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1 1 (May 23, 2022)

handle is hein.crs/govefur0001 and id is 1 raw text is: Congressional Research Service Inforrming the legislative debate since 1914 May 23, 2022 Industrial Policy and International Trade Supply-chain vulnerabilities revealed by the COVID-19 pandemic have intensified debate in Congress about the proper role of the government in the U.S. economy. The debate also reflects growing concerns about how some foreign governments use state support and guidance to boost their industries, thereby potentially causing the United States and others to lose global market share and competitiveness. China's statist model of economic development, for example, relies on a comprehensive industrial policy that nurtures a wide range of strategic and emerging industries through government measures, including subsidies and protection against import competition. The scope and scale of these market-distorting practices can create an uneven playing field for U.S. firms. Concerns also exist about the extent to which the United States lacks production capacity in certain industries and relies on imports considered essential to public health and national security. Recent legislative activity has focused on providing a greater government role and more coordinated approach to U.S. industrial development (see textbox). Some stakeholders criticize these measures as a departure from the more market-led approach to the industrial sector that the U.S. government adopted in the 1990s and generally applied over the past few decades. Such a departure, they argue, could trigger a spiral of industrial subsidies and increased protectionist measures by other countries, potentially adversely affecting global economic growth and the rules-based trading system. Select Efforts to Support U.S. Industries Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (Title XCIX, P.L. 1 16-283). It establishes investment and incentive schemes to support U.S. semiconductor manufacturing, R&D, and supply chain security. Infrastructure Investment and Jobs Act (P.L. 117-58). Among other matters, it establishes requirements and incentives to support R&D and energy infrastructure and cybersecurity, and ensure a supply chain for critical minerals and battery materials. United States Innovation and Competition Act of2021 (S. 1260) and the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act of 2022 (H.R. 4521). As part of a wider set of China-focused measures, they would provide funding to support U.S. semiconductor manufacturing, R&D, and supply chain security. Office of Manufacturing and Industrial Innovation Policy Act of 2021 (S. 997/H.R. 2279). It would call for the establishment of a national strategic plan for manufacturing and industrial innovation and promote government and manufacturing sector collaboration. What is Industrial Policy? While there is no formal definition, industrial policy commonly refers to a comprehensive, deliberate, and more or less consistent set of government policies designed to change or maintain a particular pattern of production and trade within an economy. It generally involves policies designed to promote emerging industries or prop up declining ones, as well as the channeling of resources into specific sectors and activities considered important for economic growth. A variety of instruments can be used to implement an industrial policy, including: subsidies; tariffs and other trade restrictions; rules; regulations; technical standards; tax incentives; government procurement regimes; and preferential access to credit. In addition to aiming to accelerate economic growth, industrial policies can be designed to safeguard national security, create employment opportunities in specific industries or regions, achieve environmental and social sustainability, or improve the competitiveness and export performance of domestic firms. The impact and effectiveness of such policies in achieving these goals is subject to debate. Some analysts maintain that industrial policy need not be executed through an explicit strategy. In the United States, some experts consider various economic policies and programs that have the effect of favoring one industry or type of firm over another to constitute an ad hoc and de facto industrial policy. As such, U.S. industrial policy has consisted primarily of interventions that are not made on the basis of any comprehensive or systematic set of guidelines delineating the kind of production and trade that should be fostered. Instead, they are implemented through generalized or cross-industry policies (e.g., corporate tax rate reductions) and industry or firm-specific policies (e.g., tariffs and support/subsidies for EV battery production). Economic Debate Over Industrial Policy Arguments for industrial policies come in several forms, but most are not compelling on economic grounds alone. With some exceptions, economists generally argue that policies aimed at influencing the composition and level of output and trade can create market distortions and impose costs on the economy as a whole that exceed any potential benefits. This is especially the case if policies are not carefully designed and the industrial program is captured to further private rather than national interests. In addition to direct government expenditures (e.g., through grants, loans, industry specific tax credits), industrial policy may also impose costs related to inefficient resource allocation, implementation, higher prices, and foreign retaliation. In a market economy, there is a strong presumption that competitive forces channel resources into their most productive uses. However, markets sometimes fail to do so. When this happens, government intervention to correct market failures may be appropriate. A proper role for industrial policy, some experts argue, is to identify those failures and provide appropriate government support (e.g., subsidies). Yet, beyond R&D and the diffusion of information on results and innovations, there is skepticism among economists about the government's ability to identify legitimate candidates for support. Experience with industrial policy in Japan, South Korea, Brazil, and other

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