The New American Industrial Policy: Who Gets the Checks—and Who Gets the Bill

The United States has embarked on its most significant and ambitious experiment with industrial policy since the Cold War, representing a fundamental paradigm shift away from the free-market orthodoxy that has defined American economic strategy for decades.

This new approach, underpinned by a rare bipartisan consensus, is driven by the convergence of four powerful forces: the strategic imperative to counter China’s technological and economic rise, the need to secure vulnerable global supply chains, the global push toward decarbonization, and a domestic desire to reindustrialize and address regional economic inequality.

This report provides a comprehensive analysis of this new American industrial policy, examining its legislative architecture, its intended beneficiaries, its substantial costs and risks, and its central role in modern geopolitical competition.

Part I: The Architecture of a New Economic Era

The current moment in American economic policy represents a decisive and historic break from the “Washington Consensus,” the paradigm of privatization, deregulation, and free trade that dominated strategic thinking from the 1980s onward.

This shift is not the product of a single event but rather the culmination of converging pressures that have reshaped the global landscape.

The primary drivers include the rise of China as a formidable strategic competitor employing nonmarket economic tools; the acute supply chain vulnerabilities exposed by the COVID-19 pandemic; the escalating urgency of the climate crisis; and mounting domestic concerns over deindustrialization and widening regional inequality.

Rebuilding the Foundation: The Infrastructure Investment and Jobs Act (IIJA)

The Infrastructure Investment and Jobs Act (IIJA), signed into law in November 2021, serves as the physical foundation for America’s industrial renewal. While its headline figure is $1.2 trillion, its core is a $550 billion injection of new federal spending over five years, designed not merely to repair but to modernize the nation’s economic backbone.

This legislation provides the essential physical platforms—the roads, bridges, ports, power grids, and digital networks—upon which the industries targeted by the IRA and CHIPS Act will be built.

Fueling the Green Transition: The Inflation Reduction Act (IRA)

The Inflation Reduction Act (IRA) of 2022 is the most significant piece of climate legislation in U.S. history and the primary engine of the new industrial policy’s clean energy ambitions. Its central strategy is to use powerful financial incentives to “pull” massive private investment into decarbonization and domestic manufacturing, rather than “pushing” the transition through stringent regulations. The law aims to reduce U.S. carbon emissions by an estimated 40 percent by 2030.

The IRA’s power lies in its sophisticated and interlocking web of tax credits, grants, and loans:

• The Core Tax Credits (ITC and PTC): The law extends and enhances the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), providing a baseline 30% credit for investment costs (ITC) or a $0.0275/kWh credit for clean energy produced (PTC).
• Strategic “Bonus” Credits: The IRA creates powerful incentives to align private investment with public policy goals through “bonus” credit adders. These include a 10% bonus for using U.S.-manufactured domestic content, a 10% bonus for siting projects in “energy communities” historically reliant on fossil fuels, and bonuses of 10-20% for projects that benefit low-income communities.
• Expanding Access to Capital: Perhaps the law’s most revolutionary feature is the introduction of “direct pay” (also known as elective pay) and “transferability.” Direct pay allows non-taxable entities like municipal governments, rural electric cooperatives, and tribal governments to receive the cash value of the tax credits directly from the IRS.
• Targeted Sectoral Support: Beyond broad renewable energy, the IRA provides specific tax credits to nurture nascent industries critical to decarbonization, including credits for clean hydrogen production ($45V$), carbon capture and sequestration ($45Q$), sustainable aviation fuel ($45Z$), and advanced clean energy manufacturing ($48C$).

Securing the Technological Frontier: The CHIPS and Science Act

If the IIJA provides the physical backbone and the IRA provides the clean energy, the CHIPS and Science Act of 2022 provides the “brains” of the new industrial economy. The act is a direct response to the escalating technological competition with China and the strategic vulnerabilities revealed by the global semiconductor shortage. Its primary goal is to reverse the decades-long decline in U.S. domestic chip manufacturing and re-establish American leadership in this foundational technology.

The act employs a multi-pronged approach of direct subsidies, tax incentives, and R&D funding:

• Manufacturing Incentives: The law allocates $39 billion for direct subsidies, grants, and loan guarantees to incentivize companies to build, expand, or modernize semiconductor fabrication plants (“fabs”) on U.S. soil.¹⁶
• Advanced Manufacturing Investment Credit: A 25% investment tax credit is provided for the cost of semiconductor manufacturing equipment and facility construction, creating a powerful financial incentive for capital investment.¹⁶
• Research and Workforce Development: The act directs $13 billion toward semiconductor-specific research and workforce training programs. It also authorizes a massive $200 billion increase in funding over five years for broader scientific research through agencies like the National Science Foundation (NSF) and the Department of Energy.

The Department of Commerce is tasked with administering the manufacturing funds, with the power to award them based on a company’s commitments to sustained R&D, robust facility construction plans, and comprehensive worker training programs.

Part II: Who Gets the Checks? Mapping the Flow of Capital and Opportunity

The trillions of dollars in public and private capital mobilized by the new industrial policy are not being distributed abstractly; they are flowing to specific sectors, corporations, and communities, actively reshaping the American economic map. Tracing this flow of capital reveals the direct and indirect beneficiaries of this national strategy, from multinational corporations building new factories to the local economies hoping for a renaissance.

Sectoral Windfalls: The Targeted Industries

The primary recipients of this policy are a collection of strategic industries deemed critical for 21st-century economic competitiveness and national security.

• Semiconductors: This sector is the most direct beneficiary, with the CHIPS Act sparking a wave of over 130 announced projects across 28 states, totaling more than $600 billion in private investments since 2020.
• Clean Energy and Electric Vehicles: The IRA’s powerful tax incentives have ignited an investment boom in the clean energy supply chain. This includes massive new factories for EV battery manufacturing, solar panel and wind turbine component production, and EV assembly.
• Traditional Infrastructure: The IIJA has created a windfall for established industries. Construction and engineering firms are benefiting from the $110 billion allocated for roads and bridges, while manufacturers of essential materials like cement, steel, and aggregates are seeing a surge in demand.
• Emerging Technologies: Federal funding is actively creating new markets and industries from the ground up.

Corporate Champions: An Audit of Early Recipients and Private Sector Commitments

While many benefits are distributed broadly through tax credits, the most significant direct funding has been awarded to a handful of corporate champions in the semiconductor industry.

• CHIPS Act Awards: The Department of Commerce has announced several multi-billion-dollar direct funding agreements. These include up to $6.4 billion for Samsung to expand its Texas facilities, up to $6.1 billion for Micron to support its vision for massive new fabs in New York and Idaho.
• IRA-Spurred Investments: Although the IRA’s benefits are primarily delivered through tax credits rather than direct grants to large corporations, numerous companies have explicitly cited the law as the catalyst for major U.S. investments.
• IIJA Project Highlights: The impact of the IIJA is most visible in specific, tangible infrastructure projects receiving competitive grants. These include a $104 million grant for the I-375 Community Reconnection project in Detroit.

The New Geography of American Industry: Investment Hotspots and Regional Transformation

A defining feature of this industrial policy is its distinct geographical footprint. The flow of capital is creating new economic centers of gravity, often in regions that were bypassed during the tech boom of recent decades. This reflects a deliberate strategy of place-based economic development.

• Top Beneficiary States: While funding has reached every state, a handful have emerged as the biggest winners. The top ten states by total announced funding include economic powerhouses like California ($45.1 billion), Texas ($33.2 billion), and New York ($24.1 billion), alongside politically crucial swing states such as Arizona ($15.4 billion), Pennsylvania ($16.7 billion), and Michigan ($12.4 billion).
• Emerging Investment Clusters: The investments are not scattered randomly but are coalescing into regional hubs of industrial activity. A “Battery Belt” is forming across the Southeast, with major EV and battery plants in Georgia, the Carolinas, and Tennessee.
• A Focus on Distressed Communities: In a significant departure from past economic trends where innovation-driven growth concentrated in a few “superstar” cities, this new wave of investment is disproportionately flowing to economically distressed counties.

Table 1: Geographic Distribution of Announced Investments and Job Creation

Note: Investment and job figures are based on publicly announced projects and may evolve. Data compiled from sources.

Part III: Who Gets the Bill? Assessing the Costs, Risks, and Consequences

While the promise of the new industrial policy is a revitalized, secure, and sustainable American economy, the endeavor comes with monumental costs and significant economic risks. A comprehensive accounting of “who gets the bill” requires looking beyond the immediate appropriations to the long-term fiscal liabilities, the potential for market distortion, and the cautionary lessons of history. This critical analysis reveals the profound trade-offs at the heart of this national strategy.

The Fiscal Reckoning: Uncapped Subsidies and Long-Term Taxpayer Liability

The most immediate and tangible cost of the new industrial policy is its impact on the federal budget, which is proving to be far greater than initially projected.

• Vastly Underestimated Costs: When the IRA was passed, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimated its energy and climate provisions would cost roughly $370 billion over ten years. However, subsequent analyses by independent organizations have produced dramatically higher figures.
• The Uncapped Liability Problem: The primary reason for this massive discrepancy is that the IRA’s most powerful incentives—the clean energy tax credits (PTC/ITC) and the advanced manufacturing production credit (45X)—are uncapped.
• Costs Beyond the 10-Year Window: The fiscal exposure extends far beyond the traditional budget window. Projections to 2050 estimate the total cost of the IRA’s energy subsidies will be between $2.04 trillion and $4.67 trillion.
• Broader Deficit Impact: These costs are additive to the impacts of the other legislative pillars. The CHIPS Act alone is projected to increase federal deficits by approximately $80 billion.

Economic Distortions: The Perils of Picking Winners and Crowding Out the Rest

Beyond the direct fiscal costs, the new industrial policy raises fundamental questions about economic efficiency and the role of government in the market. Critics draw on a deep well of economic theory and evidence to argue that such interventions, however well-intentioned, are fraught with peril.

• The Knowledge Problem and Political Capture: A central critique, rooted in the work of economist F.A. Hayek, is that government planners lack the detailed, dispersed knowledge required to allocate resources more efficiently than the market.
• Crowding Out and Resource Misallocation: By directing vast sums of capital and skilled labor toward targeted sectors like semiconductors and clean energy, the policy risks “crowding out” investment and talent from other, non-targeted sectors that might be more productive or innovative if left to market forces.
• The Unseen Costs of Protectionism: Industrial policy is often accompanied by protectionist measures, such as tariffs and “Buy America” provisions, which carry significant hidden costs.

There is a fundamental tension at the heart of this policy suite, particularly with the naming of its flagship climate law. The “Inflation Reduction Act” is a key component of a multi-trillion-dollar public and private investment boom that is, by its very nature, likely to be inflationary in the short-to-medium term. The surge in demand for construction, specialized labor, and manufacturing inputs has already led to a massive spike in factory construction spending.

The Specter of History: Lessons from America’s Industrial Policy Past

The current enthusiasm for industrial policy is not without historical precedent in the United States. Examining these past efforts provides a valuable, and often cautionary, perspective.

• The Protectionist Era (1866-1939): In the decades following the Civil War, U.S. industrial policy was centered on high protective tariffs, which averaged 40-50% on dutiable goods.
• A New Model for a New Era: The current approach differs significantly from this historical model. Where 19th-century policy used tariffs to protect the domestic market, the new policy uses subsidies, tax credits, and R&D funding to compete for leadership in global high-tech supply chains. The goal is not isolation but technological and commercial supremacy on the world stage.
• A Legacy of Costly Failures: More recent history offers a warning. Retrospective analyses of federal programs from the 1960s and 1970s that aimed to commercialize new technologies found that most were costly failures.

Part IV: The Geopolitical Gambit: Industrial Policy as a Tool of Statecraft

The new American industrial policy cannot be understood solely through the lens of domestic economics; it is, at its core, a central instrument of U.S. foreign policy and national security strategy. The entire legislative framework is designed to function as a comprehensive response to the primary geopolitical challenge of the 21st century: the strategic competition with the People’s Republic of China.

Countering the Dragon: A Direct Challenge to China’s State-Led Model

The explicit and implicit rationale behind the IIJA, IRA, and CHIPS Act is to meet the “China challenge”. For years, U.S. policymakers have watched as China utilized a suite of nonmarket tools—including massive state subsidies, forced technology transfer, intellectual property theft, and the creation of national champions—to gain dominant positions in critical global industries.

The strategy is a decisive shift from a reactive, defensive posture (primarily relying on tariffs and trade complaints) to a proactive, offensive one aimed at rebuilding America’s own industrial and technological capacity. This is most clearly embodied in the “small-yard, high-fence” approach.

A Tale of Two Strategies: Comparing U.S. and Chinese Approaches in Key Sectors

The asymmetric nature of the competition is most evident in the key battleground sectors of semiconductors and clean energy.

• Semiconductors: This is the focal point of the technological competition. The U.S. strategy leverages its current dominance in the most advanced segments of the supply chain. By controlling access to cutting-edge chip designs, EDA software, and advanced manufacturing equipment, the U.S. aims to maintain its technological lead and prevent China from reaching the frontier.
• Clean Energy: The competition here is one of economic models. The U.S. approach, primarily through the IRA, relies on tax incentives and grants to stimulate and steer private sector investment toward building a domestic clean energy supply chain.

Table 2: Comparative Analysis of U.S. and Chinese Semiconductor Industrial Policy

Feature	United States	China
Primary Goal	Maintain technological leadership at the frontier; secure supply chains away from geopolitical rivals.	Achieve technological self-sufficiency; reduce reliance on foreign technology; dominate mature node markets.
Key Policy Tools	Direct subsidies (CHIPS Act); investment tax credits; R&D funding; stringent export controls on “choke point” technologies.	Massive state subsidies; multi-year national plans; creation of a protected domestic market; potential weaponization of rare earth mineral exports.
Target Segments	Leading-edge logic and memory chips; advanced manufacturing equipment; electronic design automation (EDA) software.	Mature node (28nm and above) production; developing domestic alternatives to foreign equipment; high-bandwidth memory (HBM).
Key Strengths	Dominance in chip design and key “choke point” technologies; world-class research universities; strong network of technologically advanced allies (e.g., Netherlands, Japan, Taiwan).	Massive scale and state-directed capital; control over critical mineral processing; a large and protected domestic market that fosters rapid scaling.
Key Vulnerabilities	Heavy reliance on overseas manufacturing (especially in Taiwan); high production costs; potential loss of market share in China for U.S. firms.	Extreme dependence on foreign manufacturing equipment and software; lack of access to cutting-edge technology due to export controls.
Role of Alliances	Central to strategy; coordinating export controls and building resilient, “friend-shored” supply chains with partners.	Primarily focused on domestic development, though seeks to build influence through initiatives like the Belt and Road.

Data compiled from sources.   

While the U.S. strategy of technological denial has inflicted significant short-term disruption on China’s high-tech ambitions, it carries the profound long-term risk of a Pyrrhic victory. The export controls, while effective in the immediate term, have inadvertently provided the ultimate catalyst for Beijing’s decades-long quest for self-sufficiency.  

Part V: The Road Ahead: Forecasts, Debates, and Strategic Recommendations

As the new American industrial policy moves from legislative blueprint to on-the-ground reality, its ultimate success remains a subject of intense debate. The road ahead is shaped by competing economic forecasts, divergent expert opinions, and the profound uncertainty of the political landscape. Navigating this future will require a clear-eyed assessment of the policy’s macroeconomic impact and a strategic approach to maximizing its benefits while mitigating its considerable risks.

Economic Outlook to 2025 and Beyond: Gauging the Macroeconomic Impact

The macroeconomic forecasts for the coming years reflect the complex and often contradictory effects of this massive policy intervention.

• Projections of Growth and Job Creation: Optimistic analyses project a significant positive impact on the U.S. economy. Modeling of the IRA alone suggests it could create an additional 1.5 million jobs by 2030 and increase annual GDP by up to $200 billion.  
• Global Headwinds and Downside Risks: A more cautious outlook is presented by international institutions like the International Monetary Fund (IMF). Their forecasts point to a slowing global economy, with risks from persistent trade tensions, rising protectionism, and stubborn inflation tilted to the downside. 
• The Political X-Factor: The 2025 outlook is further clouded by political uncertainty. A potential change in administration could dramatically alter the course of this policy. The Trump administration, for instance, has been highly critical of the Biden administration’s approach, disparaging semiconductor subsidies as “a horrible, horrible thing” and seeking to terminate green energy programs in favor of a more aggressive tariff-based strategy.   

A Policy in Debate: Expert Perspectives on the Path Forward

The return of industrial policy has reignited a fundamental debate among economists and policy experts about the proper role of the state in the economy. Three broad schools of thought have emerged:

• The Proponents: Think tanks like the Center for a New American Security (CNAS), the Roosevelt Institute, and the Brookings Institution argue that industrial policy is a necessary and overdue response to the failures of the market and the realities of strategic competition.  
• The Critics: From the perspective of organizations like the Cato Institute, the new industrial policy is a fiscally reckless and economically inefficient endeavor doomed to repeat the failures of the past. 
• The Pragmatists: A middle-ground view, articulated by institutions like the Bipartisan Policy Center and the Peterson Institute for International Economics (PIIE), accepts that industrial policy is now a political and strategic reality but emphasizes that its success is contingent on disciplined design and execution. 

Conclusion and Recommendations: Maximizing Gains, Mitigating Risks

The new American industrial policy represents a monumental strategic pivot. It is a wager that targeted government intervention can build a more secure, competitive, and sustainable economy capable of meeting the challenges of the 21st century.

The potential rewards are immense, but the fiscal, economic, and geopolitical risks are equally profound. The central task for policymakers now and in the coming years is to steer this complex endeavor in a way that maximizes its potential for success while actively managing its inherent dangers. Based on the analysis in this report, the following recommendations are proposed:

1. Establish Clear, Measurable Metrics for Success: To avoid the historical trap of politically sustained but economically failed programs, Congress and the implementing agencies must move beyond tracking dollars spent and establish clear, quantifiable benchmarks for success.
2. Institute Fiscal Guardrails and Review Mechanisms: The uncapped nature of the IRA’s most significant subsidies poses a serious long-term fiscal risk. To restore budgetary discipline, policymakers should consider amending the law to include sunset clauses or periodic spending caps that would trigger a mandatory congressional review and reauthorization process.
3. Prioritize “Crowding In” over “Crowding Out”: The focus of industrial policy should be on correcting demonstrable market failures—such as funding high-risk, early-stage R&D and coordinating the build-out of public goods like grid infrastructure—that “crowd in” private investment.  
4. Adopt a Dynamic, Allied-Centric Geopolitical Strategy: The current strategy of technological denial against China risks backfiring in the long term. A more durable approach would be to double down on America’s greatest strategic asset: its network of technologically advanced allies.
5. Launch a “Marshall Plan for Small Business”: The success of the entire industrial transformation hinges on the capacity of the thousands of small and mid-sized firms that constitute the backbone of these new domestic supply chains.