What a glorious moment it seemed, the mid-1990s. The Soviet Union had collapsed, and peoples around the world were embracing American-style liberal democracy and capitalism. Better yet, America was a hegemon with no need ever to twist another arm. Economists had begun to speak of a revolutionary new approach to managing power. Three great natural forces—globalization, digitization, the market itself—were remaking the world for us, by destroying all antidemocratic concentrations of political and economic control.
The business corporation, we were told, was melting away. America was becoming a nation of “free agents” able to work with whoever we wanted, bound by little more than a gossamer-thin net of contracts. At the social level, this meant no more need for regulation of business, or for checks and balances between the state and private enterprise. Give free rein to these forces, and they would evolve the economy all but automatically toward a world characterized by, as Robert Reich wrote in The Work of Nations, the “diffusion of ownership and control” within a “global web.”
More radical yet, the nation-state itself was vanishing into the mists of history. The 1980s had been a decade of alarms about new Soviet arms systems, and how Japanese and Germany industry threatened U.S. factories and jobs. Then suddenly these worries vanished. Deep industrial interdependence, we were assured, was tying the people of the world into a single borderless economic community, which would ensure not just mutual prosperity but peace on Earth. As a book titled The Pentagon’s New Map put it, the world had a new “operating theory” in which “connectivity” would “trump” all the old tensions and rivalries. Indeed, within “globalization’s Functioning Core” of industrialized nations, armed conflict had already become impossible.
So for a quarter century we cruised, with hardly a thought about how and where the goods, foods, and drugs on which we depend were made, grown, and traded. Sure, there were a few glitches in the new global matrix—September 11th, the Lehman crash of 2008. But on we went, largely heedless of how the capitalists were using their corporations to concentrate control over factories and foundries and chemical plants, and were then shifting these capacities to the far side of the ocean in ways that destroyed far more than jobs. Even when Donald Trump howled the words “America First,” most college-educated liberals dismissed the idea as silly—just angry white racists, pining for a moment that efficiency and social progress had rendered obsolete. Soil and grease under our nails? Ha! Fingers were for summonsing Ubers and pushing “buy” buttons.
Well, the coronavirus pandemic, Russia’s invasion of Ukraine, and China’s blockade of Taiwan have slapped us awake. And what we see is terrifying. Just in the past three years we have found ourselves suddenly without face masks to protect against a pandemic, without the chemicals we need to test for viruses, without container ship and rail capacity to move basic goods, without semiconductors to build airplanes and medical devices, without formula to feed babies, without natural gas, and with roaring inflation in almost every sector of the economy. Worse, we’ve realized that it’s not hard to imagine far more catastrophic industrial crashes, and, indeed, the White House recently warned that a conflict in Asia could cause $2.5 trillion in damages the first year alone. Rather than harmonious interdependence among peoples we may soon be forced to choose between dependence on autocratic regimes and wider war.
For a quarter century after the end of the Cold War we cruised, largely heedless of how the capitalists were using their corporations to concentrate control over factories and foundries and chemical plants.
Josep Borrell, the European Union’s head of foreign affairs and security policy, put the problem succinctly. “We have decoupled the sources of our prosperity from the sources of our security,” he said in a recent speech. For decades, the West as a whole relied on China for manufactured goods and on Russia for energy, he said. But that “world … is no longer there.”
It’s not surprising that Americans and Europeans are suddenly scrambling to devise “industrial policies” able to ensure that we can build what we need to be secure and to live well. And that in the United States, President Joe Biden and Congress have already pledged hundreds of billions of dollars to build new semiconductor foundries and components for electric vehicles.
That’s a very good thing. But these still modest advances are already threatened from every side—by the monopolists and the people in their pay, by the Chinese Politburo and the people in their sway, even by the temptation to load every progressive dream onto every individual project.
Done right, a new industrial strategy can help America and its allies solve most of the great crises of this moment. But left incomplete, industrial policy will make many of the biggest problems only worse. And unfortunately, today we still lack a clear hierarchy of threats to guide our decisions, an understanding of how to use competition principles and policies to achieve our ends, and a political narrative that explains why we must see this grand effort through to success.
The extreme concentration of capacity today is something largely new in the world. At the end of the Cold War, most industry was distributed widely. The United States, Europe, and Japan each manufactured their own vehicles, electronics, semiconductors, chemicals, and metals, all the way from subcomponent through finished product. Yes, many Americans drove Toyotas and many Europeans owned Fords, but those cars were usually built at factories within those regions. Today, by contrast, we see increasingly extreme chokepointing within most industrial systems, often to the point where a vital product or key component is manufactured in a single location—sometimes even a single factory—on the other side of the world.
The most well-documented such chokepoint is in semiconductors. Here, lack of supply can trigger cascading shortages across entire global industrial sectors. This is what happened over the past two years with car production, which in turn led to shortages of used cars and rental cars. Taiwan alone manufactures 92 percent of the world’s most advanced chips, and 75 percent of total semiconductor capacity is located in East Asia. But we see similar concentrations of capacity in the manufacture of pharmaceutical ingredients, antibiotics, agricultural chemicals, industrial food chemicals, industrial gases, and basic materials and minerals including polysilicon, graphite, cobalt, magnesium, and rare earths. Similarly, we see extreme chokepointing of the capacity to assemble iPhones and laptops and to manufacture basic electronics components.
The cause of this concentration is easy enough to discover. Hidden behind the utopian rhetoric used to justify U.S. abandonment of industrial policy in the 1990s was simply an alternative industrial policy—basically, “Let the monopolists rule.”
We can trace the origins of this ideology to the old feudal systems of corporate control that Americans rejected in the Revolution. In the 1970s, the United States faced a harsh combination of inflation, recession, and rising international competition. In response, left-wing pro-monopolists led by the economist John Kenneth Galbraith and right-wing pro-monopolists at the University of Chicago led by the economist Milton Friedman began to argue that antitrust and other regulation was inefficient and that it was smarter to allow big corporations to, in essence, regulate themselves. Thus unleashed, monopolist corporations at home and mercantilist states abroad ruthlessly consolidated power, then used that power to strip out industrial redundancies in ways that left vital production chokepointed in all but a handful of places.
Japan, Taiwan, South Korea, Germany, and even the Netherlands all ended up holding concentrations of core industrial capacities. But it was China that captured the vast majority of such chokepoints, and the ones most important for maintaining day-to-day life.
The most pressing threat posed by this new structure is that entire industrial systems will simply crash due to a sudden loss of access to some keystone component. The distributed industrial structure of the postwar era ensured that there was always a backup when something went wrong. Today, by contrast, the loss of any one of many single points of failure can trigger cascading collapses of fundamentally important industrial systems. Since the late 1990s, we have seen many such events. In addition to the disruptions caused by COVID-19, there were earthquakes in Japan, floods in Thailand, a volcanic explosion in Iceland, a political spat between Seoul and Tokyo, various financial crises, and the stranding of a single container ship in the Suez Canal, each of which triggered cascading shutdowns of entire industrial systems, including automobiles, electronics, and chemicals. And thus far we’ve been lucky. As destructive as many of these disruptions have been, in every instance it is easy to see how the shock could have been far worse.
Politically, the main threat is that China will simply squeeze or cut off shipments of products we need, in order to force the United States, its allies, or individual Western corporations to cede to some specific demand. China’s control over the production of so many essential components—as well as large shares of the profits of Apple, Disney, Volkswagen, and other corporations—gives it innumerable ways to bend even the most powerful actors to its will.
The United States and its allies can retaliate by blocking shipments of certain products and materials to China—and, indeed, the Biden administration in early October sharply limited sales to China of high-end chips and manufacturing tools. Similarly, Trump-era sanctions cost the Chinese manufacturer Huawei billions of dollars in sales of mobile phones and communications equipment. But the ultimate question in the event of a true showdown between nations is which has more leverage. Or, rather, which nation has the ability to force the other to say “Uncle.”
In our present confrontation with China, we don’t appear to have gamed out how to respond should Beijing counter by cutting off shipments of iPhones, drugs, and chemicals essential to farm and food production.
If there’s any doubt how this works, we need only look to Russia’s effort to force Europe to abandon Ukraine by cutting oil and gas flows. Putin’s power play also teaches us that extreme dependence on another nation may actually tempt that nation to act aggressively. There is much evidence, for instance, that Germany’s dependence on Russian energy helped convince Vladimir Putin that Ukraine was his to take.
Monopolist corporations at home and mercantilist states abroad ruthlessly consolidated power, then used that power to strip out industrial redundancies in ways that left vital production chokepointed in all but a handful of places.
The Ukraine war also demonstrates how monopolists can work together to buttress each other’s power. Many German manufacturers, for instance, have responded to soaring prices for gas and oil by shifting yet more production to China of everything from chemicals to electrical equipment to automobiles. As one Chinese commentator gloated recently, Russia’s war has created “tremendous opportunities for China.”
The Declaration of Independence set many revolutions into motion, as white men in America declared themselves free from the power of crown, church, and corporation. But it was the independence of nation from nation that led the citizens of the new United States to understand that they needed a true industrial strategy. If Americans meant to keep their democratic republic, one skill they had to master was manufacturing the weapons and ships they would need to protect themselves.
In 1791, Treasury Secretary Alexander Hamilton made the first effort to devise such a plan. In his “Report on Manufactures,” Hamilton proposed to subsidize construction of new factories and then to use tariffs to pay for the subsidies and to protect the new factories from foreign rivals. From the first, however, Thomas Jefferson, James Madison, and others assailed Hamilton’s vision as mainly a way to centralize wealth, power, and political control in the hands of a new gang of homegrown monopolists.
After winning the presidency in 1801, Jefferson—along with Secretary of State Madison and Treasury Secretary Albert Gallatin—began to develop an industrial policy they believed posed fewer threats to American democracy. Their approach was based on the simplest of rules: Break all potential economic chokepoints at home and act to assure America’s independence from all economic chokepoints abroad.
Under their model, the government did subsidize certain industries essential to defense, such as the Springfield Armory and the Brooklyn Navy Yard, but only if under direct government control. Their main tool was competition policy, both in the form of strict controls over banking and the governance of corporations and in the form of strong enforcement of anti-monopoly laws at the state and local levels.
By the time the French political writer Alexis de Tocqueville visited the United States in 1831, it was clear that this approach was a startling success. In Democracy in America, he wrote,
The United States of America have only been emancipated for half a century from the state of colonial dependence in which they stood to Great Britain; the number of large fortunes there is small, and capital is still scarce. Yet no people in the world has made such rapid progress in trade and manufactures.
By the early 1850s, Samuel Colt, Isaac Singer, and Cyrus McCormick had demonstrated how to manufacture great numbers of identical pistols, sewing machines, and reapers using machines arrayed in assembly lines. This new “American system” of production so impressed British industrialists that Parliament held hearings. Then, in 1853, Colt built the world’s first overseas factory, near Hyde Park in London.
The distributed industrial structure after World War II ensured that there was a backup when something went wrong. Now, the loss of any point of failure can trigger cascading collapses of important industrial systems.
After the Civil War, however, the maturation of American railroads provided would-be moguls with a way to leverage their way to great power. Although the railroads themselves were highly regulated through their corporate charters and later through the Interstate Commerce Act, industrial barons including John D. Rockefeller and Andrew Carnegie figured out how to exploit the monopoly nature of railroad networks to grow their own businesses to great scale and scope.
In the 1880s, Wall Street bankers took monopolization to the next level, through cartelization of capital, new ownership structures, and other restrictions on the industrial liberty of rival entrepreneurs. The banker J. P. Morgan is remembered today largely for monopolizing the gates to credit. But he also exercised power through interlocking directorships and via control over a vast array of patents in the electrical, telephone, steel, and other industries.
In his presidential campaign in 1912, Woodrow Wilson aimed largely at Morgan’s system of control, and charged Wall Street with threatening democracy itself. But once in the White House, Wilson—along with his intellectual partner Louis Brandeis—looked far beyond Morgan and set about a complete updating of Jefferson’s no-chokepoints rule for the industrial 20th century. Within Wilson’s first 18 months, this included helping to pass the Clayton Antitrust Act, Federal Trade Act, Federal Reserve Act, and first modern tariff system, as well as forcing Morgan-owned AT&T to spin off the Western Union telegraph company.
Wilson, Brandeis, and their allies called their vision the “New Freedom,” and they centered their system on simple bright-line limits on the structure of markets and behavior of corporations. One core rule was that there always be multiple rivals in any business—at both the national and local levels. A second core rule was that corporations that control essential networks like the railway and telephone treat every customer the same. They believed that these two rules, in combination, would in turn deliver fair market wages and prices, opportunity to compete, high-quality goods, and rapid technological innovation. Or at least, by breaking all major concentrations of private power, make it easier to use the power of public government to achieve such aims.
In the mid-1930s, Franklin D. Roosevelt used the New Deal to extend the goals and principles of Wilson’s updated anti-monopoly system into all realms of U.S. political economic regulation. In 1940, FDR’s administration threw America’s competitive industrial system into overdrive with a plan to massively subsidize construction of factories to prepare for war with Germany and Japan. Using an agency called the Defense Plant Corporation, the government paid for some 2,300 factories in 46 different states. Under this model, the government directly owned the plants, then leased them to private operators.
In the 1940s and ’50s, the administrations of Harry Truman and Dwight Eisenhower strengthened and refined the no-chokepoints system. They formalized the idea that government must act to ensure that no corporation control more than 25 percent of the market for any industrial good. And they moved to immediately achieve this end by carefully selling government-owned defense plants to whoever promised to compete with dominant manufacturers. In one famous case, the government broke Alcoa’s long-held chokehold on U.S. aluminum by selling government-built mills to rival manufacturers Kaiser and Reynolds and by using antitrust authority to all but force Alcoa to share its patents.
The Truman and Eisenhower administrations also exported the no-chokepoints system to Europe, Asia, and the larger world trading system. They did so by imposing strict antitrust regimes on Germany and Japan during the postwar occupations of those countries. And although they failed in an effort to build anti-monopoly principles into the postwar trading system, they used America’s tariff system and economic might to achieve the same basic ends by steering much new industrial capacity to France, Germany, Italy, and Japan, and later to South Korea and Taiwan. They also used the new World Bank system to expand industry in Brazil, Mexico, Argentina, India, and elsewhere. Perhaps most surprising from today’s perspective, for more than 40 years the U.S. government used anti-monopoly law to force America’s most powerful manufacturers—including General Electric, AT&T, and RCA—to share their patents with rivals, including corporations abroad.
One of the purest illustrations of how the United States used anti-monopoly principles to enforce the no-chokepoints system internationally came in the mid-1980s. Japanese manufacturers launched a coordinated effort to capture control over the production of semiconductors and the components in personal computers. Ronald Reagan’s administration responded by using tariffs, quotas, subsidies, and other forms of pressure to break Japan’s hold on these capacities. They did so in ways that boosted production not only in the United States, but also in Europe and in countries new to these businesses, including South Korea, Taiwan, Malaysia, and Singapore.
The result was a truly international system with almost no industrial chokepoints. When the Soviet Union collapsed—in no small part because its own highly chokepointed industrial system had seized up—the rest of the world was served by the most open, stable, and innovative production system in human history. It was a system that brought many nations together in constructive cooperation. In short, by the end of the Cold War America’s no-chokepoints system had delivered both a phenomenal prosperity and a wide and growing peace to many of the peoples of the world.
Tragically, at that very moment of triumph, the United States was already in the process of dismantling the system that had delivered so much success. The Reagan administration, even as it continued to enforce a no-chokepoints regime abroad, effectively abandoned the enforcement of antitrust law in the United States, under the theory that monopolistic efficiency would result in greater “welfare” for “consumers.” Beginning in 1993, Bill Clinton’s administration applied this pro-monopoly thinking to trade policy, most dramatically through the Uruguay Round of the General Agreement on Tariffs and Trade, in 1994. This one-two punch left corporate managers free to concentrate capacity at home and then to shift that capacity to whichever nation provided them with the most lucrative deal.
And so, over the next quarter century, monopolists and mercantilists concentrated sector after sector, using their power to strip much, if not all, of the redundancy and resiliency from these production and transportation systems on which we depend.
Our challenge today, as in 1801 and 1912, is to break all potential economic chokepoints at home and assure America’s independence from all chokepoints abroad.
To succeed, our industrial strategy must fit the realities of this moment. Simply attempting to replicate what we did during World War II won’t work. Our situation today could hardly be more different. Then, almost every factory on which we depended was located in the United States. Today, many of our most important factories lie within the borders of China, a strategic rival with whom we are already in industrial conflict. Further, the extreme concentration and tight gearing of today’s production and transportation systems means that any sudden disruption can trigger a truly shattering shock to our nation and the world as a whole.
Our task, in short, is to design and implement a strategy to widely redistribute industrial capacity, within a world in which production and control are now highly chokepointed, without triggering industrial collapse, provoking a catastrophic conflict, or yielding to industrial coercion. Success demands that we view this task as, to a very large degree, a matter of engineering the U.S. and international industrial systems—using law and policy—to ensure their stability.
The lessons of American policy over our nation’s first two centuries point to a relatively simple six-point plan:
The main threat is that China will simply squeeze or cut off shipments of products we need, in order to force the U.S., its allies, or individual Western corporations to cede to some specific demand.
Classify. Our first task is to map every potentially dangerous industrial chokepoint, then determine which pose the gravest threats. In doing so, we must keep in mind that China is not the only nation that might seek to exploit such chokepoints to extort political or economic benefit. We must imagine potential acts by Russia, North Korea, Iran, even our own allies, as well as factions within all these nations. In identifying dangerous chokepoints, we must also imagine the potential effects of natural disasters, financial crises, and third-party wars. This must include every chokepoint within the borders of the United States and our allies, so we know exactly what levers we still hold.
Collaborate. Second, we must work closely with our G-7 allies and other key industrial partners both to identify and classify chokepoints, and to devise a plan to break every dangerous concentration of capacity. Trump’s America First message and some of the more aggressive statements by Biden officials may play well with many voters. But if our goal is to increase our security and reduce tensions as swiftly as possible, blunt protectionism makes for bad policy. We already have an institution purpose built for such a project—in the Organisation for Economic Cooperation and Development (OECD). Let’s put it to its original use again now.
Construct. Third, we must begin to rebuild almost every industrial capacity the monopolists and mercantilists concentrated, roughly in the sequence demanded by the relative level of threat posed by each chokepoint. The CHIPS and Science Act and the Inflation Reduction Act are an excellent start. But it’s vital also to begin immediately to rebuild outside of China the capacity to produce pharmaceutical inputs, antibiotics, industrial materials, electronics components, and agricultural and food system chemicals. This will require a level of investment and coordination far larger than we have yet seen. It will also require the United States to strongly encourage Europeans and other allies to do the same within their own nations, rather than complaining about U.S. investments designed to make all nations safer.
Thomas Jefferson’s industrial policy was based on the simplest of rules—break all potential economic chokepoints at home and act to ensure America’s independence from all economic chokepoints abroad.
Compete. Fourth, we must restore true competition among manufacturers in all essential industrial systems. Our goal in rebuilding factories in America is not to provide “national champion” manufacturers with a quiet and wildly profitable life. It is to assure a safe physical distribution of industrial capacity around the world, and of ownership and control over that capacity. There are many ways to structure competition to ensure that capacity within the international industrial system remains distributed, once we have rebuilt our factories. Perhaps simplest and least intrusive is to impose a set of negative quotas designed to guarantee that no one nation controls more than a specific fraction of our consumption of any good, component, or material. (I wrote about this in the July/August 2021 issue of Foreign Affairs.)
Converse. Fifth, we must engage China in an unfettered discussion about how to work together to avoid a catastrophic disruption of industrial production, and how to cooperate in redistributing capacity to assure the stability and resiliency of systems. The obvious model is the negotiation the United States undertook with the Soviet Union after the Cuban Missile Crisis to avoid a mutually catastrophic nuclear war. Like any monopolist, China has an interest in maintaining its hold over the chokepoints it controls. It has reaped enormous political and economic benefit from such power. But no matter how confident the country’s leaders may be of prevailing in a winner-take-all industrial showdown with the West, they also know that such a conflict could devastate the victor almost as much as the vanquished. Practically, this will require the United States to demonstrate the will to swiftly escalate any industrial conflict, in order to ensure a constructive balance of fear. This will also require the United States and its allies to demonstrate that their goal is not a full industrial decoupling or permanent hobbling of China’s industrial arts and sciences, but rather a careful reduction of flashpoints and tensions.
Cooperate. Finally, we must relearn how to treat nations beyond the G-7 and China as equals. The original promise of the financial and trading systems established after World War II was to develop the industry and skills of all peoples. For half a century, albeit imperfectly, this worked. Since the mid-1990s, however, the general practice of the richest nations has been to subject production and finance in the global South to ever more rapacious and authoritarian control by Western corporations, banks, and “multilateral” institutions, many of which in turn delivered these national markets to governance by Chinese industry and the Chinese state. Over the past decade, the problem has been made only worse by the political and social effects on these nations of unregulated communications and commercial platforms like Facebook and Twitter, and the more clearly imperial projects of China-controlled platforms such as Alibaba.
The moral reason for reversing this despoilment and disenfranchisement of half the world is obvious. There’s a more selfish reason as well. The swiftest way to fully engage the people of India, Brazil, South Africa, Indonesia, Mexico, and other nations in the project of building a secure and resilient industrial system is to give each a full seat at the table. And the best way to enable these peoples to build their own democracies and societies in the fashion that fits them is to impose traditional regulatory controls on Google, Facebook, Twitter, and other platform monopolists.
In two years, the Biden administration has overseen the greatest change in industrial strategy in America in more than half a century. This is most clear in practical policy, where the White House and Congress have directed more than $200 billion to rebuilding industrial and scientific capacities in the United States.
It’s also true in terms of the philosophy the government relies on to understand and regulate power in the political economy, at home and abroad. In July 2021, for instance, Biden personally condemned the ideology of Robert Bork, who in the early 1980s led efforts to reorient domestic competition policy around the goal of promoting monopoly in the name of efficiency. Internationally, the White House has renounced the extreme free trade thinking President Clinton embraced in the 1990s. Not only did the Biden administration keep Trump-era tariffs on China, it all but abandoned the World Trade Organization, ignored calls for new multilateral trade agreements, and introduced wide-ranging “Buy American” rules for electric vehicles.
In October, National Economic Council director Brian Deese summed up the efforts in a speech in Cleveland. The United States, he said, was back in the business of using government to shape industrial outcomes. “There’s a strong animating vision that unifies” these efforts, he said, “a modern American industrial strategy.”
Unfortunately, huge holes both in the conception and the practice of this strategy have left much work undone, and threaten the achievements of the past two years.
If we view the government’s overall effort in relation to the magnitude of the threat, and against the guidance provided by the “Six Cs” plan for rebuilding America’s traditional no-chokepoints system, we can identify many fundamental flaws. These include, foremost:
No overarching plan. The government has yet to devise a plan that sets priorities for what to invest in first, or even a plan to address any sudden break in the international production system. It doesn’t even have a team tasked with refining and overseeing such a plan. This is why the U.S.-China Economic and Security Review Commission recently called for the creation of an “office within the executive branch to oversee, coordinate, and set priorities … to ensure resilient U.S. supply chains and robust domestic capabilities, in the context of the ongoing geopolitical rivalry and possible conflict with China.”
Too narrow a focus. The CHIPS and Inflation Reduction Acts will, in theory at least, jump-start the rebuilding of large parts of America’s semiconductor and electric vehicle production systems. Yet despite many warnings, the United States has yet to devise policies to address the extremely dangerous chokepointing—mainly in China—of chemicals, drugs, electronics, materials, and electronics components. Nor has the government fully developed a plan to address the chokepointing of the supply systems for chips, despite extreme concentrations of capacity not only in China and Taiwan, but also in Japan, South Korea, Europe, and the United States.
No means to compel action. The key political lesson of America’s traditional no-chokepoints strategy is that the state must use anti-monopoly and trade power to force corporations to serve the public and to invest in new capacities and skills. Although Jefferson, Wilson, FDR, and Eisenhower sometimes used subsidies to boost production and research, they understood that without a judicious use of the stick, not even the biggest pile of carrots would keep a horse from bolting once he’d eaten his fill. Unfortunately, as Brian Deese made clear in Cleveland, the Biden administration’s industrial policy thus far consists of one tool only—the use of public investment to subsidize private investment, and profit.
Confusion of policy for strategy. The White House has at various times said its new industrial strategy aims at more jobs, more rapid decarbonization, more opportunity for small business, and less dependence on China. Such microtargeting of the message helps to sell legislation. But if taken literally, it can swiftly distract us from the core structural changes necessary to achieve even one of these goals. The key insight of America’s traditional no-chokepoints system is that structure is strategy, and that we should always focus on shaping markets and the behaviors of corporations to break all concentrations of power. The resulting distribution of capacity and control all but automatically assures the redundancy and stability of industrial systems, while empowering us to respond to any specific shock or political threat. Such distribution of capacity and control also makes it far easier for citizens to use government investment to achieve other political, social, and economic goals, by lessening the political power of those few who favor the status quo.
In the 1940s and ’50s, the Truman and Eisenhower administrations formalized the idea that government must act to ensure that no corporation control more than 25 percent of the market for any industrial good.
No game theory. Over the decades, the U.S. military has developed numerous detailed plans to respond to potential Chinese military actions. But the U.S. government appears to have spent little time thinking through how to respond to a Chinese industrial blockade or embargo. Nor how its own sanctions on China might affect Beijing’s decisions and actions. As the Financial Times columnist Rana Foroohar wrote recently, the Biden administration is “pushing geopolitical hot buttons at a time when the US has yet to develop a detailed action plan for the economic fallout from such a conflict, or even the continued decoupling of the US and Chinese economies.” Absent such scenario planning, many U.S. actions today border on recklessness.
No master narrative. The White House has put together everything necessary for a story fit to guide the American people through a turbulent period of industrial rebuilding. It has identified villains, in the form of intellectuals whose ideas empowered today’s monopolists. It has set in motion a plot, in which the government both breaks the power of the old guard and subsidizes the rise of the new. It has pointed to the promise of a better world, in the form of stronger democracy, faster decarbonization, a lasting peace. But the White House has yet to weave these elements into a master narrative that explains in simple language how we got here, where we are going, how we’ll get there, and why. Which in turn has left the White House and Democrats in general subject to the misinformation and propaganda of others, be it Republicans yapping about inflation or grand capitalists and their academic lackeys warning of the economic costs of any radical change in policy toward the monopolists and China.
This last failure is especially dangerous. For 20 years now, I and others have raised many alarms about the threats posed by the extreme chokepointing of industrial capacity. This includes writing the first article on the issue in June 2002, publishing the first book on the threat in July 2005, and raising the first warnings about China’s direct control over U.S. corporate leaders in October 2015.
Over that time, many officials within the U.S. government responded. I myself engaged directly with top leaders in the Treasury and Commerce Departments under President George W. Bush; with top leaders in the Department of Defense, Central Intelligence Agency, and White House under President Barack Obama; and with dozens of senators and members of Congress from both parties, including through testimony on these issues.
In two years, the Biden administration has overseen the greatest change in industrial strategy in America in more than half a century. But the pressure to abandon real reform is building fast.
We should have mastered all these threats long ago. Yet every time policy makers focused on the need for fundamental change, we allowed those who profit from the chokepoints to distract us from our goals. So too today. Thus far, Biden’s industrial policies enjoy strong support in both parties and from key allies. But the pressure to abandon real reform is building fast.
Germany’s new government has been warning businesses for months about the dangers of dependence on China, and the new chancellor, Olaf Scholz, recently said he was “surprised at how dependent some companies have made themselves on individual markets and have completely ignored the risks.” Yet when members of the government challenged the CEO of the chemical giant BASF for deciding to build an immense new chemical plant in Guangdong, the CEO calmly dismissed the public interest and said, simply, “We have an extremely profitable China business.”
Here in the United States, we have an even more brazen example in Apple CEO Tim Cook. Late last year, The Information reported that Cook in 2016 signed a secret agreement with Beijing. In exchange for a promise by the Chinese Communist Party to relax political and economic pressures on Apple, Cook promised to invest $275 billion in Chinese manufacturing and research. Yet despite being completely dependent for production, research, and profit on a strategic rival of the United States, Cook has personally taken a leading role in fighting new antitrust legislation in Congress designed to lessen the economic and political power of his and other corporations. Which is hardly less audacious than if the CEO of Krupp Steel had lobbied Congress against establishing the Defense Plant Corporation in 1940.
Or consider the lineup at a recent all-day event at the Cato Institute in Washington, D.C., where participants gathered to discuss the “ascendant political threats” to “the free economy” posed by “antitrust populism, protectionism, business politicization” and “the regulatory state”—in other words, the policies of the Biden administration. What was odd was not that Cato convened the event. It was some of the people who showed up: top economic advisers to President Obama and to John McCain’s 2008 campaign; extreme protectionists and extreme defenders of laissez-faire trade theory; a former FTC commissioner who is one of the main advocates of pro-monopoly competition policy; and Google’s chief economist. All joined their voices to sing the virtues and huzzah the power of monopoly and of China, while wielding the word freedom in ways that would have astonished Orwell himself.
It’s important to understand the game here. The goal of those who oppose this most commonsense distribution of power and risk is not to win any intellectual argument; most now fully understand that they can never restore the magical thinking of the 1990s. Their goal is simply to mislead, bewilder, confound, and delay and delay and delay until once again we lose our way, and fail to throw off the leash the monopolists have fastened on our neck.
Winston Churchill, in a speech in Parliament in October 1938 during debate over the Munich Agreement with Nazi Germany, described the ultimate threat posed by allowing a rival nation to capture an ability to choke off essential supplies. The gravest danger, Churchill said, comes from “our existence becoming dependent upon their good will or pleasure.” Should that ever happen, he warned, “in a very few years, perhaps in a very few months, we shall be confronted with demands [that] affect the surrender of territory or the surrender of liberty.”
That’s why Biden must now devise a true industrial strategy—one designed to break every chokehold on industry—and see that strategy through.
