Across the American economic dashboard, warning indicators are flashing red. The globalization and financialization of the past several decades have slowed investment, innovation, and growth. Industrial output and productivity have declined, and the United States has lost its leadership position in vital technologies—including in aerospace, energy, and semiconductors. Yes, U.S. corporate profits, stock prices, and consumption have all surged. But crises—including the opioid addiction in the American heartland, the war in Europe, and a worldwide pandemic—have each in their own way exposed the decaying foundations of American security and prosperity.
Both U.S. President-elect Donald Trump’s personal brand and his political coalition make him uniquely suited to tackle these challenges. Early in his 2024 campaign, the brash builder not only proposed unleashing domestic energy production but also promised to construct ten new “freedom cities” on federal land to “reopen the frontier” and “reignite American imagination.” In September, he declared his intention to “once again turn America into the manufacturing superpower of the world.” He proposed “extraordinary national development projects,” “state-of-the-art manufacturing hubs,” and “advanced defense capabilities.”
There is reason to think the president-elect could succeed. Trump’s ambition to build marks a rare point of agreement among the diverse factions that compose the Republican Party under his leadership. His multiethnic, working-class base takes particular interest in the prospects for a resurgence in manufacturing to create good blue-collar jobs, revitalize communities, and eliminate reliance on foreign producers. The Silicon Valley technologists salivate at the prospect of slashing red tape and maximizing rewards for productive enterprise. The “America first” economic nationalists are eager to develop natural resources to the fullest and restore the U.S. defense-industrial base.
But creating a new “golden age” in America, as Trump desires, will require a broad program of reindustrialization—and an understanding of government’s role in making it happen. Advisers eager to promote domestic investment will need to win out over those who care only about slashing taxes and spending. Republicans in Congress will need to grasp that a strong military cannot sustain itself without a strong industrial base, which makes industrial policy essential for national security. Trump himself will need to measure success by the creation of good jobs and the rate of productivity growth rather than by the S&P 500. He has the potential to lead a truly transformational administration, but only if he chooses to blaze a trail that diverges from the market fundamentalism of the Republican Party’s legacy establishment.
MADE IN AMERICA
Robust national economic policy has been an American tradition since the country’s founding. “In a community situated like that of the United States, the public purse must supply the deficiency of private resource,” wrote Secretary of the Treasury Alexander Hamilton in his 1791 Report on the Subject of Manufactures. “In what can it be so useful as in prompting and improving the efforts of industry?”
Henry Clay, who served as secretary of state from 1825 to 1829, carried the tradition forward with his “American System” of protective tariffs, a national bank, and infrastructure financing. President Abraham Lincoln, who declared himself “an old-line Henry Clay Whig,” oversaw further tariff increases, the start of the first transcontinental railroad, and the creation of more than 60 land-grant colleges (including the Massachusetts Institute of Technology and Cornell University). “Economic independence helped to preserve the Union in the early years of our republic,” incoming Secretary of State Marco Rubio, then a U.S. senator from Florida, observed in 2021. “Industrial capacity and diversity became the war machine that tipped the scales of World War II,” he continued. Without the modern era’s government funding and programs, there would be no Silicon Valley, no biotechnology revolution, and no Tesla.
In some ways, Trump’s first term represented a return to this tradition. In the three decades before his arrival, Washington embraced a dogmatic neoliberalism that saw economists and politicians ignore or even applaud market integration with China, the hollowing out of U.S. industry, and the explosion of the country’s trade deficit. Trump, by contrast, sought to decouple the American and Chinese economies, boost domestic manufacturing, and leverage energy exports. But his agenda oscillated between economic nationalism and warmed-over Reaganomics. His major legislative achievement was a budget-busting tax cut that failed to spur industrial investment. He appointed an economic team that believed government’s only job was to get out of the way. In Washington, analysts repeatedly joked about an “Infrastructure Week” that never quite happened.
In his second term, it is unclear whether Trump will repeat these mistakes. He has promised more tax cuts. And he has complained about the CHIPS and Science Act, passed with bipartisan support during U.S. President Joe Biden’s administration, which bolstered the semiconductor industry and prompted an unprecedented investment surge in American businesses. But his proposal to cut the corporate tax rate from 21 percent to 15 percent applies only for companies that make their products at home—making it, in effect, a subsidy for American manufacturing. And he has cited Beijing’s role in driving investment and growth as a template, insisting that “China was built on doing exactly what we’re going to be doing.”
In the decades before Trump, Washington embraced a dogmatic neoliberalism.
The president-elect’s allies appear similarly ambivalent. Conservatives are always wary of granting government a substantial role in shaping and supporting private-sector investment. The many pratfalls of Biden’s spending policies have only heightened their suspicion. High-profile projects to deploy electric-vehicle chargers and broadband Internet access, for example, have gone nowhere. The promotion of semiconductor manufacturing has made much better progress, but it faced delays and came burdened with environmental restrictions, diversity targets, and an onsite childcare requirement. The billionaire Elon Musk has called for eliminating all subsidies, and his co-leader in the Department of Government Efficiency, Vivek Ramaswamy, believes that “the root cause of America’s working-class struggle is actually the federal government itself.”
But compared with those of his first term, Trump’s key appointments are all further from the legacy Republican establishment and closer to the American New Right ideology, which is focused on building again. Musk, from his experience with both Tesla and SpaceX, understands better than anyone government’s role in driving investment and innovation. Scott Bessent, Trump’s choice for treasury secretary, noted in July that “U.S. spending on defense and technology has a long history of sparking the private sector rather than crowding it out.” Rubio has been a leader in reorienting the Republican Party’s economic thinking in favor of industrial policy. And if confirmed, former Republican Representative Lori Chavez-DeRemer of Oregon will be the first Republican labor secretary in memory to earn support from unions.
Perhaps the most pronounced shift from the first Trump administration to the second is the vice president. Unlike Mike Pence, JD Vance is a leader of the New Right movement. He has a long track record of focusing on the problems of globalization and the need to reshore manufacturing, one that predates his time in office. And as a senator, he promoted policies that would expand the government’s role in supporting American industry. He could prove an especially effective lieutenant for an effort that must span numerous agencies and partner with Congress.
THE SOURCE OF SECURITY
National security provides the best starting point from which to build the case for a Trump economic agenda and with which to order its priorities. Security, after all, demands not only hard military power but also technological leadership and economic resilience. In principle, it is the one area in which no disagreement exists about the need for an active state role in strengthening the industrial base. In practice, however, there are disputes about the correct role for government, because national security necessarily includes the entire range of technologies and supply chains vital to economic renewal.
For instance, leading-edge artificial intelligence capabilities are a top national security priority. That, in turn, requires leading-edge chip production, the infrastructure to support enormous data centers, and the energy abundance to power them. Next-generation defense technology, including in space, is also an obvious priority. So is basic competence in shipbuilding and thus forging the metals from which ships are made. Unfortunately, when it comes to metals, critical minerals have become a serious vulnerability for the United States—one that China has already begun to exploit. Thankfully, the United States has deposits of nearly all necessary resources. What is needed is the will to extract and process them.
In fact, the full development of the United States’ natural resources is an ideal cornerstone for the new economic strategy. Helpfully, energy policy is one area where conservatives acknowledged the need for policy to promote outcomes beyond what the market might deliver. Beyond critical minerals, a robust natural resources agenda would pursue regulatory reforms to open land use for both resource extraction and construction, speed up review and permitting processes, and encourage cost-benefit analyses to fully account for the social value of housing and infrastructure, industrial capacity, and energy output. Pumping more oil and gas would go a long way toward encouraging investment and lowering prices; so would new factories deploying the latest communications and automation technologies.
Trump cannot rely on protectionism alone.
To see how such reforms would help foster economic development, consider Micron Technology’s planned $100 billion semiconductor fabrication facility in upstate New York. The project was supported by CHIPS. Yet it remains mired in environmental review even after Congress passed a law exempting CHIPS projects from the process because the Army Corps of Engineers determined it sits partly on a wetland. The Trump administration should insist on filling the wetland.
In addition, the administration should push for technology-neutral incentives that benefit all energy production—not just solar and wind. The goal should be to experiment with and scale whatever works. Nuclear power, for example, may stand at the cusp of a renaissance. Geothermal power may be ready to make a debut, thanks to design breakthroughs and the unquenchable demand of data centers. To help capitalize on both sources—as well as all other forms of energy—the United States will need to dramatically upgrade, expand, and harden its grid. Trump should clear the regulatory and financing obstacles that stand in the way of achieving these ends. He should remember that key energy technologies not only give American industry a major advantage but also underpin vital industries in which the United States should pursue global leadership.
Alongside energy, trade policy must play a major role in reindustrialization. A global tariff creates strong incentives to serve the domestic market with domestic manufacturing. Local content requirements can further bolster domestic supply chains and guarantee demand for their output by mandating their use in the production of critical goods.
But Trump cannot rely on protectionism alone. Even without the distortions from abroad, caused when other states attempt to subsidize and strengthen their own producers, Washington would still have an important role to play in supporting American industry. As American Affairs Editor Julius Krein has observed, “Firms are being managed to maximize asset valuations separately from, or even at the expense of, growth, productivity, and other socially beneficial objectives.” Simply put, the activities that generate the highest returns on capital are not the ones that have anything to do with building productive and innovative enterprises. If Trump waits for the free market to deliver the “extraordinary national development projects” he desires, he will be waiting a long time.
The United States will need workers capable of doing the work.
The challenge is best illustrated by the contrast between the results of the nearly $2 trillion tax cuts enacted by Congress in 2017 and the roughly $50 billion allocated by CHIPS to the semiconductor industry in 2022. Using measures chosen by Kevin Hassett, the incoming chair of the National Economic Council, the tax cuts failed to significantly affect business investment in their first two years, before the onset of the COVID-19 pandemic. Economic growth slowed. CHIPS, by contrast, has been a broad success. According to the Peterson Institute for International Economics, the United States was “on track to add more construction for computer and electronics manufacturing in 2024 alone than it did during the 20 years before the CHIPS Act.” The world’s five leading logic and memory manufacturers are all building in the United States. No other country hosts more than two. Taiwan Semiconductor Manufacturing Company has reported that initial yields from its new Arizona plant exceed those from its home country.
Trump should learn from this contrast, pursuing policies that look less like his first-term tax cuts and more like CHIPS. He should, for example, establish direct financing mechanisms that create strong incentives for building in America—for instance, a development bank capable of issuing loan guarantees, making direct loans and equity investments, and providing subsidies to high-value projects in critical sectors. Different federal departments should also make increased use of advance market commitments and offer prizes that reward innovation. At the Department of Defense, procurement reform is especially important. For critical minerals, the government will need to play a role in price stabilization.
Finally, for all these new policies to succeed, the United States will need workers capable of doing the work. The country’s embedded expertise and talent pipelines have atrophied thanks to decades of weak demand for skills, such as making and maintaining machine tools. The education system’s college-for-all model is overproducing underemployed knowledge workers. The Trump administration should shift funding away from traditional higher education and into apprenticeships and on-the-job training, working in partnership with community colleges and labor unions.
BUILD BACK BETTER
The timing for Trump’s return to office is propitious. Congress appears ready to impose restrictions on outbound U.S. investment into China and has bipartisan support for revoking permanent normal trade relations altogether. Rapid progress in, and skyrocketing demand for, artificial intelligence is also creating enormous opportunities for more flexible and advanced manufacturing processes and enormous demand for energy and infrastructure. Many of the projects funded by the hundreds of billions of dollars the Biden administration invested in domestic industry are slated to come online in the next four years.
If he gets started right away, Trump’s policies could take effect just as those investments begin to pay dividends. Directly supporting nascent domestic production will also offset the risk of price increases from tariffs on cheaper imports. If he can manage a clarity of purpose and message, he will usher in a revolution in the American political economy that is greater than the sum of its parts—and equal to the challenges the country faces.
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