America’s renewed embrace of industrial policy is clashing with China’s all-in push for semiconductor self-sufficiency. Who outmaneuvers whom in this high-stakes battle for tech supremacy could shape the future of the two rivals’ strategic competition for global influence.
The COVID-19 pandemic provided a stark preview what can happen if the supply of semiconductors is disrupted, with chip shortages halting production at U.S. car and appliance factories. Meanwhile, U.S. export controls on advanced chips left Chinese tech giants scrambling, severely crippling their AI ambitions. Recognizing the stakes, both the U.S. and China are investing heavily in semiconductor capabilities, albeit using very different approaches.
The U.S. turn to industrial policy, an interventionist approach it had shied away from in recent decades, has surprised some observers. But it might be better characterized as a return to a strategy that Washington has historically embraced. After World War II, the U.S. government leveraged its newfound administrative muscle and the country’s unmatched economic prowess to channel government spending into technological innovation and industrial growth. Federal funding for research and development in university STEM programs underscored the nation’s commitment to maintaining a technological edge. And government-funded initiatives such as the Defense Advanced Research Projects Agency, or DARPA, and the space exploration program spurred technological advancements with widespread commercial applications that were subsequently developed by the private sector.