Navigating Industrial Policy Amidst China's Economic Challenges

The Biden administration has undertaken an aggressive effort to revitalize domestic manufacturing, particularly in areas like semiconductors and green technology. The reasons are manifold. The pandemic exposed frailties in the supply chain. Climate concerns have accelerated the urgency around the energy transition. And anxiety about growing Chinese dominance in key areas (such as batteries) has heightened geopolitical concerns. So now, day after day, we see spates of announcements of new factories being opened up in these areas. But what are the risks and dangers to this approach? On this episode of the podcast, recorded at the Jackson Hole Economic Symposium, we speak with Adam Posen, a former member of the Bank of England's Monetary Policy Committee who now serves as president of the Peterson Institute for International Economics. He warns that the basic logic for this domestic industrial policy is misguided and based on a faulty understanding of domestic economic dynamics. He also says that we're taking a wrong and dangerous approach to dealing with perceived competitive threats from China.

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