The New Industrial Game: How China’s Playbook is Reshaping Global Commerce and the Future of Work
Solar power is now cheaper than coal in many markets, and that shift isn’t happening because of altruism – it’s the result of two decades of deliberate, strategic industrial policy in China. This isn’t just about renewable energy; it’s a signal that the old rules of global trade are being rewritten, and the U.S. and China are poised to define the new ones. As traditional institutions like the IMF and WTO lose influence, a new era of economic competition – and potential cooperation – is dawning, one where government intervention is not the exception, but the norm.
Beyond Free Markets: The Rise of ‘Developmentalism’
For decades, the prevailing wisdom championed free markets and minimal government interference. But economist Dani Rodrik argues that this approach is no longer sufficient, or even realistic. He points to China’s success in rapidly scaling up green technologies – electric vehicles, solar panels, and battery storage – as a prime example of what he calls “developmentalism.” This isn’t about rigid central planning, but a flexible, experimental approach where the state sets broad objectives and then allows businesses to innovate within those parameters.
China’s strategy involved a potent mix of tools: venture capital for startups, targeted subsidies, infrastructure development, specialized training programs, and preferential access to crucial raw materials. Crucially, it wasn’t a top-down mandate. Instead, the government monitored results, iterated on policies, and revised strategies based on what worked. This adaptability is a key hallmark of the Chinese model, and one that other nations are beginning to emulate.
The Biden Administration and the Return of Industrial Policy
The Biden Administration’s efforts to promote green energy through subsidies, tax credits, and research funding represent a similar shift in thinking. While these policies have faced political headwinds – particularly with attempts to dismantle them – Rodrik believes they are a step in the right direction. However, he cautions against focusing solely on manufacturing, which accounts for a relatively small percentage of the U.S. workforce.
The Services Sector: The Real Battleground for Jobs
The vast majority of American workers – over 80% – are employed in the services sector. Boosting wages and productivity in this sector is, according to Rodrik, the key to a thriving economy. This is a far more complex challenge than reshoring manufacturing, but one that cannot be ignored. The disparity between high-earning service jobs, like nurse practitioners (median salary $126,000), and low-wage positions in retail and care work highlights the urgency of the situation.
An ARPA-W: Reimagining Technological Progress
To address the challenges in the services sector, Rodrik proposes a bold solution: the creation of an “ARPA-W” – a workers-focused equivalent of DARPA, the Pentagon agency responsible for funding groundbreaking technologies like the internet and mRNA vaccines. While DARPA focuses on military applications, ARPA-W would prioritize “labor-friendly technologies,” including those powered by artificial intelligence.
This isn’t about fearing AI, but about redirecting its development. Echoing the work of MIT economists David Autor, Daron Acemoglu, and Simon Johnson, Rodrik argues that technological progress should be focused on augmenting human capabilities, not simply replacing workers. The goal is to create technologies that allow workers to do more, earn more, and have more fulfilling jobs. Brookings Institute research supports the idea that technology can be a force for equity, but requires intentional design and policy.
The Future of Global Commerce: A Two-Speed World?
With the decline of multilateral institutions, the U.S. and China are increasingly setting the terms of global trade. China’s proactive industrial policy, particularly in green technologies, is giving it a significant advantage. The U.S. needs to adopt a more strategic approach, embracing targeted interventions and investing in the future of work. This includes not only supporting green industries but also focusing on improving the quality and productivity of jobs in the dominant services sector.
The coming years will likely see a continuation of this trend towards greater government intervention and a more fragmented global economic order. The nations that can successfully navigate this new landscape – by embracing experimentation, fostering innovation, and prioritizing the needs of their workers – will be the ones that thrive. What role will targeted tariffs play in this new world order, and can they be deployed effectively without triggering damaging trade wars? That remains to be seen.
What are your predictions for the future of industrial policy and its impact on the global economy? Share your thoughts in the comments below!
