Industrial Policy for the United States: Winning the Competition for Good Jobs and High-Value Industries is economist Ian Fletcher’s latest published work with co-author Marc Fasteau, vice-chairman of the Coalition for a Prosperous America (CPA). This new book follows up on Ian Fletcher’s excellent 2011 book Free Trade Doesn’t Work: What Should Replace it and Why.
Industrial policy is defined in the book as “the deliberate governmental support of industries,” such as the management of exchange rates, research and development (R&D) tax breaks, tariffs, export controls, and government-funded technological research.
Authors Ian Fletcher and Marc Fasteau rightly claim that “the free market can’t do everything” but also that America does not need and should not seek government authority over all industrial policies. However, we do need a “coherent set of policies ” that includes crucial items like “expansion of domestic programs designed to support manufacturing, especially to support the creation and commercialization of innovation.”
That said, here is my summation of the pertinent points of this 800-plus-page book:
From the start, the original 13 Colonies were not laissez-faire in dealing with foreign trade and the domestic economy, despite the thinking of free trade advocates saying so to justify their unalterable thinking. One of the first legislative acts of Congress in 1789 was a tariff on imports.
Not long after President Abraham Lincoln was assassinated in 1865, America’s industrial policy saw the U.S. economy growing by serving primarily its own market. As steel magnate Andrew Carnegie said in 1890, “Even if every part of the United States were blockaded today, and remained so for ten years, the people of the United States would suffer only some inconveniences.”
Fast-forward to World War II’s industrial policy. America had a large industrial base that allowed our army to be fully mechanized. The U.S. government oversaw $2.1 trillion in armaments (in 2020 dollars) between 1940 and 1945, and this industrial capacity dictated most of World War II’s timetable.
The resulting postwar economy showed that the U.S. comprised 50 percent of the world’s economy. The government’s realized ability to drive gains in productivity and innovation from our industrial policy became evident. The shipyards of industrialist Henry J. Kaiser, adopting innovative mass-marketing techniques employed by the auto industry, which was formerly directed to produce armaments for the war, reduced build time for cargo-carrying ships like the Liberty Ship to 42 days from 130.
Despite the newfound success of America’s industrial policy, many presidents after World War II passed on anything resembling this prior success in the future.
President Truman said, “…our workingmen no longer need to fear, as they were justified in the past, the competition of foreign workers.”
President John F. Kennedy said it was an “Atlantic responsibility” to open our markets to “the developing countries of Africa, Asia, and Latin America” to “help assure them of a favorable climate of freedom and growth.”
President Lyndon Johnson was against any sort of protectionism, whose tradition was a Southern free trader.
President Ronald Reagan, although he did apply import tariffs in certain areas – most notably to protect Harley Davidson – was much more focused on getting “the government off the back of business” and free market measures like corporate and income tax cuts, reductions in capital gains taxes, R&D tax credits, and rolling back various regulations.
President George H.W. Bush negotiated the North American Free Trade Agreement (NAFTA), which President Bill Clinton famously signed into law.
President Barack Obama negotiated the Trans-Pacific Partnership (TPP) free trade agreement. Even Hillary Clinton, after referring to it as the “gold standard” of trade agreements, was forced to oppose it when she ran for president against Donald Trump, who killed it on day one after being elected. President Obama did, however, impose Chinese tariffs on a volume of trade that equaled about seven billion dollars a year. The categories included wind towers, tires, various types of steel pipe, steel cylinders, lawn trimmers, and kitchen shelving.
President Biden kept most of the $335 billion worth of tariffs imposed on China by President Trump, even doubling the Trump administration’s tariffs on Canadian lumber. The USMCA replaced the old NAFTA and was endorsed by the AFL-CIO. The average tariff on China was raised to 19 percent from just 3 percent before Biden took office.
According to Ian Fletcher and Marc Fasteau, Biden’s best improvement to U.S. economic policy was to enact significant industrial policies he deems proactive in some industries. But more must be done. As Brian Deese, Biden’s appointed director of the National Economic Council, said, “Markets on their own will not make investments on technologies and infrastructure that benefit an entire industry.”
There are many recommendations detailed in the book for the future, and it is still being determined whether the U.S. will continue to build upon a comprehensive and coherent industrial policy. He states that “management of exchange rates to balance trade overall and the selective use of tariffs to control its composition” are “so badly needed.”
With their exhaustive research, presented facts, and resulting in-depth analysis, co-authors Fletcher and Fasteau are correct in their persuasive reasoning. Any American concerned with America’s future direction related to our essential industrial policy should read this book.