Beyond Rhetoric: The Enduring Political Appeal of U.S. Industrial Policy for Critical and Strategic Technologies

Introduction

In 2020, the United States embarked upon a novel experiment in industrial policy that was unthinkable just a decade before.¹ The laws passed by Congress between 2020 and 2022—particularly the CHIPS and Science Act, which provided large-scale subsidies to semiconductor manufacturers to defray the up-front costs of factory construction and equipment—marked a sharp break with decades of economic policy precedent and signaled the possible emergence of a new era of bipartisan support for a strong federal role in supporting high-tech manufacturing in the United States.²

While the lion’s share of new laws, agency initiatives, and funding announcements were signed and promulgated during President Biden’s term, President Trump’s embrace of economic nationalism was the political earthquake that made such an experiment possible.³ By catalyzing a wholesale realignment of economic policy priorities among much of the Republican voter base, Trump cleared the path for a new bipartisan coalition supporting a strong federal role in financing advanced technology manufacturing facilities.⁴ 

President Trump’s role in birthing the new industrial policy was more than rhetorical— in the last year of his first term, his administration took the first concrete steps to foster re-industrialization of advanced manufacturing facilities and Congress passed a law (the CHIPS for America Act) to authorize a new federal grant program to subsidize the construction of semiconductor manufacturing plants on U.S. soil. Keith Krach, then serving as President Trump’s Under Secretary of State for Economic Growth, Energy, and the Environment, personally lobbied Taiwan chip manufacturer TSMC to build a fabrication plant in Arizona.⁵ Under Secretary Krach also worked closely with Republican Senator John Cornyn and Democratic Senator Mark Warner to pass the CHIPS for America Act, which became law on January 1, 2021, three weeks before President Biden’s inauguration.⁶ Yet because the authors of that law were unable to secure congressional funding of their bill at the time of enactment, it fell to the Biden administration and a bipartisan “gang” of senators to secure its funding. After eighteen agonizing months of negotiations within and between the two parties and chambers, this funding was finally secured with the passage of the CHIPS and Science Act, a landmark law that also sought to overhaul the way the federal government supports scientific research.⁷

Both President Biden and Vice President Harris highlighted the CHIPS and Science Act during their 2024 presidential campaigns against President Trump.⁸ This was an easy political choice—the law was passed during their time in office and was popular with voters in both political parties, especially voters in the midwestern swing states that often decide presidential contests.⁹ Thus, just weeks before election day, it seemed clear that regardless of which candidate prevailed, he or she would champion a substantial continuation—if not enhanced form—of industrial policy, including direct federal subsidies to U.S. manufacturers in critical technology sectors.

Trump threw a sharp curveball into this analysis just ten days before the election. Near the end of a three hour appearance on the Joe Rogan Experience, he harshly criticized the CHIPS and Science Act and manufacturing subsidies in general, proclaiming:

Let me just say, that chip deal is so bad. We put up billions of dollars for rich companies to come in and borrow the money and build chip companies here. And they’re not going to give us the good companies anyway. All you had to do is charge them tariffs.¹⁰

At the time, with Trump favored to win the upcoming election—which he ultimately did—these comments ricocheted across the business, policy, and international community, instilling fear or delight (depending on one’s point of view) that in his second term, Trump will eschew any reliance on direct federal subsidies for advanced technological manufacturing and thereby halt the recent turn to vigorous industrial policy he helped usher into place.¹¹

Speaking to House Republicans at a Miami retreat a week after beginning his second term as President, President Trump reiterated his campaign pledge and promised to impose major new tariffs on imported semiconductors, among other items (including oil and pharmaceuticals).¹² Threatening tariffs of “25, 50 or even 100 percent” on chipmakers who do not manufacture their chips in the United States, President Trump accused Taiwan of “stealing” the United States’ chip industry and once again denigrated the subsidies provided through the CHIPS Act, stating “[w]e don’t have to give them money.”¹³ On cue, Trump’s comments triggered a panic among interested parties, including the government of Taiwan, which soon sent a delegation to Washington.¹⁴ And in his first second-term address to Congress on March 4, 2025, just weeks after assuming office, Trump doubled down, calling the CHIPS Act a “horrible, horrible thing,” while touting TSMC’s announcement the day prior that it would invest an additional $100 billion to expand semiconductor manufacturing operations Arizona.¹⁵

President Trump’s tariff negotiations are notoriously unpredictable, and a discussion of anticipated tariff policy over the next four years is outside the scope of this paper. Our purpose instead is to examine the outlook for federal subsidies for advanced technology manufacturing—including chip manufacturing—during the second Trump term. On this front, Trump’s repeated disparagement of subsidies has caused many observers to believe that all hope is lost for an industrial policy package building on the success of the CHIPS and Science Act, whether focused on chip manufacturing or other advanced and critical technologies.

While reasonable, we believe this conclusion is premature. President Trump has a documented history of sharply criticizing the policy efforts of his predecessors for political gain, and there is good reason to believe that’s what has happened here.¹⁶ It remains to be seen how he will treat the CHIPS and Science Act specifically—and there are reasons for champions and beneficiaries of that law to be concerned.¹⁷ Trump’s insistence that tariffs are his preferred tool and indeed responsible for his win on TSMC’s March 2025 announcement of another $100 billion investment, as well as his rhetorical broadsides against the CHIPS Act in his joint address to Congress, have cast doubt on the longevity of the legislation. But we believe it would be a mistake to place undue weight on President Trump’s recent criticism of that law in assessing the outlook for follow-up industrial policy initiatives, including direct subsidies to manufacturers, over the next four years—especially the final two years of his term.¹⁸

Now that his contest with Vice President Harris is in the rear-view mirror, nearly every political factor points in the direction of Trump ultimately embracing a subsidies program for advanced technological manufacturing. For that reason, we expect he will, in time, embrace a continuation of the turn to advanced manufacturing subsidies kicked off by the CHIPS and Science Act. 

Direct subsidies for advanced manufacturing are the proverbial “low-hanging fruit” for President Trump’s second term. They directly advance his core campaign promises to restore American manufacturing might; they remain highly popular with both Trump’s base of voters and the electorate at large; they can help forestall a decline in U.S. factory employment¹⁹ that would be politically toxic to President Trump’s brand; and they should easily gain bipartisan support if the President is willing to seek it in good faith. And in his March 4, 2025 address to Congress, Trump even singled out shipbuilding as an area where he will likely support industrial policy, announcing the creation of a “new office of shipbuilding in the White House that offers special tax incentives to bring this industry home to America where it belongs.” As he argued, “we are also going to resurrect the American shipbuilding industry, including commercial shipbuilding and military shipbuilding. We don’t make them anymore very much, but we’re going to make them very fast, very soon.”²⁰ 

We believe President Trump will be inspired to pluck this fruit in the second two years of his current term (2027-2028). The partisan governance that typically characterizes unified control of government—which Trump has arguably taken to an unprecedented degree during his short time back in office thus far—will likely poison the well for meaningful bipartisan collaboration on legislation beyond the typical “must-pass” bills that Congress must consider each year.²¹ With Republicans holding a “trifecta” in Congress through the end of 2026 and the major provisions of the 2017 Tax Cuts and Jobs Act soon expiring, Congress is widely expected to focus its attention on policy priorities that it can advance on a party-line vote through the process of budget reconciliation. Trump may seek to advance some industrial policy goals through this process as well, though competing priorities and budgetary constraints may limit his ambitions on this front. 

The following Congress, which will meet in 2027, will present new challenges for President Trump, and it is during these years that we believe vigorous industrial policy—including direct subsidies to manufacturers, particularly in strategic technology industries—will become especially appealing to the President. If history is a guide, Democrats will be favored to retake majority control of the House of Representatives and seek to oppose and challenge many aspects of the Trump Administration’s agenda.²² In this context, industrial policy will be one of the few areas where both congressional Democrats and Trump’s own base will enthusiastically support the same agenda.²³ Moreover, the benefits of industrial policy may accrue to communities and constituencies that have borne the effects of retaliation from aggrieved trading partners, including for example farmers, thus creating immediate political benefits for the President. 

Historical Context of U.S. Industrial Policy

A.    The Washington Consensus and its Discontents
 

For most of the late twentieth and early twenty-first centuries, mainstream economists and politicians in both major parties treated industrial policy with skepticism, if not outright scorn.²⁴ This resistance largely stemmed from the Cold War dominance of neoclassical economics, which prioritized market efficiency, opposed state involvement in production except in cases of clear market failure, and dismissed industrial policy as an undesirable interference with market processes.²⁵ As economists Réka Juhász, Nathan Lane and Dani Rodrik have observed, “[t]here are few economic policies that generate more knee-jerk opposition from economists than industrial policy.”²⁶ Claiming that governments lacked the vision and impartiality required to “pick winners” among industries, critics consistently maintained that industrial strategy undermined inefficiency, encouraged rent-seeking, and enabled corruption. As Soviet-style planned economies withered and the West emerged triumphant in the Cold War, these views only became more engrained.

Graph Source: Anna Ilyina, Ceyla Pazarbasioglu & Michele Ruta, Industrial Policy is Back But the Bar to Get it Right is High, International Monetary Fund (Apr. 12, 2024), https://www.imf.org/en/Blogs/Articles/2024/04/12/ industrial-policy-is-back-but-the-bar-to-get-it-right-is-high.

In the United States, this distaste pushed industrial policy to the outskirts of economic policy debates. However, as ever-rising inequality, deindustrialization, and geopolitical tensions made “cracks in [the] foundations” of the neoliberal consensus, the hardline opposition to industrial policy began to fade, setting the stage for a fundamental rethink of neoliberal economic policy in recent years.²⁷

B.    The 2016 Political Alignment and Its Aftermath

President Donald Trump’s shocking victory in the 2016 presidential election—and the primary contests in both parties that preceded the general election that year—shattered the long-standing consensus on neoliberal economic policy.²⁸ The election revealed deep grievances across the political spectrum, pushing both parties to confront the flaws of an economic system that many saw as prioritizing corporate profits over workers’ livelihoods.

Trump’s populist rhetoric, which blamed free trade for hastening the loss of blue-collar jobs and the demise of American manufacturing, galvanized working-class supporters who felt left behind by the promises of globalization.²⁹ On the Democratic side, Senator Bernie Sanders’s insurgent campaign wildly outperformed expectations by voicing similar criticisms. Even after Sanders exited the race and conceded to Hillary Clinton, Clinton was forced to overhaul her own views on trade and the Democratic party platform was revised to conform to Sanders’s position.³⁰ Clinton’s initial embrace and abrupt abandonment of the proposed Trans-Pacific Partnership epitomized this sharp turn against globalization.³¹
 

In the eight years since Trump’s first victory, policymakers in both parties have been forced to navigate a bewildering new landscape in which the old rules limiting what government can and cannot do to protect and promote U.S. industry no longer hold.³² Ideological lines in both parties have blurred, and the nation as a whole remains in a confusing period of transition.³³
 

Much of the public debate throughout this era has focused on tariffs, reflecting President Trump’s rehabilitation of tariffs as his preferred instrument of international economic policy. From the time he entered the Republican presidential primary in 2015, the salutary impact of tariffs has been a mainstay of his speeches and he has singlehandedly caused a large swath of the American public to reject the longstanding view of tariffs as an antiquated policy tool with little purchase in the modern economy.³⁴ Because they directly impact profitability, supply chains, and business strategies, tariffs are highly relevant to corporate leaders, economists, and consumers, and remain a perennial focus of intense media coverage and debate.
 

But the relentless focus on tariffs by both President Trump and the mainstream press gives short shrift to industrial policy, which can be conceptualized as the domestic corollary to import tariffs. Past advocates of American industrialism, including Alexander Hamilton and Henry Clay, understood that affirmative policies directly supporting home industry—especially subsidies for strategically important industries—are a necessary complement to protective tariffs.³⁵

The relevance of this historical understanding is particularly acute in the context of modern geopolitical great power competition, especially regarding strategic technologies that provide enormous economic and commercial advantages, but also impinge on national security. Here, the development of domestic manufacturing capabilities—particularly in industries characterized by high capital requirements and significant technological complexity—often require direct government intervention through subsidies, research support, and coordinated industrial policy initiatives. This dynamic is especially evident in sectors like semiconductor manufacturing, where the scale of investment required and the strategic importance of the industry necessitate comprehensive policy approaches that go beyond defensive trade measures, as well as other critical areas such as biomanufacturing, renewable energy, and green technologies.³⁶

C.    The National Security “Exception” Swallows the Rule
 

As William Bonvillian has observed, U.S. policymakers long recognized a “security-industrial exception” to the general market orthodoxy, which allowed the Defense Department, through celebrated initiatives like the Defense Advanced Research Projects Agency (DARPA) and creative procurement exceptions, to engage in efforts that are clearly a form of industrial policy.
 

Since the era of World War II and the early days of the Cold War, the U.S. government invested enormous capital and federal support to R&D projects that supported technologies critical for U.S. national security, which later became adopted for civilian use. From the Manhattan Project, which birthed the first nuclear weapon, to ARPANET, an early precursor to the Internet, to GPS and radar, the U.S. government—especially the Pentagon—drove pioneering investments in technology and manufacturing. While initially developed primarily in service of U.S. national security, these technologies later transformed civilian and commercial markets. These actions were justified and sold to the public through a Cold War lens, in which policymakers invoked the imperative of national security and shied away from claims that the projects would boost economic growth.
Of course, it’s now widely recognized that the Defense Department’s creative research programs did just that, by creating a vast array of new technologies that spilled over into the private sector and seeded entire new industries, especially throughout Silicon Valley:

American efforts to push the boundaries of applied science rendered the Soviet Union’s con- ventional military obsolete and gave the United States a decades-long commercial manufac- turing advantage that shaped the contours of the modern world.   Meanwhile, microchipsopened the door — and gave America early access — to “[f]ast and cheap computing, optical data transmission, sensing, imaging, CAD/CAM manufacturing — all the technologies that have defined the economy of the past thirty years.³⁷

China’s rise as an industrial powerhouse and geopolitical rival profoundly challenges this paradigm. When military advantage comes from private sector technology leadership instead of government-sponsored research and development, and global markets with few trade barriers allocate production to far-flung nations without regard to geopolitical considerations, the traditional dichotomy between defense spending and commercial development breaks down.³⁸ The sheer size of the commercial markets for dual-use technologies—where private sector purchases often dwarf government purchases—undermines the United States’ ability to maintain a reliable military industrial base by simply funding outlays to contractors through spending on the defense side of the discretionary funding ledger.³⁹

The semiconductor industry is a prime illustration of this phenomenon. While defense considerations require a steady supply of advanced semiconductors to be produced either within the United States or by allied nations whose supply chains the United States can easily control in the event of an armed conflict, chip production has become concentrated in East Asian nations that are uniquely vulnerable to disruption at the hands of China, the United States’ primary geopolitical rival.⁴⁰

The CHIPS and Science Act

A.    Origins and Context

In retrospect, it’s remarkable that policymakers allowed the supply chain for advanced semiconductors to become concentrated in a geopolitical hot spot for so long without taking more than cursory actions to ameliorate this risk.⁴¹ This changed with the onset of the COVID-19 pandemic, a watershed moment for policymakers’ and business leaders’ recognition of the deep vulnerabilities inherent in global supply chains, especially with regard to dual-use technologies like semiconductors.⁴²
The CHIPS for America Act paved the way for increased domestic semiconductor manufacture by providing billions of dollars in subsidies for fabrication sites in the United States. However, due to its authors’ inability to gain the support of the appropriations committees, the enacted law lacked the funding necessary to carry out its objective. Nearly two years later, Congress passed the CHIPS and Science Act to provide this funding, coupling it with a new “Science” component to alter federal research support through a new technological directorate at the National Science Foundation. Ironically, this second component has also been plagued by insufficient appropriations, rendering much of its purpose unfulfilled.⁴³

B.    Legislative History

The legislative journey of the CHIPS and Science Act was unusually grueling. The Act, championed by a bipartisan coalition led by Senate Democratic Leader Chuck Schumer and Republican Senator Todd Young, assembled an unlikely mix of interests: national security, job creation, worker support, and domestic social policy. At the time, it was unclear whether the strange new coalition supporting the law would endure or if the Act would remain an isolated experiment in industrial policy.⁴⁴

C.    Political Aftermath

We believe this coalition will endure and that President Trump’s return to office will only strengthen support for industrial policy. The factors that underlie the Act’s adoption remain the same: despite U.S. export controls on cutting-edge technologies such as advanced semiconductors that power military applications of artificial intelligence, China continues to invest heavily in state subsidies, propelling itself up the tech- nological value chain—and indeed has accelerated its national plans to achieve technological dominance in critical industries—while its East Asian neighbors continue to pursue large-scale subsidy policies that make it extremely challenging for U.S. manufacturers to compete if left to the whims of the international market.
 

For decades, China’s government has implemented industrial policy in strategic technologies at a massive scale—with a series of “national strategic plans” setting targets in critical sectors and offering roadmaps for local level subsidies, as well as “Made in China 2025,” which represented the Chinese Communist Party’s attempts to shift away from low-end manufacturing toward high-end technology. In telecommunications, the behemoth Huawei represented an archetypal example of the Party choosing winners—baptized “national champions”—while other tech giants like Baidu, Alibaba, and Tencent relied on substantial government sup- port, including subsidies, tax incentives, and state-backed financing, to establish their dominant positions in the Chinese economy. In 2023, Chinese President Xi Jinping unveiled his new approach to unleashing the power of “new quality productive forces,” and directed his government to prioritize the further modernization of critical high-tech sectors and a Chinese industrial system that rely on a large manufacturing base.⁴⁵

Combined with massive state subsidies and acquisition of foreign technology through joint venture-mediated tech transfer, China has doubled down in recent years on its industrial policy. As Robert Lighthizer, President’s Trump’s former U.S. Trade Representative, once observed, “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies.”⁴⁶

With President Trump’s election and his team of China hawks in place, intense strategic competition with China will likely continue, particularly in the economic and technological domains. China remains a formidable geopolitical rival and relations between the United States and China have not meaningfully changed since the law was signed in August 2022. Meanwhile, an increasingly larger number of both swing-state voters and those among Trump’s political base remain vocally opposed to globalization, deindustrialization, and financialization, creating strong political incentives for reindustrialization policies that create manufacturing jobs.

Ironically, the very popularity of the CHIPS and Science Act has hampered bipartisan follow-up efforts. The sequencing of negotiations and key votes—which saw the Senate pass the bill just hours before Senate Democrats reached the critical intra-party agreement on the terms of what would become the Inflation Reduction Act—infuriated Republican leaders.⁴⁷ This prompted an immediate backlash among House Republicans, and led many Republicans in both chambers to vow future opposition to any similar efforts in the future that might provide a Democratic President with a political “win.”⁴⁸ Conservative media and campaign messaging battles accentuated this dynamic, threatening to eviscerate the prospect of any bipartisan cooperation on industrial policy in the event that Vice President Harris emerged victorious in the 2024 election.⁴⁹

Of course, Vice President Harris did not win the election, and with President Trump back in office, the political calculus has shifted. The operative question is whether the manufacturing subsidies enacted under Biden’s presidency are too politically tainted by association with President Biden to remain a viable policy option for President Trump and his congressional allies. For a variety of reasons, we believe the answer is no. The operative question is whether the manufacturing subsidies enacted under Biden’s presidency are too politically tainted by association with President Biden to remain a viable policy option for President Trump and his congressional allies. For a variety of reasons, we believe the answer is no.

Notwithstanding Trump’s recent disparagement of subsidies, his transformation of the Republican party and the precedent of the CHIPS and Science Act have created all the conditions necessary for him to champion manufacturing incentives during the last two years of his second term in office, and we believe he will find compelling reasons to follow this path.

President Trump’s Industrial Policy Vision

Governments pursue industrial policy in many ways using a wide array of policy tools, and Trump’s recent comments focused squarely on only the inner core of industrial policy: direct subsidies to domestic manufacturers. As a starting point, this leaves the door open for other industrial policy tools, including tax preferences (especially preferences to defray research and development costs), in-kind subsidies of land, equipment, and energy resources, labor and workforce support, export promotions, and regulatory carveouts.⁵⁰ And while the Trump administration has announced cuts to NIH funding for indirect research costs at universities, these moves have been more motivated by political reasons relating to perceived progressive stances at universities—especially given that the largest university recipients of government research funding are located in blue states—than aversion to industrial policy and the political ramifications of direct subsidies to technology manufacturing sectors.⁵¹
 

Notwithstanding his repeated denigration of the CHIPS and Science Act and its subsidies for semiconductor manufacturers, Trump has never wavered in vocally supporting industrial policy writ large and the use of all tools apart from direct subsidies to firms. In case there were any confusion, he made this clear just a few weeks prior to his appearance on Joe Rogan’s podcast and his first address to a joint session of Congress.

A.    The “New American Industrialism”

In a Newsweek op-ed titled “My Plan to Make America Affordable Again—and Bring Back the American Dream,” Trump proposed the following benefits for both foreign and U.S.-based manufacturers:

The United States will give you the lowest taxes, the lowest energy costs, the lowest regulatory burdens, and free access to the best and biggest market on the planet—but only if you make your products here in America and hire American workers for the job.⁵²

Terming his vision a “New American Industrialism,” Trump promised that his proposal will “create millions of jobs, massively raise wages for American workers, and make the United States a manufacturing powerhouse once again.”⁵³ He also promised to slash corporate taxes to 15 percent for companies who manufacture products in the United States (from the current 21 percent), expand the research and development tax credit (which has been weakened since 2022) and “cut energy and electricity prices in half within 12 months—not just for businesses but for all Americans and their families.”⁵⁴ Finally, he promised to slash environmental regulations and institute “special zones on federal land with ultra-low taxes and regulations for American producers, to entice the relocation of entire industries from other countries.”⁵⁵
 

Notably absent from this list of incentives is any mention of direct subsidies to manufacturers; rather, all benefits are phrased in terms of tax benefits, regulatory exemptions, and reduced energy costs. Much of what Trump refers to as “industrial policy” in his op-ed can also be termed “infrastructure investment,” and experts have long quibbled over the extent to which different types of infrastructure outlays should be deemed a form of industrial policy. The distinction matters a great deal to most economists, who tend to view infrastructure improvements that facilitate general commerce as public goods that form an appropriate subject of government expenditure—in contrast to industrial policy, of which they are much more skeptical.⁵⁶ By contrast, federal lawmakers have typically viewed both projects through the broader lens of government involvement in the economy financed by taxes. For several decades before President Biden’s term in office, they were largely unable or uninterested in financing comprehensive federal infrastructure investments or subsidizing domestic manufacturing.⁵⁷

B.    The Question of Direct Subsidies

Putting Trump’s criticism of the CHIPS and Science Act and his Newsweek editorial side-by-side, one straightforward conclusion would be that he will simply champion all forms of industrial policy except direct subsidies to manufacturing firms until he leaves office in January 2029. This is certainly one possible outcome. However, we believe the political tailwinds for a subsidies program make this outcome unlikely.

Why are subsidies so important? First and foremost, they represent the inner core of industrial policy. The very term “industrial policy” means different things to different people and can be construed broadly to include a variety of policy tools that favor domestic manufacturing, including the tools that Trump laid out in his op-ed (corporate tax policy, energy initiatives, etc.). But while observers may disagree about whether each of these tools constitute industrial policy, there is no dispute that direct federal subsidies awarded to individ- ual manufacturing firms in strategic industries constitute the paradigmatic form of industrial policy.⁵⁸ Direct subsidies to individual firms have traditionally received the most vociferous opposition from neoclassical economists and small-government conservatives, who view them as especially corrosive to market equilibria and particularly ripe for rent-seeking and political favoritism.

Yet the drafters of the CHIPS for America Act and the CHIPS and Science Act broke with tradition and cre- ated $39 billion in subsidies for semiconductor manufacturing firms even while acknowledging the viability of these objections, which they sought to ameliorate through strict grantmaking procedures and eligibility conditions.⁵⁹ Why?

The Global Outlook for Advanced Manufacturing Subsidies

A.    International Competition

One of the most overlooked aspects of these laws is that they did not originate in a vacuum and only make sense when evaluated in the context of other nations’ industrial policies. Whatever one may think of the merits of industrial policy on its own terms, there is no escaping the real- ity that other industrialized nations—especially the advanced manufacturing economies of East Asia—have long been engaged in aggressive subsidization of high-tech manufacturing that will continue to distort the international market for these goods for the indefinite future.

Graph Source: Anna Ilyina, Ceyla Pazarbasioglu & Michele Ruta, Industrial Policy is Back But the Bar to Get it Right is High, International Monetary Fund (Apr. 12, 2024), https://www.imf.org/en/Blogs/Articles/2024/04/12/ industrial-policy-is-back-but-the-bar-to-get-it-right-is-high.

In a persuasive speech on the Senate floor during consideration of the bill that would become the CHIPS and Science Act, former Republican Senator Rob Portman of Ohio—a former United States Trade Representative and card-carrying member of the Republican free-enterprise establishment—explained to his colleagues why market orthodoxy would not suffice to preserve the United States’ industrial base and American semiconductor manufacturing firms’ ability to compete in a global marketplace. Pointing out that “[t]his is not a free market situation,” Senator Portman identified the forces in play:

One of my colleagues today asked me today about, “shouldn’t we let the market decide?” If the market decides and China is offering $150 billion, which they are over the next 10 years, when Europe has its own equivalent legislation to ours and is offering tens of billions of dol- lars, tens of billions of euros or when South Korea or Japan or when Taiwan are offering the huge incentives, it’s very difficult to see us being able to bring these chips back to America where costs are a little higher and be able to be competitive. We need that to happen for our domestic economy, but also our national security.⁶⁰
 

Across East Asian economies, industrial policy has been a core driver of economic modernization. To truly understand the U.S. push for industrial policy today, one must look across the Pacific to East Asia, where Taiwan, Japan, and South Korea have long pursued a strategy of industrial policy to achieve growth and even dominance in technology manufacturing. These nations have employed a range of subsidies and state-backed incentives that have reshaped global markets. Indeed, these geopolitical conditions persist today— and we believe that in addition to domestic political considerations, these conditions will drive the Trump administration to continue subsidizing American high-technology manufacturing.

B.    Taiwan, Japan, and South Korea: Long-standing Champions of Industrial Policy

a.    Taiwan

Taiwan’s story is the most striking when it comes to the evolution of semiconductor industrial policy. In the 1980s, Taiwan was undergoing significant political and economic transition, as it sought to attain a position in the global high-tech economy. When Lee Teng-hui became president in 1988, his government decided that Taiwan would leverage its small size and nimbleness to construct a global technology powerhouse. The cen- terpiece of this vision was the 1987 founding of the Taiwan Semiconductor Manufacturing Company (TSMC), a move that would define Taiwan’s economic trajectory for decades to come. As TSMC founder Morris Chang has noted, Taiwan’s government was an important early supporter of the firm, investing $180 million and holding 48% of the shares—while its then Minister of Economic Affairs Li Kwoh-ting, dubbed “Godfather of Technology” in Taiwan, recruited Chang to spearhead Taiwan’s chip industry.⁶¹ In addition to investments, Taiwan’s government supported TSMC through direct funding, infrastructure development, and favorable regulatory policies, essentially creating a world-leading hub for semiconductor manufacturing.⁶²
 

In the decades that followed, Taiwan’s strategy evolved but remained firmly rooted in a muscular industrial policy. TSMC’s current dominance as the world’s leading semiconductor foundry—producing 90% of the world’s high-end chips⁶³—owes much to its continued state backing. Taiwan’s government has maintained substantial subsidies for the firm’s R&D activities and its manufacturing expansion while also ensuring that foreign firms flock to Taiwan to build semiconductor plants. By 2022, TSMC’s projected $100 billion investment in new semiconductor fabs underscored the Taiwanese government’s commitment to this strategy, with Tsai Ing-wen’s administration continuing to provide tax relief and direct incentives. Simply put, Taiwan’s semiconductor miracle was not merely a result of private innovation but also the outcome of decades of government investment.

b.    South Korea and Japan

South Korea, too, has had a long history of industrial policy in advanced manufacturing sectors. Since the 1970s, the South Korean government has pursued a strategy of heavy state involvement in industrial development, guided by President Park Chung-hee’s vision of economic modernization. In the 1980s, when Samsung electronics was just beginning to emerge as a major player, the government funneled significant subsidies into key sectors, including semiconductors, which were seen as the cornerstone of South Korea’s future technological leadership. Today, South Korea’s government continues to pour billions of dollars into the semiconductor sector as a key end producer. In 2023, South Korea unveiled its own version of the CHIPS Act called the Korean Chips Act, or “K-Chips Act,” which boosted tax credits and other government support for infrastructure for chip-making facilities.⁶⁴ Indeed, the Korean government has continued to provide direct state investments focused on R&D, tax incentives, and loans to companies like Samsung (which accounts for 18% of global market share of fabless manufacturing, second only to TSMC⁶⁵) and SK Hynix, which together account for 17% of the global market share and are the dominant producers of memory chips globally.⁶⁶
 

Similarly, Japan has also played a significant role in shaping Asia’s industrial policy landscape. In the 1980s, the Japanese government, spearheaded by its Ministry of International Trade and Industry (MITI), aggres- sively supported its semiconductor industry, leading the world in memory chip production by the mid-1980s. Japan’s approach focused not only on semiconductors but also on technological leadership across other sectors including robots and green tech. Yet Japan’s once-dominant role in chips later waned, overtaken by Taiwan and South Korea, as Japan’s manufacturing giants like NEC and Toshiba fell behind in global competition.

C.    Continuing Geopolitical Conditions: Subsidies in the 2020s

As Taiwan, Japan, and South Korea have continued to compete on the global stage, their governments have doubled down on state-backed initiatives, particularly after 2022, as global supply chains began to recover from disruptions caused by the COVID-19 pandemic. The South Korean government, for example, recently announced a $19 billion subsidy program for research and development of next-generation semiconductors,  including the creation of advanced manufacturing nodes. Channeled through the state-run Korea Development Bank, the recent 2024 package is aimed at providing financial backing for local chipmakers, while Korean President Yoon Suk Yeol has also announced an extension of tax breaks to promote investment in semiconductors.⁶⁷ As Vice Minister of Trade Moon Jung-woo declared, “semiconductors are not just an industry—they are a national security asset.” Yoon has agreed, proclaiming in 2024 that “the competition over semiconductors unfolding now is an industrial war.”⁶⁸ Since assuming office, his administration has unveiled a strategic plan leading to 2050 in which his government would support the creation of the world’s biggest chip-making cluster in South Korea, which would span nearly 40 factories across eight Korean cities, while aiming to create more than three million jobs.⁶⁹ Meanwhile, the government in Seoul has committed to other forms of industrial support from expedited land approval to guaranteed electricity to tax credits for infrastructure.

Photo Credit Toggle

Sources include Japan’s Ministry of Economy, Trade, and Industry; Korea’s Ministry of SMEs and Startups, Taiwan’s Ministry of Finance, and China’s Ministry of Industry and Information Technology.

Similarly, just last November, Japanese Prime Minister Shigeru Ishiba announced a $65 billion package of subsidies to bolster domestic semiconductor and AI industries over the course of the next five years, with specific provisions for Tokyo-based semiconductor manufacturer Rapidus, which is aiming to begin manufacturing leading-edge chips in Hokkaido with IBM as a collaborator.⁷⁰ Similarly in 2023, Japan’s government under Prime Minister Fumio Kishida allocated $13 billion to the semiconductor industry.⁷¹

Finally, Taiwan’s government has continued its push to expand its chip industry. In early 2023, its legislature passed the Industrial Innovation Act, an analog of the American Chips and Science Act, which provided eligible chip manufacturers a 25% tax deduction on R&D expenditures and 5% deduction on costs for new machinery.⁷² Its Ministry of Economic Affairs will review applications by companies, but giants like TSMC have already met specified criteria in the legislation. More recently last month, after President Trump floated the possibility of imposing tariffs on the island, Taiwan Premier Cho Jung-tai publicly mused about potentially increasing government support for the semiconductor industry: “We will urgently look at whether we need to make more cooperative plans and future assistance programs for the industrial sector. Taiwan’s position in the world’s industrial chain is not to be ignored, and that we will continue to maintain such an advantage.”⁷³

1. D.    China: A Rising Giant’s Industrial Push
    

Meanwhile, China has pursued industrial policy with an intensity unmatched by most other nations. Since the early 2000s, China has implemented a series of ambitious plans to reduce its reliance on foreign technology and establish itself as a global leader in high-tech manufacturing. But under President Xi Jinping, the push has become far more aggressive and strategically targeted. In 2022, Xi announced a new approach of unleash- ing “new quality productive forces,” an initiative that seeks to achieve technological self-sufficiency across a range of high-tech sectors, including semiconductors, telecommunications, and artificial intelligence, and as such, bolster China’s economic growth well into the next few decades. In the semiconductor industry, China has also doubled down, creating and expanding a national semiconductor fund that aims to bolster its chip-making capabilities. Announced in 2014, the National Integrated Circuit Industry Investment Fund has played a crucial role in China’s semiconductor industry growth, with the government announcing it had raised another $48 billion fund in 2024, along with government grants, tax breaks, equity investments, and favorable loans.⁷⁴ The Semiconductor Industrial Association has estimated that as a combined sum, China’s cash subsidies, preferential financing, and tax breaks—all key pillars of its industrial policy for chips—have totaled to funding worth more than $150 billion from 2014 through 2030.⁷⁵

Political Analysis

A.    The Political Risk of Lower Manufacturing Employment
 

In recent years, the Republican base has demonstrated a remarkable affinity for industrial policy. While nationwide surveys reveal broad voter support for industrial policy and the CHIPS and Science Act in particular, anecdotal evidence suggests that this support is particularly strong among working-class voters in historic manufacturing regions, a demographic whose voting patterns have determined the outcome of presidential elections since 2016.⁷⁶

Even casual followers of U.S. politics understand that Trump’s political identity is inextricably linked with a pledge to restore American manufacturing might. “Make America Great Again” means different things to different constituencies, but Trump has never left any doubt that his view of American greatness includes a restoration of American manufacturing might.⁷⁷
These promises are creating immediate vulnerabilities for Trump now that he has moved back into the White House. Factory employment increased dramatically under President Biden thanks in large part to programs like the CHIPS and Science Act and the partisan Inflation Reduction Act.⁷⁸ While both the Biden-Harris and Harris-Walz campaigns bemoaned the fact that few voters recognized this development, and some experts believe that the industrial policy laws played only a supporting role in boosting factory employment, there is little doubt that any declines in factory employment or manufacturing facility construction projects will be loudly amplified by Democrats and the media at large.⁷⁹

B.    The New Economic Nationalism Policy Apparatus
 

The post-2016 intellectual landscape has witnessed a significant transformation in conservative policy infrastructure, marked by the emergence of new institutions dedicated to developing and promoting economic nationalist ideas. This institutional evolution represents a notable addition to the ecosystem of conservative think tanks and publications, which has previously been dominated by organizations harboring enormous skepticism of any significant government role in funding advanced manufacturing.⁸⁰
 

American Compass, founded by Oren Cass in 2020, is one of the best-known new organizations supporting industrial policy initiatives from the right. Popular among many Republican congressional staffers, it showcases both sophisticated policy proposals and shorter lists of actionable policy recommendations that blend conservative social values with support for a more assertive role of the state in influencing the economy. Its work on issues like supply chain resilience, workforce development, and family policy reflects a comprehensive attempt to construct an intellectual framework for conservative policies that welcome a more assertive role for the state in economic policy.
 

American Affairs, launched in 2017 under Julius Krein’s leadership, has emerged as an influential intellectual force building the case for U.S. reindustrialization. The quarterly journal has published detailed analyses of industrial policy and cutting critiques of tired market fundamentalism, drawing contributions from scholars and policy practitioners across the ideological spectrum. Its articles frequently combine detailed policy analysis with broader philosophical arguments about political economy, helping to legitimate industrial policy within conservative intellectual discourse. Its deeply researched articles have made it a favorite read among thoughtful policy professionals of all stripes.
 

Compact Magazine, a relatively young publication, positions itself as a voice for a populist, “post-liberal” right that aims to question both liberal orthodoxy and conventional conservative paradigms. It frequently combines a defense of traditional values, national sovereignty, and economic interventionism with criticisms of capitalism, contemporary liberalism, and cultural progressivism. While covering a range of economic and social policies that go well beyond industrial policy, it frequently features authors who support industrial policy as a means of strengthening the U.S. economy while restoring a sense of dignity to working-class Americans.
 

These institutions share several distinctive characteristics that set them apart from traditional conservative think tanks and publications. First, they demonstrate much greater comfort with state intervention in markets to advance national strategic objectives, which they each define in their own way. Second, they explicitly reject many of the assumptions regarding international trade that have dominated conservative economic thinking in recent decades. Third, they emphasize the importance of productive capacity over financial metrics in assessing economic health. Finally, they tend to view economic policy through the lens of great power competition, particularly with China, rather than abstract economic efficiency.
 

The impact of these groups transcends mere policy formulation. By constructing an intellectual base for national conservatism, they have helped find and train a group of policy experts and writers who can fill important administrative roles. Their work has been particularly effective in converting general nationalist principles into targeted policy recommendations in discussions about reclaiming the nation’s manufacturing capacity and defending its technological leadership.
 

This institutional evolution implies a more profound transformation in the conservative political landscape, one that may endure well beyond the next electoral cycle. President Trump’s re-election is now widely viewed as signaling an enduring shift in the nation’s political orientation, and these organizations seek to develop the intellectual heft for a lasting conservative commitment to investment in state capacity.⁸¹

C.    Coalition Politics

Should he pursue his own package of subsidies for strategic technologies, President Trump will likely find that banging the drum for advanced manufacturing subsidies helps unite his unruly coalition. Many observers have noted the rough seams linking his culturally conservative base to the venture capital funders who bankrolled his most recent presidential campaign. Subsidies for advanced manufacturing are uniquely positioned to unite these two constituencies because they appeal to both the industrial heartland (by promising a resurgence of manufacturing might and good jobs) and the venture capital crowd (by providing capital to finance continued U.S. techno- logical leadership, especially in the cutting-edge industries of the future).⁸²

In the months before President Trump entered office for the second time, these two constituencies feuded over the wisdom of expanding visas for high-skilled foreign workers.⁸³ Given their incongruous regional bases and backgrounds, they will very likely engage in more infighting throughout Trump’s second term and threaten his ability to preserve a united coalition of outside support. Uniting these two powerful Republican constituencies through a manufacturing subsidy program that will likely be opposed only by a handful of free-market ideologues and fiscal hawks will be a highly appealing option with very little political downside.⁸⁴

D.    The Merits of Malleability
 

Against this backdrop, the primary reason Trump may have not to support new manufacturing subsidies would be a desire to fully break with the Biden Administration’s project and maintain a position consistent with his remarks on the Joe Rogan podcast and in his remarks to Congress. This also implicates Trump’s stated reasons for opposing subsidies: that rich manufacturing companies are undeserving of taxpayer money, and tariffs alone will be sufficiently compelling to force manufacturers to build factories in the United States. As commentators have long noted, Trump generally favors sticks over carrots, and he may think that he can simply strongarm companies into building in the United States with tariffs alone.⁸⁵
 

We think it is unlikely that Trump will feel compelled to retain his campaign position throughout his second term. As a wealthy businessman who never held political office before entering the White House, Trump has distinguished himself from most “career politicians” by his willingness to break the rules of campaigning that box in more conventional personalities. Following Ralph Waldo Emerson’s dictum that a foolish consistency is the hobgoblin of little minds, Trump has been more than willing to change his position on issues with much more explosive political risk than manufacturing subsidies, and his detractors’ attempts to punish these moves by labelling him a “flip flopper” have never gained traction.⁸⁶ By one account, President Trump has at one time or another publicly reversed his stated positions on a range of issues including the state and local tax deduction, status of Chinese telecommunications firm ZTE, proposals to ban the use of TikTok, the legalization of marijuana, vaping, and cryptocurrency regulation.⁸⁷

Meanwhile, his distaste for awarding subsidies to “rich companies” may win him plaudits among small government conservatives and progressives such as Senator Bernie Sanders, but neither of these constituencies is anywhere close to the core of his political coalition.⁸⁸

E.    The Rubio Model and Tariff Pain Relief

Prominent conservatives such as Marco Rubio have shown a path for supporting industrial policy in general and manufacturing subsidies in particular while denigrating and opposing the CHIPS and Science Act. Having won the contest to serve as President Trump’s Secretary of State following a lengthy career as an influential U.S. Senator, Rubio is a leading light of the National Conservative movement.⁸⁹ His advocacy for industrial policy is stronger than nearly anyone in the Republican party and yet he voted against the CHIPS and Science Act in 2022.
 

Rubio’s stated reasons for voting against the bill were that it lacked strong guardrails to prevent U.S. technology innovations from being stolen by China and that the science component of the bill would provide funding to “woke” universities undeserving of taxpayer funding.⁹⁰ Rubio’s explanation of his vote provides a ready-made blueprint for President Trump: find a reason to distinguish and denigrate the CHIPS and Science Act in particular while preserving the right to champion technology manufacturing subsidies programs drawn up by Republicans.
 

Finally, having a purse of funds with which he can award favored constituencies will hold obvious appeal to Trump, especially as his early policy initiatives—especially the promised imposition of tariffs—will invite retaliation from trading partners that will be targeted to cause him and his fellow Republicans political pain.⁹¹
 

The imposition of tariffs is almost certain to encourage affected nations to institute retaliatory tariffs that target politically sensitive constituents.⁹² Trump himself acknowledged this reality in his March 2025 address to Congress, observing that as a result of his tariffs, “there will be a little disturbance, but we are OK with that.” In this scenario, introducing some carrots into the mix that encourage industry to build factories and hire workers in these regions will be a difficult course to resist, particularly if Trump can do so with bipartisan support. Trump’s willingness to tap the Department of Agriculture’s Market Facilitation Program to provide $12 billion in subsidies for farmers harmed by China’s retaliatory tariffs imposed during the early days of the U.S.-China trade war offers an instructive example of his interest in using domestic subsidies to aid favored groups.⁹³ Congressional Democrats may balk at such blatant political favoritism, as they did during his first term, but standing in the way of subsidies for swing state voters who have been harmed by retaliatory tariffs is a difficult and possibly unsustainable position for any elected official.

 

Possible Barriers to Future Manufacturing Subsidies

A.    Political Leadership

If he wants to advance technological manufacturing subsidies during his term, President Trump—rather than congressional Republican leaders—will have to drive the legislative process. Trump’s control over the party assures that his priorities dominate the Republican agenda, and if Trump makes industrial policy a key component of his program, congressional Republicans—led by Speaker Mike Johnson and Senate Majority Leader John Thune—are likely to follow suit. By the same token, without Trump’s direction, Johnson and Thune are unlikely to pursue this issue on their own.⁹⁴ Both leaders, particularly on economic issues, are more closely aligned with traditional Republican free-market doctrine and tend to view industrial subsidies skeptically.⁹⁵
 

The course of the budget reconciliation process will also significantly impact the political will to enact addi- tional manufacturing subsidies in future years. With major individual income tax components of the 2017 Tax Cuts and Jobs Act scheduled to expire, at least one reconciliation bill is expected to focus squarely on tax policy, which will focus attention on industrial policy proposals that can be advanced through tax incentives. One potential flashpoint is the campaign to extend the CHIPS and Science Act’s 25 percent Investment Tax Credit for semiconductor manufacturing facilities tax credit.⁹⁶ Trump has also called for a revival of the domestic manufacturing tax credit, which would apply to all domestic manufacturing, not just manufacturing in strategically important industries.

Semiconductor manufacturers and their trade associations have already begun making the case for the renewal of the CHIPS Investment Tax Credit, which focuses on the generous subsidies provided by East Asian nations and the need for U.S. industrial policy to support the reshoring of chip manufacturing facilities to be more than a one-off experiment if it is to have a lasting impact. It remains to be seen whether these arguments will succeed absent support from President Trump. Depending on how congressional Republicans choose to assess the budgetary impact of each reconciliation bill, they may or may not be willing to swallow the budgetary cost of these programs in lieu of enacting further cuts to individual and corporate income taxes, which has long been the primary policy objective for many Members.⁹⁷

B.    Focus and Prioritization

One additional consideration is that in order to gain bipartisan support for manufacturing subsidies, Trump has to approach the issue in a bipartisan manner and drive the process from start to finish. This may be harder than it sounds. During his first term in office, there was broad bipartisan support for a comprehensive infrastructure bill but Democrats have argued that the Trump White House was unable to marshal the discipline and goodwill necessary to seriously engage with both parties on the Hill. The result was a repeated proclamation of “infrastructure week,” which former Speaker of the House Nancy Pelosi once described as “little more than a Trojan horse.”⁹⁸
 

The disciplined nature of Trump’s 2024 presidential campaign, managed by veteran operatives Susie Wiles and Chris LaCivita, has led many observers to anticipate a more structured, professional White House for Trump’s second term, which will have the experienced staff and think tank partnerships necessary to draft and implement a bold legislative agenda.⁹⁹ Be that as it may, Trump retains his penchant for unpredictability and it remains to be seen whether he will wish to spend his time in office pushing through legislation that may require tedious drafting and negotiations with a range of Members and committee leaders.

Bipartisan Outreach

If President Trump seeks to advance manufacturing subsidies during his last two years in office, and if Democrats retake the House during that period, Trump’s willingness to negotiate in good faith may also be a cause for concern with congressional Democrats. For all the reasons stated earlier, we assess that congressional Democrats will be willing to provide votes for a fresh manufacturing subsidies policy, but only if they feel like they have a seat at the table in formulating the policy and helping it advance.¹⁰⁰

In recent years, support for targeted industrial policy has become the consensus position among nearly all Democratic thought leaders, even those who championed free markets during the Clinton Administration.¹⁰¹ Robert Rubin’s recent endorsement of targeted industrial policy matches a larger trend in center-left economic thought, which has recently become more comfortable with efforts to leverage state capacity to promote strategically important industries. This convergence suggests that congressional Democrats will support manufacturing initiatives under a second Trump administration as long as the proposals remain focused on core strategic objectives such as supply chain resilience and domestic industrial capacity.¹⁰² By the same token, should President Trump include partisan provisions in any such proposal (such as right-wing labor or environmental law provisions that are anathema to most Democrats in Congress), they will likely find a way to avoid cooperating. Trump can accrue the political benefits that come to a President who shepherds a widely popular bipartisan proposal through Congress, but only if Democrats perceive him as engaging in good faith.

C.    Economic Headwinds

The final set of considerations involve macroeconomic factors, especially inflation. When the CHIPS and Science Act was enacted, the nation was still in the grip of the COVID-19 pandemic and inflation was not yet a cause for concern. That era is over, and Trump owes his election win in large part to voters’ dissatisfaction with the rise in consumer prices that occurred during President Biden’s time in office. Ordinarily, this would be a major reason to expect a comprehensive subsidies policy to sit on the shelf, since—with rare exceptions—subsidies are inflationary on balance.
 

In light of Trump’s fondness for tariffs, the customary analysis may not apply. Tariffs both restrict the volume of imports and add to the prices charged to users of imported goods, and are thus are typically more inflationary than subsidies—especially subsidies intended to increase long-term supply. If Trump continues pursuing his tariff agenda, then the inflationary effect of targeted manufacturing subsidies will likely pale in comparison to any inflation engendered by his tariff project. But he has paid close attention to market and economic indicators during both his time in office and his most recent campaign, and he may find a reason to back away from both his tariff agenda and domestic industrial policy if inflation returns and the public sours on policy measures that exacerbate inflation.

D.    Fiscal Considerations

The impact of budget deficits and the ever-increasing national debt may also be considerations in the debate over industrial policy. As stated above in the reconciliation discussion, many congressional Republicans remain opposed to deficit spending, especially deficits that are driven by anything other than tax cuts. These Members will create headaches for Speaker Johnson throughout the reconciliation process because Republicans’ margin in the House is so thin that any handful of Members can band together to withhold their votes and block legislation they do not support.
 

For bipartisan bills, the situation is different. Even if this group of Republican Members withholds support from a subsidy package in protest of the budgetary cost—and subsidies cost money by definition—Democrats who support any such package for all the reasons stated above can replace their votes to reach a simple majority necessary for passage. While President Trump has voiced a desire to balance the federal budget and reduce debt, we assess that it is unlikely he would refrain from advancing a subsidies package solely because of concerns over its budgetary impact.¹⁰³

Conclusion
 

The U.S. industrial policy landscape, particularly in strategic technology industries, has undergone a remarkable shift since 2016. A revolt against free-market orthodoxy has transformed into a sophisticated policy framework endorsed by new conservative institutions and a wide-ranging coalition of voters. While the future of manufacturing subsidies remains unclear on account of President Trump’s recent criticism of the CHIPS and Science Act, we believe the political and economic forces that gave rise to the passage of the law are still very much in place and will likely impel Trump to embrace his own version of manufacturing subsidies during the last two years of his second term.
 

There are several reasons for this conclusion, but two dynamics—political and geopolitical—stand above the rest. First, the widespread political support for manufacturing subsidies among broad swathes of the electorate overlap seamlessly with Trump’s core campaign promises and electoral coalition. His base of working-class voters in manufacturing areas strongly supports industrial policy, while venture capitalists in the new Republican donor class recognize the strategic importance of preserving U.S. manufacturing capabilities in advanced industries. Second, the geopolitical environment that gave rise to the CHIPS and Science Act remains largely unchanged: other countries, particularly in East Asia, continue to generously subsidize advanced manufacturing, which kneecaps the prospects of private manufacturers based in any nation— including the United States—that fails to do the same.
 

The road ahead is not without its challenges. Republican leaders in Congress remain skeptical of industrial policy, and President Trump’s first two years in office may be overtaken by partisan imperatives, particularly tax reform. The newly salient political risk of inflation could also restrict policy options, though this particular problem could be overwhelmed by President Trump’s expansive tariff agenda. Yet given Trump’s dominance of the Republican Party and the widespread popularity of manufacturing subsidies among voters in both parties, these challenges appear surmountable.
 

Ultimately, we expect President Trump to distinguish his manufacturing subsidy program from that of his predecessor while preserving the overarching shift toward a long-term embrace of advanced manufacturing subsidies. While there are reasons this policy outcome may not come to pass, a clear combination of political incentives and geopolitical dynamics continue to set conditions that would make these policies viable and politically desirable. Just as President Trump’s disruptive first term created the space for a new coalition to form in support of industrial policy, his second term may well cement a long-term embrace of industrial policy and manufacturing subsidies in particular.

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Statements and views expressed in this commentary are solely those of the authors and do not imply endorsement by Harvard University, the Harvard Kennedy School, or the Belfer Center for Science and International Affairs.