China Is Scaling Back Its Failed Semiconductor Industrial Policies. America Should Do the Same.

The Biden administration’s rush to engage in more centrally planned industrial policy, particularly when it comes to the production of semiconductor chips and other high-tech manufacturing, has always been framed as an attempt to counter China.

In fact, it’s right there in bold print at the top of a White House’s “fact sheet” about the passage of the CHIPS and Science Act of 2022, the legislation that will funnel $52 billion of public subsidies into the pockets of semiconductor manufacturers in the coming years. The bill will “lower costs, create jobs, strengthen supply chains, and counter China,” according to the White House. When The New York Times covered the bill’s passage in August, it dutifully reported right in the headline that the massive “industrial policy bill” would “counter China.”

The idea that China’s own massive public investments into high-tech manufacturing require a response from the U.S. is also accepted as fact by many Republicans. The bill passed both chambers of Congress with bipartisan support. Rep. Michael McCaul (R–Texas), the highest-ranking GOP member on the House Foreign Affairs Committee during the last session, told Politico that the bill was “vitally important to our national security.”

“There are nation states—in Europe, in Asia, particularly China—that are heavily investing in both science and in advanced manufacturing,” Senate Majority Leader Chuck Schumer (D–N.Y.) said in July, summing up the case for the bill and for greater industrial policy in general. “If we sit on our hands and do nothing, America will become a second-rate economic power.”

To defeat China, the argument goes, the U.S. must adopt the tactics of the Chinese Communist Party, at least when it comes to high-end manufacturing.

How’s that going on the far side of the Pacific? Not so great, actually.

“China is pausing massive investments aimed at building a chip industry to compete with the U.S.,” Bloomberg reported last week. “Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said.”

Industrial subsidies bearing little fruit and encouraging graft? What an unexpected outcome!

Of course, that’s exactly what top-down industrial policy tends to be best at producing. China might be relatively new to this game, but industrial policy has a long, mostly ugly history in other parts of the world—including right here in the U.S.—and there’s little reason to think that this time will be differen