Industrial Policy in the Competition Between an Existing Hegemon and a Rising Superpower: The Case of the US and China

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Central to the current US-China geopolitical rivalry is the strategic use of industrial policy (IP) by both countries, which is an unexpected reverse of view on IP. This paper examines the role of IP in the economic competition between the US, the incumbent global hegemon, and China, the rising superpower. Both countries increasingly view IP as essential to winning the rivalry. While the methods differ –more market-driven in the US and more state-led in China - their IP reflects shared goals: securing technological leadership and strengthening national security through self-reliance. China’s IP works well in achieving scale, coordination, and technological catch-up, particularly in manufacturing and infrastructure-based sectors. Its strategy can effectively target national priorities but may limit creativity and dynamic innovation. IP in the US works better in fostering breakthrough innovations in fields like artificial intelligence (AI), biotechnology, and quantum computing. But the US may need to improve its long-term planning and government support for critical technologies like semiconductors and clean energy. The two models are likely to coexist, each dominating different areas of technological competition.