2024, Germany’s Volkswagen invested $2.7 billion in its Hefei production and innovation center, reinforcing the city’s emergence as a twenty-first-century Detroit.
ORCHESTRATING ACCELERATION
China’s model offers important lessons for U.S. policymakers embracing industrial policy for the first time in half a century. Although Silicon Valley once lived by the mantra “move fast and break things,” this principle has not transferred well to manufacturing. Moving fast in the world of atoms is much harder than in the world of bits. Unrealized projects from the Northeast Corridor’s Gateway rail tunnel to California’s high-speed rail no longer represent isolated failures but symptoms of a national malaise.
Policymakers should focus on developing industries in which the United States faces the most glaring scarcities. China boasts well over 150 lithium-ion battery megafactories, more than 1,000 solar manufacturers, and hundreds of permanent magnet producers of various sizes. As a result, China now produces 75 percent of batteries, 80 percent of solar panels, and 90 percent of permanent magnets globally. In contrast, the United States is home to only a single major manufacturer—whose scale pales in comparison with China’s firms—in each of those sectors. These severe deficiencies cannot be remedied by allies but will require rapidly building a domestic production base.
Clustering can be an effective strategy for growing a producer base. Any effort to create clusters would require federal policymakers, who have historically left such choices to state governments and market forces, to step outside their comfort zones and designate regions with comparative advantages where supply chains can mature and technologies can commercialize. Over time, government-supported clusters would evolve into robust, self-sustaining industrial ecosystems. Policymakers can start with exploring opportunities to cluster around existing capacity in critical industries.
The Midwest, for example, could foster clustering around lithium-ion battery capacity. The critical minerals needed for batteries are abundant in the Midwest: the region holds substantial deposits of cobalt, copper, and even manganese, particularly around Lake Superior. The Chinese battery maker Gotion has already invested billions in Illinois and Michigan to build battery plants with the potential to create thousands of jobs. The United States could transform the Great Lakes region—once derided as a rust belt, similar to China’s city of Hefei before its rebirth—into a “Battery Belt” stretching from Duluth, Minnesota, to Detroit, Michigan.
To create an integrated twenty-first-century electric vehicle supply chain in the United States, it will be necessary to cluster mining, manufacturing, and material science in proximity. But to make Midwest mining economically and politically feasible, policymakers will have to think big and be ready to spend. If the Trump administration follows through on its proposal to create a national sovereign wealth fund, Washington could use such a fund to support strategic industry hubs. The private sector, too, will need to invest in ramping up industrial capacity. Doing so might not produce immediate returns. But even venture capital firms, which have historically shown more interest in the high-tech sector than in extractive industries, now recognize the need to back mining. The firm Andreessen Horowitz, for example, has called for the United States to build a new kind of vertically integrated “national mining champion” to secure critical mineral resources.
With ample resources to mine and refine within its own borders, the United States has the capacity to become more self-reliant with respect to critical metals, including rare earths. Although allies may be able to supplement U.S. supplies, such efforts require slow and unwieldy coordination with countries in which production is often expensive. Even as the United States continues to work with allies, it must prioritize building its own capacity in various segments of the supply chain.
Yet simply designating clusters will be insufficient. The U.S. government must go further to become an agent of acceleration. Streamlining compliance and cutting environmental review timelines are necessary first steps, but Congress must also give federal agencies such as the Departments of Energy and Transportation the authority to accelerate project timelines: for example, there is no reason that it should take more than a decade to build a nuclear power plant, as it currently does. Executive agencies should collaborate to establish “green lanes” to streamline permitting for strategic industrial projects in designated clusters. Governors and mayors in turn must work with federal counterparts to create task forces that can fast-track utility, land-use, and workforce arrangements.
REINDUSTRIALIZATION FOR RENEWAL
The United States cannot and should not organize its economy exactly like China’s. It would be prudent, however, for Washington to learn from the world’s manufacturing colossus. Borrowing best practices from competitors is not without precedent: at the height of Japan’s challenge to U.S. industry in the 1980s, the United States leaned in to competition while also adopting elements of the Japanese approach. U.S. auto manufacturers adopted Toyota’s inventory management practices—for example, organizing supply and production “just in time” to meet demand, minimizing factory stockpiles—and American business schools embraced the concept.
Underestimating China would be a grave error, but underestimating the United States would be equally foolish. History has shown that when properly mobilized, the United States can retool with astonishing speed and ingenuity. Nearly a century ago, the country completed the Hoover Dam ahead of schedule and under budget. The United States’ dynamic innovation system—renowned research institutions, deep and open capital markets, and high concentrations of global talent—remains an enduring advantage. It is arguably easier for the United States to build like China than it is for China to innovate like the United States.
To convert these advantages into productive capacity, the United States should selectively emulate today’s preeminent manufacturing powerhouse and rediscover its own ability to build fast and build well. The U.S. government must make industrial investment attractive once again, not only to businesses but also to investors, workers, and communities.
Reindustrialization is not about nostalgia but about renewal. The United States can no longer rest on its reputation as the country that invents the future but must build the infrastructure and deploy the technologies to deliver that future. The United States does not need to become China—nor is that even possible. But China has grasped a crucial point: economic prosperity for future generations hinges on investing in a twenty-first-century industrial base. Now, it is time for the United States to do the same.