Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 103 Investments The emergence of It is easy to understand why the US government We believe these efforts will provide a long- is targeting these areas. Research-driven term tailwind for a number of our unstoppable US industrial policy technological leadership has served the world’s trends, but only in time will it become clearer largest economy well in recent decades, as to what degree. We will be monitoring the a driving force in real GDP growth and in its situation closely. CHARLIE REINHARD relative equity market performance. In the Head of Investment Strategy, North America coming years and beyond, clean energy, electric vehicles and digitization are likely to become Industrial policy has a mixed reputation at even more vital to prosperity in the US and best. The idea of governments forming a grand elsewhere. The US government may believe that strategy to develop their economies or key it can improve its international competitiveness sectors goes against free market orthodoxy. and keep the upper hand in its economic rivalry However, this is no mere question of ideology. with China by intervening more systematically to Past experiments with industrial policy – drive its economy. particularly during its postwar heyday – raise How likely is this nascent US industrial policy serious doubts over the ability of politicians and to achieve its aims? Despite industrial policy’s public servants to intervene effectively and pick patchy performance over time, there have been winners, be they sectors or firms. Costly failures notable successes, such as China. However, at taxpayers’ expense and accusations of pork- that country’s authorities are very much more barrel politics are rife throughout the history of experienced at central planning and have fewer industrial policy. checks and balances to contend with than Although not branded as such, a series of US the US. policy initiatives in recent years together make We identify a range of risks associated with the up what we believe amounts to an industrial US’ new path. A more prominent role for the policy. The Trump and Biden administrations US government in directing economic activity have both acted to boost US manufacturing could lead to a less favorable mix of growth competitiveness, strengthen supply chains, and inflation through a less efficient allocation encourage domestic and foreign companies to of resources. Industrial policy initiatives could relocate operations to its North American soil also become snarled up in domestic political and restrict China’s access to its technology controversy, especially with the two houses ecosystem. The new US industry policy’s of Congress now each under the control of aims – while broad-based – are especially different parties. Today’s more polarized focused on semiconductors, leadership US-China relationship will also see diminished in science, technology, engineering, and cooperation between the two, perhaps stifling mathematics (STEM) subjects, research & trade and the ease of innovation. It is very early development, clean energy, infrastructure and days for US industrial policy and many of its electric vehicles. results may take some years to materialize.