A New Course for U.S. Manufacturing Policy
For decades, government support has been a pillar of the evolution of U.S. manufacturing, helping domestic industries to bolster supply chains, grow production capacity and compete in global markets. A recent report from the Department of Commerce’s International Trade Administration, Manufacturing Incentives Overview, examines incentives offered to manufacturers and the policy decisions affecting the sector.
Both the Biden and Trump administrations have sought to increase American manufacturing, but they have taken very different approaches. Biden’s industrial policy was supported by federal investment, grants and tax incentives. For his part, Trump has focused more on tariffs and strategic interventions in particular industries.
The difference raises an important question: has Washington changed the goals of its industrial policy, or is it pursuing the same goals through different instruments?
More returns-oriented sector-specific strategy
“The Trump administration has moved away from the kind of broad-based approach that has traditionally been associated with industrial policy,” said Stephen Ezell, vise president for Global Innovation Policy at the Information Technology and Innovation Foundation.
Rather than rolling out similar incentives across the economy, the current administration is targeting its interventions on specific sectors, including pharmaceuticals, critical minerals, automobiles, semiconductors and aircraft.
As Ezell describes it, the model is an ad hoc, sector-specific form of intervention in which the government takes a more direct role in corporate decisions and financial outcomes.
Several mechanisms show this shift. One is the purchase of equity stakes in firms, as when the U.S. government took a roughly 10% stake in Intel. Another is revenue-sharing agreements, like the one Nvidia has with Washington, which gives the US government a 15% cut of revenue from some chip sales to China. The third instrument is the so-called golden share, which gives the government influence in the companies’ decisions. For example, the deal involving Nippon Steel’s purchase of U.S. Steel gave the government a say in approving the transaction’s critical elements.
The deals are different from the model created under the 2022 CHIPS and Science Act of 2022 implemented by the Biden administration. That legislation provided subsidies, grants and tax credits to support semiconductor production that did not involve the government taking ownership stakes in the companies getting assistance.
Both methods involve government intervention, but the mechanisms are different. One is about financial support to stimulate private investment, the other about direct public participation in ownership, revenue or governance of corporations.
Ezell said the approach of the Trump administration is part of a larger transactional philosophy. And increasingly the question is being asked of the public sector: what can you get out of supporting government?
He says deal-making is the key to understanding the administration’s policy decisions, and the Department of Commerce, Secretary Howard Lutnick and wider administration care more about generating revenue for taxpayers.
This framework applies also to tariffs. The duties imposed on imports, in principle, provide revenue to the government which can be used to assist public finances and other initiatives. But the wider economic impact is dependent on their impact on manufacturers, suppliers and consumers.
Small Business, Contracts and the Importance of Long-Term Demand
The administration’s approach is also shaping how manufacturing support is getting to businesses across the industrial base.
“We’ve focused on smaller companies and smaller contracts,” said Alex Krutz, managing director at Patriot Industrial Partners. Krutz was deputy assistant secretary of manufacturing at the Department of Commerce when he helped produce the Manufacturing Incentives Overview report.
He notes that more funding is flowing to these areas, leading to a higher volume of applications and awards across the manufacturing sector.
For larger manufacturers, however, the most important form of government support might not be direct financial assistance. It also can help to stimulate investment through creating demand, pooling purchasing needs and demonstrating that demand will be sustained over time, Krutz argues.
This consideration is especially important as companies look to bring production back to the United States or to expand their domestic facilities. It can take years to build a factory and put new production capacity on line. Businesses are therefore unlikely to make large capital investments unless they are confident that customers will still be there when the facility begins operating.
Krutz said that a government that stands behind workers and companies and backs the domestic production of strategically important technologies can give manufacturers the predictability they need to make long-term investment decisions.
He also sees a broader philosophical movement toward competitiveness, with a greater focus on reducing imports as well as increasing domestic economic activity.
The goal is to create an environment where U.S. manufacturers can ramp up production and improve their competitiveness as the nation relies less on imported goods, he says.
Whether that balance can be achieved will depend on the effectiveness of policies adopted and their ability to translate political commitments into sustainable industrial growth.
Tariffs Alone May Not Bring Industrial Expansion
Not everyone in the industry thinks this is an improvement.
Paul Lavoie is vise president of corporate partnerships and innovation and executive director of the Elevation Center at the University of New Haven. He served three and a half years as Connecticut’s chief manufacturing officer. His assessment leans more toward the need for direct investment in productive capacity.
For Lavoie, an effective industrial policy should involve what he terms catalyst capital: financial resources that enable companies to acquire machinery, buy equipment, adopt new technologies and fund research needed to grow domestic manufacturing.
He cites the Biden administration’s enactment of the CHIPS and Science Act and its investments in semiconductors as examples of government support to incentivize companies to build capacity and develop advanced production capabilities.
Lavoie, however, does not believe that a tariff-based strategy is an industrial policy per se. His worry is that tariffs pump up the prices for manufacturers but don’t directly pay for the investments needed to increase output.
He also wonders if the tax breaks under the Trump administration’s approach will ensure businesses will invest the savings into new equipment, technology or research.
Tax relief can enhance profitability for corporations, but it is the corporation’s choice to determine how that tax relief will be utilized. Businesses may invest in production and innovation, but they also may use the proceeds for other purposes, including increasing shareholder returns.
That’s an important distinction for Lavoie. Making corporate profits grow doesn’t automatically mean a stronger domestic manufacturing base.
His critique points to a key challenge for policymakers seeking to reshape industrial supply chains. Incentives can bring financial upside for companies, but not necessarily the long-term investments governments are trying to encourage.
Measuring the Impact is Still Hard
Even those who see potential benefits in the approach of the Trump administration have a hard time assessing the administration’s overall impact on manufacturing in the U.S.
Other government actions are intended to help domestic producers, but Ezell admits tariffs have raised costs for industries reliant on global supply chains.
It is difficult to measure the results with a single national measure since there are measures that support some manufacturers and at the same time increase costs for others.
Instead, Ezell argues, the effects of the administration’s manufacturing policies need to be measured at the level of specific sectors and products. The impact will be very different depending on the company’s position in the supply chain, how much it relies on imported materials and the government support it can tap into.
With the sector-by-sector view, it’s hard to say definitively whether the overall strategy is making American industry stronger. Some businesses might benefit from more targeted support or a larger market for goods produced in the domestic economy, while others might face higher input costs and more uncertainty when planning investments.
A Fragmented Approach to Industrial Competitiveness
The battle over manufacturing incentives is part of a broader change in how Washington tries to influence industrial development. The common objective of boosting domestic production is still there, but the means of doing so have become more varied.
The Biden administration relied more on grants, subsidies and tax credits to spur private investment. Under Trump, the focus has moved to tariffs, targeted sectoral interventions, and arrangements that allow the government to get more directly involved in corporate financial or strategic decisions.
Supporters say it can reinforce domestic production, encourage investment and improve competitiveness. Critics say tariffs could raise operating costs and tax breaks or higher corporate profits don’t necessarily lead to investment in productive capacity.
In the end, the effectiveness of the current approach will be judged by the outcomes it produces for particular sectors. Washington’s industrial policy is no longer a single, monolithic manufacturing policy. It’s increasingly becoming a series of specific measures that must be judged on their own merits.
The core challenge remains the same: how to translate government policy into ongoing investment, more resilient domestic supply chains, and a manufacturing base that can compete on the world stage.
