At a recent press conference, U.S. Trade Rep. Katherine Tai offered a few thoughts on U.S. industrial policy.
First, in response to a question about how she would evaluate the criticism that the Inflation Reduction Act constitutes protectionism, Tai said the following (39:35 of the video):
I generally don't like to use the term protectionism because I think it creates a false dichotomy, that there are certain things are protectionist, and then I think, on the other side, it's free trade. ... So that assumes that there are only these two categories -- something that is protectionist and something that is free trade.
In fact, if you look at the policies around the world, I think it is a much more of a spectrum. If you look at the Inflation Reduction Act, it does have and reflect a much more open embrace by the United States today of the idea of an industrial policy. But it reflects also a very specific American approach to industrial policy, which is not a planned economy, but how you can use more tools to create the incentives in the marketplace to create the outcomes that you want. And in the case of the Inflation Reduction Act, more innovation and adaptation to clean energy technologies.
In the traditional conversation around industrial policy, it has been closely associated with this concept of protectionism, that you only advance industrial policy to benefit yourself. I think that even if you're looking at the electric vehicle provisions in the Inflation Reduction Act, you see baked into it this acknowledgement that it is not just for the United States, that ... it reflects a recognition that there are supply chains that involve the collaboration of multiple countries and economies. And so that's why we have negotiated the critical minerals agreement with Japan to bring in parts of the Japanese electric vehicle battery supply chain into these benefits. And ultimately what I really want to drive home is, the reason why this is not, as you describe it, all for us is that we recognize that in order to realize that clean energy future that I think all of us want, it is something that we are going to need to do with others.
Later, Tai was asked this question (49:06 of the video):
[This question is] about the new global order and basically the outcome you want by the new kind of ... industrial policy in the United States. Looking at it from a European and some Asian perspective, it seems, yes, there is a will to redefine industrial policy. There's a will to redefine supply chains, but with a very US-centered, very West-centered direction. There are complaints especially on the semiconductor side that the IRA, if you want to get some subsidies, ... it restricts companies' investment in other countries, for example. So how do you deal with these issues with ... your strong partners that you want that are investing billions of dollars in the United States, and that are now facing restrictions on their own business? And I also have to think whether they want to apply ... for subsidies or not.
Tai responded as follows:
So I tried to get at this in my earlier answer, but this gives me an opportunity to be more clear, and I've spoken about this quite a bit recently, which is, our vision for an industrial policy is really ... a corrective measure. It does reflect that there's a correction that needs to be made, for instance, in clean energy technology, that there needs to be an infusion of energy, if you will, incentive to create the innovations that are going to be required. But in other areas, we as the United States have experienced deindustrialization over the past decades in several areas. You will also see some of our policies go to that correction of reinvigorating in certain areas.
What I would say is this, in very clear terms. Our industrial policy is one that has to work with trade policy. So our vision is for an industrial policy that is collaborative, that can be complementary, where we can be talking to each other about the kinds of investments that need to be made, and how we can ensure that we're de-conflicting. We're not all trying to reinvent the wheel at the same time. And this is something that's quite relevant in the conversations between the US and the EU, for instance, where we both have our own Chips Acts. And I guess I will not resist the temptation to say that for many of the countries who have practiced industrial policies in the past, and even in the present, that complementary piece, that piece that works with trade policy is not always present there. And so I do want to draw attention to the fact that as we correct for imbalances, places where markets have fallen down, we are doing it with a vision that the world and our partners have to come with us.
Tai referred to a "spectrum," and I'm going to focus on that concept here.
Let's start with the terms "protectionism" and "free trade." As I've said several times before, in my view, protectionism and free trade are two of the clearest and most useful terms in the trade discourse. Many other terms are vague, but these two have a widely understood meaning, although of course there are debates about certain aspects, especially for "free trade." As a result, I try to push back against any push back against using these terms (if you can follow that!). Having said that, I agree with Tai that there is a spectrum here. There are degrees of protectionism and degrees of free trade, and for practical purposes, the policy question is where we want to fall on the spectrum.
Turning now to industrial policy, Tai says that the IRA "reflects also a very specific American approach to industrial policy, which is not a planned economy." I agree that the U.S. does not have a planned economy. However, keeping with the idea of having a spectrum of policy, I think the IRA shifts the U.S. a bit on the spectrum in the direction of a planned economy. As Tai puts it, "you can use more tools to create the incentives in the marketplace to create the outcomes that you want." Well, that involves some planning, even if only a limited amount.
Also on industrial policy, Tai offers a contrast between a U.S. industrial policy that focuses on the U.S., on the one hand, and a U.S. industrial policy that works with (at least some) others, on the other hand. Here I would say that recent U.S. industrial policy legislation such as the IRA also represents a point on a spectrum. In this regard, it's worth noting that Congress perhaps intended a more U.S.-focused industrial policy, whereas the Biden administration -- for example with its interpretation of "free trade agreement" to include special agreements on critical minerals that don't free much trade -- is shifting the policy along the spectrum towards an industrial policy that takes into account our relationships with allies, so there is now a bit more working with others. I would note here that an even more collaborative industrial policy would work with allies in drawing up the policy, rather than trying to adjust the policy to respond to their concerns after the fact. I would also note that the idea of working with some countries but not others limits the degree to which the policy is "collaborative" and "complementary."
