China's Industrial Policy: Benefits and Challenges

As China surges past the combined manufacturing might of Western democracies, economists Scott Sumner and Noah Smith square off on America's industrial future. While agreeing on economic fundamentals, they clash over the gravity of China's rise - Sumner advocating measured engagement while Smith warns of an unprecedented shift in global power requiring bold policy action.

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HIGHLIGHTS:

Core Agreement Areas:

• Both are skeptical of partisan justifications for industrial policy (Democrats' "good jobs" focus and Republicans' "America First" stance)
• Both agree liberalization, not industrial policy, drove China's rapid growth

Climate Change & Green Tech:

• Sumner argues Biden's green subsidies were undermined by trade barriers against Chinese EVs/solar
• Smith counters that China's industrial policy in green tech has actually helped global climate goals by scaling production and reducing costs

Central Point of Disagreement - China Threat:

• Sumner sees Russia as the bigger immediate threat and warns against needlessly antagonizing China
• Smith argues we've entered a new era where China's manufacturing dominance (especially in military-relevant technologies like drones and batteries) fundamentally threatens democratic nations

Biden vs Trump Policy Results:

• Both criticize Trump's tariffs as ineffective
• Smith points to success of Biden's CHIPS Act and IRA in boosting domestic manufacturing of critical technologies
• Sumner suggests many industrial policies are based on misconceptions about macroeconomics

Manufacturing Strategy:

• Sumner advocates addressing trade deficits through fiscal policy and savings rates
• Smith emphasizes the need to maintain manufacturing parity in specific dual-use technologies
• They differ on whether total manufacturing capacity or specific industrial capabilities matter more for national security