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Taking an Abundance Agenda Global
An industrial policy to advance all of America's interests, at home and abroad
Over the past two years, President Biden has pulled together an impressive if largely unheralded national industrial strategy that aims to make the American economy more competitive in the world and shore it up against the likes of China. But a key part of that strategy, last August’s Inflation Reduction Act, has precipitated something of a moderate diplomatic kerfuffle with America’s long-standing allies in Europe and Asia. More than anything else, this rift speaks to the need to tie America’s much-needed public investments at home with its wider geopolitical strategy overseas.
Allies like France, Germany, South Korea, and Japan object to the provisions that encourage American consumers to buy electric vehicles made in the United States. Under the IRA, only electric vehicles that have a certain portion of their batteries made in the North America with a certain portion of critical minerals like nickel, cobalt, and lithium mined or processed in the United States or nations with which America has free trade deals will be eligible for a $7,500 tax break. These governments worry that these requirements will put their own automakers at a competitive disadvantage vis-à-vis American companies.
They’re not wrong to worry about the way these incentives might affect their own domestic economies. Tesla has reportedly scuppered its plan to build a battery factory in Germany in order to take advantage of the IRA’s tax credits, for instance. Making matters worse for European allies, high natural gas prices brought about by the war in Ukraine have convinced many European industrial conglomerates to shutter their operations on the continent and move some of them to the United States.
It's not surprising, then, to see French President Emmanuel Macron call for “Buy European” provisions to protect the continent’s own automakers – or that the German government appears receptive to such a move. Likewise, South Korea’s ambassador to the United States says that his government is in a “very intense conversation” to resolve concerns over the way the IRA might hurt Korean electric vehicle manufacturers. Rumblings of discontent over the allegedly discriminatory nature of these provisions continue among European allies, but these objections are likely overstated in part to gain leverage in talks with the United States.
While these complaints appear to be a bit much given the track records of the governments making them, they nonetheless represent real diplomatic concerns that need to be addressed by the United States. They also point to a weakness in America’s current approach to industrial policy – namely the way it links up our domestic investments with our foreign policy goals and objectives.
In short, the United States needs to take a more international approach to industrial policy than it has to date. There are a couple potential ways America could do this, based partly on existing policies and approaches that could be expanded and extended.
Extend “Buy American” Provisions to U.S. Allies
The Inflation Reduction Act’s electric vehicle sourcing requirements represent perhaps the main thorn in the side of America’s trade relationships with its European and Asian allies. Because these countries by and large do not have free trade agreements with the United States (among American allies, only Australia, Canada, and South Korea have such deals), they do not benefit from provisions that allow countries who do to qualify for some of the IRA’s tax breaks. This condition should be expanded to include all countries with which the United States has a formal security alliance, whether bilateral as in the case of Japan and South Korea or multilateral as in the case of NATO. More ambitiously, such provisions could be made standard moving forward – “Buy Allied” rather than just “Buy American” with some free trade partners grandfathered in.
Such an arrangement won’t eliminate all trade disputes or points of friction between the United States and its allies. But it will put them on a more even footing, with similar economies and political systems more open to one another than other economies and systems. Moreover, it recognizes the ways in which the economies of the United States and its allies remain deeply intertwined even as American, European, and Asian companies jockey against one another for market share – the Washington, DC metro system uses rail cars made by an Italian-Japanese conglomerate in Maryland, after all.
But it’s important to note that this sort of market access shouldn’t be completely unconditional.
Condition Access to the U.S. Market on Clear Criteria
At the same time, however, the United States needs to make clear that it expects its allies to keep a closer eye on investments in critical industries by potentially hostile powers like Russia and especially China. The CHIPS Act – one of the other main pillars of the Biden administration’s industrial policy – contains a provision that prevents semiconductor manufacturing companies receiving federal money under the law from expanding their operations in China. Exceptions exist to protect existing corporate investments in China and companies like TSMC, Intel, and Samsung have already reportedly received one-year exemptions to the law, but new investments will be off limits for those companies that choose to take U.S. government subsidies.
Similar measures could be put in place for investment in other critical industries, though they need not necessarily be as restrictive as those put in place by the CHIPS Act. More to the point, the United States could create provisions that restrict market access based on the status of investment in critical industries by the likes of Russia and China. German Chancellor Olaf Scholz’s government recently blocked a pair of Chinese investments in German critical industries, for instance, and a clear set of criteria for critical industry investments – best established in collaboration with America’s European and Asian allies, but on our own if necessary – would help avert future disputes.
Any such restrictions would need to be extremely flexible and allow for wide executive discretion, but it’s important to send unambiguous signals on this subject.
Joint “Big Science” and Engineering Projects
Finally, the United States and its allies should deepen and strengthen their existing cooperation on large science, technology, and engineering projects. Given the strength of existing ties between the United States and its allies, space exploration represents perhaps the best place to start reinforcing cooperation on large and internationally impressive projects that have significant domestic economic and industrial benefits. NASA’s Artemis Program has already seen extensive cooperation with the European Space Agency, which builds the service modules for NASA’s Orion crew vehicle – including the current Artemis I mission now orbiting the Moon. ESA will also contribute to the Gateway space station that will orbit the Moon, and NASA and the Japanese Aerospace Exploration Agency just inked an agreement for additional Japanese contributions to the Gateway that includes a provision to fly a Japanese astronaut on a future Artemis mission.
Beyond Artemis and joint robotic missions like the James Webb Space Telescope and the Mars Sample Return, there are potential new areas for cooperation on space exploration between the United States and its allies. ESA, for instance, has publicly articulated ambitions for an “autonomous” human spaceflight capability – and there’s potential here for cooperation with the United States playing a supporting role in much the same way ESA has played a supporting role on Orion.
But space isn’t the only place where the United States and its allies can work together on important and impressive scientific and engineering projects. Areas like undersea exploration, advanced nuclear reactors, quantum computing, and artificial intelligence research all would benefit from close cooperation between the United States and its allies across the Atlantic and the Pacific. The U.S.-EU Trade and Technology Council provides an important forum for discussion of such issues, one that should be broadened to include Pacific allies like Australia, Japan, and South Korea.
It's hard to fault the United States or its allies for the halting and messy international nature of their industrial policies. The uncertainties involved in moving from the post-Cold War era of hyper-globalization to a new and uncharted global economy are simply too great to expect anything else. But what’s clear is that we all need to work together more closely – and not fall back on the notions and ideas of the past.
What’s also clear is that grand schemes to organize and run the new global economy won’t work. Instead, the United States and its allies need practical cooperation to meet and respond to the challenges of the day – not abstract appeals to global rules that have outlived whatever usefulness they might have once had. Indeed, trade and international economic disputes can be constructive and salutary if they’re addressed in good faith between the countries and organizations involved.
In the end, a new global economy will emerge – at least in part – from the actions of the United States and its allies. The process won’t be pretty, but new rules and relationships will be forged by doing rather than top-down attempts to construct a rules-based economic order. With luck and hard work, this new global economy will prove more resilient and deliver better for ordinary people in the United States and among its allies.