Contributor: Trump’s ‘industrial policy’ is just bad economics

US industry has been getting a lot of hand-to-hand guidance from Democrats and Republicans for some time now. Every few years, someone looks at the dire consequences of this economic drive and insists that a true “industrial policy” was never attempted. The truth is that the left’s demand for a “mission-oriented” state and the right’s desire for a nationalist industrial revival may be different, but they have the same idea: that their intentions can finally succeed where decades of intervention have failed.

The latest person to revive this evergreen fantasy is Mariana Mazzucato, an Italian-born economist who used the championing of a stable, large-consumer state as an engine of innovation. In a new interview with Politico, she lamented that President Trump’s industrial policy — which includes tariffs on private companies and government equity holdings — is “A strange hodgepodge“Not the ‘holistic’ strategy he favors. Mazzucato wants the United States to have a ‘smart, capable’ government to guide investment with purpose.”

In the days of President Biden’s industrial policy, when subsidies, tax credits and loans were flowing, an emerging group of Republicans resisted, claiming that to revive American manufacturing, rebuild society and put men back to work, industrial policy must be done right. We now know that this means increasingly false tariffs, price controls and government takeovers of companies.

The hope for both parties rests on one premise: that Washington can direct billions of dollars to the right industries, create productivity growth and even heal America’s social fabric.

The problem is not that industrial policy has been done badly. It’s just bad economics.

Dreams of reviving manufacturing jobs face the reality that modern manufacturing is capital-intensive and largely automated. Even if subsidies or government debt guarantees spur factory growth—and history suggests otherwise—it won’t bring back 1950s-style legions of industrial workers unless we somehow curb manufacturing. Today’s factories are run by robots and engineers.

Nor will tariffs bring about a recovery in production. Taxing goods and components only raises costs, weakens U.S. competitiveness and ultimately punishes the very companies that protectionists claim to support. America’s true industrial strength depends on productivity, innovation, competition and access to global supply chains, not on manufacturers huddling behind high-price walls.

Mazzucato and her ideological opponents make the same mistake. They envision a politics-free technology that can “straighten out” the economy. In the real world, politics always dominates economics. Subsidies and tariffs are never instruments of neutral specialization. They call the lobby. Any “strategic investment” quickly becomes a political IOU.

Biden’s programs are filled with child care mandates, union preferences and “Buy American” rules. Trump’s industrial interventions are certainly wrong, but the idea that his protections will work if wrapped up in a more “mission-oriented” narrative is even more absurd. Industrial policy doesn’t fail because it’s chaotic, it fails because it’s political, and human politicians are incapable of achieving accurate markets.

After performing the cleaning A Review of Five Decades of US Industrial PolicyEconomists Gary Clyde Hofbauer and Eugene Jung’s conclusion was ambiguous: Subsidies and trade protection for individual firms are politically counterproductive but economically destructive. Government protection delaying economic reforms; Innovation succeeds. In the rare cases when industrial policy has shown positive results, the government has limited itself to supporting open, competitive research and innovation—programs like DARPA or Operation Warp Speed—rather than protecting companies from competition or subsidizing failing industries.

Without such openness, the champions of industrial policy will quietly shut down yesterday’s technology rather than help invent tomorrow. France’s Minitel, a government-backed Internet provider, looked like a national success in the 1980s. Millions of households are connected, people use it for banking, shopping and communication and the government can boast of digital leadership. Yet the system’s centralized, permission-based design stifled innovation and prevented France from developing the open, global Internet that would soon change the world.

The concept of progress turned out to be technological stagnation: a product that barely improved in three decades. This is the invisible cost of industrial policy. By isolating the best industries and technologies, it freezes innovation in place and leaves a nation paying twice: once through taxes and again through lost opportunities.

so yeah bona fide Industrial policy has been attempted – in many countries, by governments of every ideology, under every rhetorical banner from “innovation” to “flexibility”. It fails every time for the same reason: the obvious hand of government is useless, self-interested, and easily taken. If this is what passes for the “smart state”, I’ll take the uncertain hand of the market any day.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with The Creators Syndicate.