Ambition Against Itself: The United States and the Dilemmas of Industrial Power

Foreword

This article is the fourth installment in a series dedicated to decrypting the new era of great power politics through the structural lens of Global Value Chains (GVCs). The analysis that follows, which turns the spotlight on the United States, finds its primary inspiration in the prescient work of Vaclav Smil. His 2014 book, Made in the USA: The Rise and Retreat of American Manufacturing, offered a powerful and enduringly relevant framework for understanding a nation’s geopolitical trajectory by examining the health of its industrial base. The steady hollowing-out of American manufacturing, Smil argued, was not merely an economic trend, but a profound strategic vulnerability in the making.

Recent events have only added credence to this vision. This analysis seeks to adapt and extend Smil’s core thesis to the central geoeconomic contest of our time: the systemic rivalry between the United States and China. This exploration is further strengthened by the insights of thinkers like Michael Pettis, whose work illuminates the deep macroeconomic paradoxes that constrain American industrial policy, and Wang Huning, whose early diagnosis of America’s internal cultural and societal fractures has proven remarkably insightful. Underlying this entire series, however, is the inescapable logic of great power competition, a reality powerfully articulated by the work of John Mearsheimer, whose realist framework provides the essential context for why the struggle over these material assets is not a matter of choice, but of necessity.

Building on these foundations, this article advances a central argument: that the high-technology, “macro techno-industrial ecosystems” we call GVCs are the primary arena of 21st-century power politics. They are the source of economic wealth, military strength, and global influence. As such, in a world defined by the unforgiving logic of the balance of power, control over these ecosystems is not just a commercial prize, but a fundamental strategic imperative, making them the natural and most fiercely contested battleground between the world’s great powers.

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Chapter 1: The Industrial Bedrock: Rise, Primacy, and Erosion

How did the United States forge its global primacy in the crucibles of its factories, and how did the subsequent, decades-long dismantling of this industrial bedrock become the nation’s defining strategic vulnerability in the 21st century?

The story of modern American power is not primarily one of ideology or finance, but one of unparalleled industrial might. Its rise from a continental nation to a global superpower was not an accident of geography but a direct consequence of its capacity to produce, innovate, and deploy material goods on a scale the world had never seen. Understanding this history is not an academic exercise; it is essential to grasping the monumental challenge the US now faces as it attempts to reverse a half-century of industrial erosion in a fiercely competitive world. The very foundation of its past glory has become the source of its present anxiety.

1.1 The Forge of a Superpower (1865-1945)

The end of the American Civil War in 1865 unleashed the full, unified potential of a continental-scale economy. In the decades that followed, the United States underwent an industrial transformation of breathtaking speed and scale. This was not merely economic growth; it was the construction of the physical and logistical superstructure of a future global power. The lacing of the continent with steel rails was its first great act. The transcontinental railroads did more than connect coasts; they created a single, vast domestic market, mobilized resources with unprecedented efficiency, and allowed for the projection of centralized power across immense distances. This logistical mastery, powered by an explosion in steel production that soon dwarfed that of Great Britain, was the foundational layer of America’s ascent.

Upon this foundation, a new production philosophy emerged that would give the nation its next decisive advantage: mass production. While others relied on craftsmanship, American industry pioneered a system of standardized parts and assembly-line efficiency—often termed Fordism—that could churn out complex goods at an astonishing rate. This wasn’t just about making affordable cars; it was about perfecting a system of organization and output that could be applied to anything. This industrial model created a virtuous cycle: high production volumes led to higher wages, which in turn fueled a mass consumer market, further driving industrial expansion. By the early 20th century, the United States was no longer just a rising economy; it was a completely new kind of industrial organism, possessing a productive capacity that no European rival could match.

The ultimate test and proof of this industrial power came with the Second World War. When the United States entered the conflict, it was its factories, not just its armies, that decisively tipped the scales. President Franklin D. Roosevelt’s call for the nation to become the “arsenal of democracy” was answered with a flood of matériel that buried the Axis powers. In a few short years, American industry produced hundreds of thousands of aircraft, over 100 aircraft carriers, and millions of military vehicles. This was a war won as much on the factory floors of Detroit and the shipyards of California as on the battlefields of Europe and the Pacific. It was the irrefutable demonstration of a core realist principle: in an era of industrial warfare, the nation with the greatest manufacturing capacity holds a crucial advantage. America’s global leadership was not granted; it was built, welded, and assembled.

1.2 Industrial Primacy and the US-Led Order (1945-1970s)

In the aftermath of WWII, this industrial supremacy was institutionalized as the bedrock of a new global order. The United States, accounting for nearly half of the world’s manufacturing output, was the only major power to emerge from the war with its industrial base intact and supercharged. This economic reality underwrote the entire US-led system. The Bretton Woods agreements, which established the post-war financial order and enshrined the US dollar as the world’s reserve currency, were credible precisely because the dollar was backed by the immense productive capacity of the American economy. The world trusted the dollar because it trusted America’s ability to produce goods.

Throughout the Cold War, US industry was a primary instrument of statecraft. The Marshall Plan was not just a financial aid package; it was a program to rebuild Western Europe with American equipment, machinery, and know-how, binding the continent into a US-centric economic and security bloc. American factories supplied and standardized the arsenals of its NATO allies, creating a level of military-industrial integration that the Soviet bloc could not replicate. The “Made in America” label during this period was more than a mark of quality; it was a symbol of geopolitical alignment and the material strength of the “free world”. This was the zenith of American power—a period where its industrial, financial, and military dominance were fully aligned and mutually reinforcing.

1.3 The Great Unwinding (1970s-Present)

It was from this peak of industrial power that a slow, structural decline began. The 1970s marked a critical inflection point, the moment when the logic that had built America’s primacy began to be deliberately dismantled. A new paradigm took hold in American boardrooms and in Washington, one that prioritized short-term financial efficiency over long-term industrial resilience. The pursuit of higher shareholder returns and lower labor costs began to supersede the strategic logic of maintaining a robust domestic production base. This thinking led to a great migration of capital and manufacturing capacity offshore, a move made possible by the very US-led global security umbrella its industries had helped build.

This process accelerated dramatically with the integration of China into the global economy. The arrangement seemed, for a time, to be a masterstroke of capitalism: American firms would control the high-value “brain” of the GVC—the R&D, design, and branding—while China would provide the low-cost labor and manufacturing “body”. For decades, this symbiosis fueled global growth, provided American consumers with cheap goods, and cemented the dollar’s role as the currency of global trade. Yet, it was a bargain with devastating long-term consequences. The United States was, in effect, systematically training and equipping its future peer competitor.

The hollowing-out of American industry was therefore not merely an economic trend; it was a profound act of strategic self-harm. It severed the vital feedback loop between domestic innovation and manufacturing, eroded the high-wage job base that had anchored social stability, and created critical dependencies on a strategic rival for everything from consumer electronics to essential pharmaceuticals. The very Global Value Chains (GVCs) that had once projected American power were now being used to fuel China’s rise. By the 2020s, the United States awoke to a stark new reality: the industrial foundation upon which its global power was built had been catastrophically weakened, leaving it in a desperate scramble to reclaim what it had willingly given away.

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Chapter 2: The GVC Dilemma: Defining the New Battleground

Having forged its global power on a bedrock of industrial might, how does the United States now confront a globalized world where the very architecture of production—the Global Value Chain—has become the central and most fiercely contested battleground for 21st-century primacy?

The answer requires moving beyond simplistic metaphors of “supply chains” and understanding these systems as they truly are: the complex, living ecosystems of national power. The current geoeconomic struggle is not about trade balances in isolation; it is a fight for control over the intricate networks of production, innovation, and logistics that determine which nations will lead and which will follow. For the US, this represents a stark awakening to a battleground it helped create but whose strategic nature it disastrously misjudged for decades.

2.1 From Abstract Chain to Physical Ecosystem

To grasp the stakes of the new great power competition, one must first discard the one-dimensional image of a “chain” and see the system in its full, three-dimensional reality. A Global Value Chain is not a line, but a techno-industrial ecosystem: a dynamic, interwoven network of physical infrastructure, human capital, and intellectual property. It is through the mastery of this entire ecosystem that durable national power is now built. We can dissect this system into three primary layers:

1. The Innovation Layer: This is the “brain” of the ecosystem. It comprises the universities, R&D laboratories, venture capital funds, and design centers that generate the foundational ideas, patents, and software that drive modern technology. For decades, the US has been the undisputed leader of this layer.
2. The Physical Layer: This is the tangible “body.” It is the sprawling network of factories and industrial clusters; the mines and processing facilities for raw materials; and the logistical arteries of ports, railways, shipping lanes, and undersea cables that move physical goods and data.
3. The Human Layer: This is the central nervous system that animates the ecosystem. It is the skilled workforce of engineers, technicians, factory managers, and logistics experts who possess the tacit knowledge and operational experience to translate designs into products and manage complex production processes at scale.

The critical insight, and the one that American policymakers overlooked for a generation, is that manufacturing is the essential nexus where these three layers converge. The factory floor is where abstract ideas from the innovation layer are transformed into tangible, high-value goods by the human layer, utilizing the physical layer. Without a strong domestic manufacturing base, the innovation “brain” becomes detached from the production “body.” Its brilliant ideas are commercialized and scaled elsewhere, the vital human skills of production atrophy, and the nation loses the capacity to physically produce the very technologies it invents.

2.2 The Old Bargain: A Fractured GVC Spectrum

The post-1970s era of globalization was governed by an asymmetric bargain, a strategic wager made by the United States. Confident in its Cold War victory and its seemingly unassailable lead in the “innovation layer,” the US concluded that true power resided exclusively in the “brain.” Manufacturing, by contrast, was increasingly seen as a low-value, commoditized activity—a cost center to be optimized, not a strategic asset to be protected. This logic led to a deliberate fracturing of the GVC spectrum. American corporations, with the full backing of US policy, retained control of the high-margin nodes—IP, finance, branding, and R&D—while systematically offshoring the physical means of production to countries like China.

This arrangement was hailed as a “win-win.” The US enjoyed lower consumer prices, higher corporate profits, and could focus its resources on frontier research. China, in turn, received the capital and employment needed to modernize. But it was a profoundly flawed strategic calculation. By outsourcing its industrial base, the US was not merely outsourcing low-wage jobs; it was outsourcing scale, experience, and the potential for future innovation. It was handing its nascent rival the profits, the immense tacit knowledge of at-scale production, and the manufacturing ecosystems required to eventually build its own world-class “brain.” The US believed it was simply leasing out its factory floor, when in fact it was funding the construction of a rival industrial fortress.

2.3 The Collision: Competitive Re-integration

The current era of all-out geoeconomic competition was triggered when this flawed bargain reached its logical conclusion. China, empowered by its dominance of the GVC’s physical layer, launched a deliberate, state-directed campaign of vertical integration from the bottom up. Its goal was no longer to just be the world’s factory, but to ascend the value spectrum and seize leadership in the very high-tech nodes the US had reserved for itself. Initiatives like “Made in China 2025” were explicit declarations of this intent: to use the power of its manufacturing base to dominate the future of AI, 5G, robotics, and biotechnology.

This offensive push collided with a dawning, defensive realization in Washington. The United States discovered that its control over the “brain” was critically vulnerable without a secure “body.” It could design the world’s most advanced semiconductors, but found it could not mass-produce them. It could invent life-saving pharmaceuticals, but found the precursor chemicals were made exclusively in China. The COVID-19 pandemic laid this vulnerability bare for all to see.

The result is the central dynamic of our time: a great mirrored rebalancing, as both powers now scramble to re-integrate the full GVC spectrum to secure their interests. China is pushing upwards, trying to complete its vertical integration by building a self-sufficient innovation layer to match its production might. The United States, in a dramatic reversal of policy, is scrambling to re-integrate downwards. Through massive state interventions like the CHIPS and IRA acts, it is attempting to rebuild the domestic manufacturing “body” it once discarded, recognizing that without it, its innovation “brain” cannot survive in a contested world. The GVC is no longer a collaborative space for efficiency; it is a zero-sum battleground for ecosystem control.

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Chapter 3: The Home Front: The Fault Lines of a Fissured Nation

As the United States pivots to confront a new era of great power competition, can it muster the necessary national cohesion and resources to re-industrialize, or will its strategic ambitions fracture against the deep internal fault lines created by the very decades of hollowing-out it now seeks to reverse?

The contest with China is not merely an external challenge; it is a harsh mirror reflecting America’s own internal divisions and structural weaknesses. The grand ambition to rebuild the nation’s industrial bedrock is colliding with at least four critical domestic fault lines—economic, social, and political—that will ultimately determine its fate. These are not peripheral issues; they are the central battleground where America’s capacity for renewal will be won or lost.

3.1 The Total Cost Challenge and the Dollar’s Burden

The most immediate brake on America’s re-industrialization ambition is the immense, multi-faceted cost structure of its domestic economy. While the wage gap with countries like China was the convenient excuse for decades of offshoring, the reality is far more complex and challenging. The true obstacle is the total cost of production, a formidable matrix of interlocking factors that cannot be solved by simple protectionism or subsidies alone. This includes high direct costs for labor, land, and energy relative to global competitors. It also includes the immense expense and difficulty of navigating a complex and often litigious regulatory environment.

Beyond these direct expenses lie deeper, systemic costs born from decades of neglect. Rebuilding a semiconductor fab is one thing; resurrecting the intricate domestic supplier ecosystem of specialized chemical providers, precision tool makers, and equipment maintenance technicians that must support it is another challenge entirely. The atrophied state of these networks means that even new, state-of-the-art factories may remain dependent on foreign inputs, negating the goal of resilience and keeping costs high. Compounding this is a critical shortage of skilled industrial labor—from welders and machinists to advanced manufacturing operators—which inflates wages for scarce talent and necessitates costly, long-term training initiatives.

This deep structural cost disadvantage is powerfully reinforced by the unique role of the US dollar in the global financial system. The dollar’s status as the world’s primary reserve currency, often hailed as an “exorbitant privilege,” functions as an “exorbitant burden” on domestic manufacturing. As economists like Michael Pettis have compellingly argued, to supply the world with the dollar liquidity it demands for trade and reserves, the United States must, by accounting identity, run a persistent current account deficit. It must absorb the excess production and savings of the rest of the world, making it the global “consumer of last resort.” This structural reality exerts a constant upward pressure on the dollar’s value, making American exports more expensive and imports cheaper. It creates a powerful, self-perpetuating macroeconomic headwind that works directly against any national strategy aimed at reshoring industry and running a trade surplus. America’s financial dominance is thus structurally at odds with its industrial revival.

3.2 The Productivity Gamble and the Bifurcated Nation

The conventional answer to this daunting cost challenge is a surge in productivity. The hope in Washington is that a new wave of automation and artificial intelligence can revolutionize American manufacturing, creating efficiency gains so monumental that they overcome the cost gap. This, however, is a high-stakes gamble, not a guaranteed outcome. While the US remains a frontier innovation leader, there is no assurance that these technologies will deliver a decisive relative advantage. Competitors like China are pouring immense resources into deploying the exact same technologies, often with the advantage of greater scale and state-directed focus. The US is betting it can innovate its way out of a structural hole, a bet whose outcome is deeply uncertain.

More consequentially, the very pursuit of this productivity model over the past several decades has cleaved the nation in two, creating a major social fault line. The hollowing-out of traditional manufacturing did not just eliminate jobs; it destroyed a pathway to middle-class stability for millions of Americans without a college degree. In its place has emerged a bifurcated “two-track” economy. One track consists of hyper-productive, globally-connected innovation hubs on the coasts, which have prospered by managing the high-end, intangible nodes of the GVCs. The other track is the vast landscape of former industrial heartlands, which have been left with stagnant wages, diminished opportunities, and a profound sense of economic and cultural dislocation. This is not just a gap in income, but a divergence in social trajectory, creating two Americas that increasingly share little in terms of economic experience or future outlook.

3.3 Fiscal Overstretch and the Price of Renewal

The third major fault line is the direct collision between the immense price tag of strategic competition and the nation’s precarious fiscal health. The United States is attempting to fund a generational contest with China from a position of historic fiscal weakness, with its federal debt-to-GDP ratio at levels unseen since the aftermath of World War II. This structural vulnerability places a hard constraint on any strategy for national renewal, creating a dangerous and highly politicized trade-off between investing in future strength and maintaining present fiscal stability.

This tension manifests differently under the two competing models of statecraft:

• The “Planner State” model, exemplified by the previous Biden administration, relies on massive public spending through legislation like the CHIPS Act and the IRA. While justified as essential for national security, this approach placed a new and direct strain on a budget already buckling under the weight of existing entitlement programs and rising interest costs.
• The “Enforcer State” model of the current Trump administration has shifted tactics, aiming to replace direct subsidies with revenue from massive tariffs while simultaneously pursuing large-scale tax cuts. This creates a different but equally perilous fiscal dynamic, where the revenue generated from protectionism is unlikely to offset the costs of reduced tax receipts, potentially leading to even larger structural deficits.

Regardless of the specific policy mix—whether subsidies, tax cuts, or tariffs—the underlying reality is the same. The entire system is dependent on the “exorbitant privilege” of the U.S. dollar, which allows the nation to finance its chronic deficits cheaply. This reliance is itself a profound strategic vulnerability. Any erosion in global confidence in U.S. debt, whether triggered by excessive spending or unsustainable tax cuts, could trigger a fiscal crisis, forcing an impossible choice between funding the strategic competition with China and servicing its own debt.

3.4 Political Polarization and the Collapse of Consensus

Perhaps the most critical fault line is the one that runs through the American political system itself. The socio-economic fractures described above have become the fuel for a deep and bitter political polarization that now threatens to paralyze any attempt at a coherent, long-term grand strategy. The economic grievances and cultural anxieties of the communities left behind by de-industrialization have been powerfully harnessed by populist movements, transforming economic policy into a front line of the culture war.

This has made national strategy subject to a destructive “policy whipsaw.” What one administration builds, the next may seek to dismantle. The IRA’s green energy investments, for example, are lauded by one party as a vital tool for competing with China but are simultaneously attacked by the other as “woke industrial policy.” This extreme volatility makes it nearly impossible to foster the stable, predictable environment that is essential for the multi-decade, public-private partnerships required to rebuild entire industrial ecosystems. Private capital, hesitant to commit billions to projects whose subsidies could vanish after the election, will either sit on the sidelines or demand a higher risk premium. This internal political dysfunction stands in stark contrast to the unified, state-directed, long-term planning of a competitor like China, and it may represent America’s single greatest strategic disadvantage. The nation cannot hope to win a generational competition with the outside world if it is fighting a permanent war with itself.

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Chapter 4: The External Chessboard: Systemic Drags on American Power

As a fractured and fiscally strained United States attempts to reassert its industrial primacy, how do its strategic ambitions collide with the entrenched realities of a globalized system it no longer fully controls—a system marked by the powerful inertia of rival-centric supply chains, the defiance of increasingly autonomous allies, and the slow-burn blowback from its own use of economic coercion?

While the previous chapter detailed the internal fault lines constraining American renewal, the external landscape presents an equally formidable set of challenges. The US is discovering that redirecting global flows of capital, technology, and trade is akin to altering the course of a massive river; the current is powerful, and the old channels run deep. America’s strategy is being actively shaped and resisted by four primary external drags.

4.1 The Inertia of the China-Centric Ecosystem

The greatest external obstacle to the American project of GVC reconfiguration is the sheer gravitational pull of the China-centric techno-industrial ecosystem. The popular rhetoric of “decoupling” or “de-risking” vastly underestimates the deep, structural integration that has been built over three decades. This is not a simple matter of moving final assembly from one country to another. As established in Chapter 2, China is not just a location for factories; it is a dense, three-dimensional ecosystem where innovation, physical infrastructure, and human capital are interwoven with an efficiency and scale that are, for now, impossible to replicate elsewhere.

The “stickiness” of this ecosystem is multifaceted. First is the unparalleled advantage of scale. Years of state-directed investment and fierce internal competition have created a manufacturing apparatus that can produce goods with a speed and cost-efficiency that smaller, nascent industrial hubs in other countries cannot match. Second, and more importantly, is the completeness of its supplier networks. A multinational corporation may successfully move a final assembly plant to Vietnam or Mexico, only to find that 80% of the critical components—from specialized screws and plastic moldings to advanced electronic modules—must still be sourced from mainland China. This reality often reduces “friend-shoring” to a logistical illusion—a “transshipment” strategy where goods are simply rerouted through third countries to circumvent tariffs, while the core dependency on China’s industrial heartland remains firmly intact.

Furthermore, the ecosystem’s gravity is amplified by China’s dual role as both the world’s factory and one of its largest and most crucial consumer markets. For many of America’s most important allies, particularly industrial exporters like Germany, abandoning the Chinese market to align with a confrontational US strategy is corporate suicide. The revenues generated from selling cars, machinery, and luxury goods in China are what fund their own domestic R&D and employment. This creates a fundamental and often irreconcilable conflict of interest between Washington’s geostrategic objectives and the vital commercial imperatives of its own and allied companies, giving Beijing a powerful lever of influence.

4.2 The Tech Diffusion Dilemma

A second major drag stems from the inherent difficulty of containing technological progress in a globalized world. The US strategy of imposing a “tech blockade”—using export controls to deny China access to critical technologies like advanced semiconductors—is an audacious attempt to halt a rival’s ascent up the value chain. It represents a fundamental belief that America can and should act as the gatekeeper of global innovation, a stance that explicitly subordinates the traditional ideals of open, collaborative development to the harsher logic of national security and power politics. However, this is an inherently leaky and defensive posture with a high risk of backfiring.

While the US and its key allies do control critical chokepoints in the semiconductor ecosystem, technology, by its nature, diffuses. Knowledge, talent, and capital are fluid. The American blockade, while causing significant short-term pain for Chinese firms, has also created the most powerful possible incentive for Beijing to pursue its “whole-of-nation” drive for technological self-sufficiency. By making it a matter of national survival, the U.S. sanctions may ultimately accelerate, rather than prevent, China’s emergence as an indigenous technological power.

Moreover, the effectiveness of the blockade is entirely dependent on the complete and enthusiastic compliance of allies. This is far from guaranteed. For technology leaders like ASML in the Netherlands (which produces essential lithography equipment) or advanced materials suppliers in Japan and South Korea, China represents a massive and lucrative market. Sustained US pressure forces these allied governments into a painful dilemma: sacrifice billions in corporate revenue and risk economic retaliation from Beijing to prove their loyalty to Washington, or discreetly allow trade to continue where possible. Any gap in this coalition, any instance of an allied firm putting its commercial interests first, creates an opening that China can and will exploit to circumvent the controls.

4.3 The Rise of Allied “Strategic Autonomy”

This leads directly to the third systemic drag: the steady drift of key US allies towards “strategic autonomy.” America’s vast network of alliances is its single greatest asymmetric advantage over China. Yet this asset is becoming more conditional and complex. Allies in Europe and Asia increasingly refuse to see the world in binary terms or to function as passive followers in a US-led crusade. This autonomy drift is driven by a convergence of factors. First is the perception of American unreliability, powerfully reinforced by the domestic “policy whipsaw” that sees US strategy pivot with each election cycle. Second are the divergent economic interests just described.

This quest for autonomy manifests in various ways. The European Union’s push for its own industrial champions and regulatory sovereignty is a clear attempt to become a third pole, capable of resisting economic pressures from both Washington and Beijing. French President Emmanuel Macron’s calls for Europe to avoid being a mere “vassal” in a US-China conflict over Taiwan captures this sentiment perfectly. In the Indo-Pacific, nations eagerly join US-led security groupings like the Quad while simultaneously being central members of the China-centric RCEP trade pact. They are engaging in classic hedging behavior. The result is that the US cannot summon a unified, Cold War-style bloc. It must instead navigate a messy “à la carte” world where partners align on some issues (like freedom of navigation) while openly disagreeing or competing on others (like trade and industrial policy).

4.4 The Blowback from a “Weaponized” Dollar

Finally, the US strategy is constrained by the long-term consequences of its own financial power. The increasing use of the dollar and the SWIFT financial messaging system as tools of geopolitical coercion—most dramatically demonstrated by the sweeping sanctions on Russia—is actively incentivizing the rest of the world to build alternatives. While devastatingly effective in the short term, this “weaponization of interdependence” served as a stark wake-up call for every nation, friend and foe alike, of its own vulnerability to American financial statecraft.

This has undeniably accelerated efforts to create a “de-dollarized” world. China is actively promoting its Cross-Border Interbank Payment System (CIPS) as a potential rival to SWIFT. A growing number of significant bilateral trade deals—between China and Russia, Brazil, and even key Middle Eastern oil producers—are being settled in local currencies. Central banks around the globe are slowly but steadily diversifying their foreign exchange reserves, reducing the share held in US dollars. While the dollar’s dominance is in no immediate danger—underpinned as it is by the unmatched size, depth, and liquidity of US capital markets—the long-term vector is clear. Each time the US uses financial sanctions for coercive ends, it gives every other country a stronger reason to invest in building an exit ramp. In the long run, the US may be trading short-term coercive power for the slow erosion of its long-term systemic influence.

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Chapter 5: The Industrial Policy Lever: A Tale of Two Statecrafts

As the United States unsheathes the powerful but unfamiliar weapon of state-directed industrial policy, can this lever be wielded with the strategic patience and consistency required for a generational competition, or will the nation’s own volatile and deeply polarized political system render its most potent new tool unreliable and ultimately ineffective?

The return of great power politics has forged a new consensus in Washington: the laissez-faire orthodoxy of the past has failed, and the state must now play an active, strategic role in the economy to secure American primacy. However, this unity on the necessity of state intervention masks a profound and deeply divisive schism over its modality. The U.S. has not adopted one industrial policy, but two fundamentally opposed models of state-led capitalism—a “Planner State” and an “Enforcer State”—and the violent oscillation between them is now a central feature of the American strategic landscape.

5.1 The Return of a Forgotten Weapon

The strategic theory behind the recent American turn to industrial policy is a direct rejection of the neoliberal consensus that dominated for forty years. It is a tacit admission that in a geoeconomic struggle against a state-capitalist rival like China, which heavily subsidizes its own industries, the U.S. private sector cannot compete on its own. The immense, long-term risks associated with rebuilding entire techno-industrial ecosystems, especially when faced with the “total cost” disadvantages discussed previously, are too great for corporations to bear alone. This has led to the reclaiming of a forgotten tradition of Hamiltonian economics, where the state actively intervenes to shape economic outcomes in the national interest.

The first model to emerge from this new consensus, exemplified by the legislative achievements of the Biden administration, casts the state as a strategic partner and catalyst. This approach is institutional, collaborative, and long-term. Its architecture is built on landmark legislation like the CHIPS and Science Act and the Inflation Reduction Act (IRA), which use a suite of constructive incentives—massive tax credits, grants, and public-private consortia—to “de-risk” foundational private investments. This “government-enabled, private sector-led” strategy is a complex, coordinative effort. It is a “Planner State” model that seeks to cultivate a desired outcome by preparing the soil with infrastructure investment, providing the nutrients with targeted subsidies, and creating a stable climate with predictable, long-term policy frameworks. The explicit goal is to coax private capital off the sidelines and back into the difficult, multi-decade project of building resilient domestic supply chains.

The success of such a strategy, however, is entirely dependent on one critical, non-economic factor: time. Rebuilding complex industrial ecosystems, training a skilled workforce, and fostering deep supplier networks is not a short-term project. It requires a decade or more of stable and consistent policy support for investors to have the confidence to make multi-billion-dollar capital commitments. The core requirement for this model of industrial policy is, therefore, strategic patience—a quality that is in desperately short supply within the contemporary American political system. The fundamental problem is a profound mismatch between the long-term timescale of industrial renewal and the short-term, antagonistic cycles of American politics.

5.2 The “Policy Whipsaw”: A Clash of Competing Statecrafts

This mismatch manifests as a debilitating “policy whipsaw.” The bipartisan consensus on the need to compete with China shatters when it comes to the methods. This is not merely a debate over the size of a subsidy or the rate of a tariff; it is a fundamental clash between two different philosophies of state power.

The second model, which defines the “America First” paradigm and has been forcefully reimplemented by the second Trump administration, positions the state as a transactional enforcer. This approach is personal, coercive, and short-term. It is animated by a profound skepticism of the “Planner State,” which it views as a source of bureaucratic inefficiency, wasteful spending, and ideological projects (such as the “woke industrial policy” of the IRA) that burden the private sector.

This “Enforcer State” model rejects the coordinative role in favor of a more direct and confrontational use of state power. It wields a different set of tools: the “stick” of massive, unilateral tariffs to punish foreign competitors and create a brutal incentive to reshore, and the “carrot” of aggressive domestic deregulation and tax cuts to “unleash” capital. Its logic is not to plan an industrial ecosystem, but to use the raw power of the executive to radically alter the incentive structure for private businesses. It is a strategy of shock and bargain, where the state acts as a bouncer at the door of the U.S. economy, using its power to dictate terms.

The “policy whipsaw,” therefore, is the violent oscillation between these two models. The shift from a collaborative, subsidy-led strategy to a unilateral, tariff-led one creates a level of uncertainty that is toxic to long-term investment and strategic planning. This strategic inconsistency, a direct result of America’s internal political divisions, risks becoming its single greatest competitive disadvantage.

5.3 An Asymmetric Disadvantage in a Generational Contest

This internal volatility creates a stark, asymmetric disadvantage for the United States in its competition with China. As detailed in our previous analysis of China’s system, Beijing’s state-capitalist model is built for long-term, consistent strategic execution. Through instruments like its Five-Year Plans and top-level design committees, the Chinese Communist Party can identify strategic industries, allocate massive resources, and sustain that support for decades, subordinating short-term market fluctuations and political disagreements to the overarching national goal. China’s leadership can credibly plan for 2035 and 2049; the American political system, fractured by this deep philosophical divide over the role of the state, struggles to plan past the next election.

Ultimately, the central question of America’s industrial renewal is not whether the policy lever is powerful enough, but whether the political system is coherent enough to wield it effectively over time. The U.S. is attempting to run a strategic marathon with a political apparatus built for two-year sprints, each with the risk of reversing the course of the last. Without a durable, bipartisan national compact on the core tenets of industrial strategy, America’s powerful new weapon risks becoming unreliable in its own hands, leaving the nation’s strategic ambitions hostage to its own internal fractures.

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Chapter 6: The Hegemon’s Dilemma – Alliance Cohesion in an “America First” Era

In an era defined by great power competition, how does America’s inward-looking quest for national rejuvenation collide with its traditional role as an alliance leader, and what does the fallout from this collision reveal about the future of the global order?

The profound internal schism in American statecraft, with its violent “policy whipsaw” between competing grand strategies, does not occur in a vacuum. Its consequences radiate outward, sending powerful shockwaves through the U.S. alliance network and forcing a fundamental recalibration in allied capitals. This chapter will analyze how the actions of a hegemon grappling with its own internal contradictions are forcing the emergence of a more fragmented and autonomous world.

6.1 The Realist Imperative: Why America Has No Choice

From a realist perspective, the United States is not facing a choice between rejuvenating its domestic industrial base and maintaining its alliance network; it is facing the imperative of the former to ensure the credibility of the latter. A nation’s power, and therefore its ability to lead alliances and shape the international order, is not merely a function of its military or diplomatic will, but a direct reflection of its economic and technological capacity. The decades-long hollowing-out of the U.S. industrial base did more than create domestic social and economic distress; it eroded the very foundation of American global power, raising questions about its long-term credibility as a security guarantor.

This imperative is magnified by the onset of the Fourth Industrial Revolution, a paradigm shift where leadership in technologies like artificial intelligence, quantum computing, and semiconductors is becoming the primary determinant of national power. To fall behind in these areas is to cede the future of the global economy and security architecture to rivals. Consequently, the bipartisan turn toward industrial policy is not a matter of ideological preference but a pragmatic response to a structural crisis. The core strategic question for the U.S. is no longer if it should prioritize national industrial repowering, but how it can execute this essential task while managing the inevitable and profound contradictions it creates within its own alliance system.

6.2 The Democratic Gambit: The Ambiguous Coalition

The Democratic strategy, exemplified by the Biden administration, represents an ambitious attempt to manage this central contradiction. The grand strategic vision is to build a coalition of “techno-democracies” to collectively balance China, de-risk critical supply chains, and set the rules for the 21st-century economy. This “alliance economics” model seeks to align the security and economic interests of the U.S. and its partners, creating a unified front against techno-authoritarianism.

However, the feasibility of this vision is highly uncertain, as the strategy is plagued by a fundamental ambiguity. The primary tools used to build this coalition—namely the protectionist provisions of the Inflation Reduction Act (IRA) and the CHIPS and Science Act—have generated significant friction, sparking a transatlantic “subsidy race” and pushing allies to view the U.S. as a direct economic competitor. This has forced the EU and Asian partners to launch their own industrial support programs, such as the EU Chips Act, not just to counter China but to defend against American economic nationalism.

The core challenge is that security and economic interests do not align as seamlessly as the strategy presumes. While allies share U.S. security concerns about China, they are also economic competitors with deep and complex dependencies on the Chinese market. The Democratic approach, therefore, risks neutralizing its own grand strategy. By pursuing domestic rejuvenation through policies that alienate the very partners it needs, it raises serious doubts about whether a cohesive and durable techno-industrial coalition can ever be formed. The outcome of this plan remains fuzzy because it is an attempt to reconcile two competing logics—alliance collaboration and nationalist industrial policy—that may ultimately be incompatible.

6.3 The Trump Rupture: Unilateralism as a Forcing Function

The second Trump administration’s strategy can be understood as a less ambiguous and harder version of the same “America First” imperative. It resolves the contradiction inherent in the Democratic approach by largely abandoning the pretense of building a collaborative coalition. Instead, it wields raw U.S. power indiscriminately and unilaterally to achieve its domestic goals, treating both allies and adversaries as transactional counterparts in a zero-sum game.

This approach represents a clear and unambiguous rupture for allies. The “policy whipsaw”—from broad tariffs to ad-hoc deals announced via social media—sends an unmistakable signal about the unreliability of the United States as a security and economic partner. This is not merely a source of friction; it is a potent argument for allies to de-risk from the U.S. itself. The result has been a dramatic acceleration in the push for “strategic autonomy” in Europe and a diversification of partnerships in Asia, as nations from Germany to Japan conclude that reliance on Washington is a strategic vulnerability.

While the Trump strategy is often seen as chaotic, it can also be viewed as an acceleration of a longer-term trend in U.S. foreign policy toward a more nationalist posture, but executed with a “blunt force” that strips away diplomatic niceties. By making the contradiction between U.S. domestic needs and alliance leadership an undeniable reality rather than a managed tension, this approach acts as a forcing function, potentially accelerating the reconfiguration of global power politics on a historic scale.

6.4 Strategic Outlook: The Inevitable Push for Autonomy

The two competing American strategies present allies with different versions of the same fundamental problem. The Democratic approach offers partnership, but on terms that are often economically disadvantageous and fraught with competitive tension. The Trump approach offers open coercion, making the costs of alignment explicit and severe.

In either scenario, the rational strategic choice for U.S. allies is a consistent and determined push for greater strategic autonomy. The degree of American unreliability may vary with the political leadership in Washington, but the underlying structural shift toward an “America First” industrial policy is now a permanent feature of U.S. grand strategy. For strategic planners in allied capitals, this means that rebuilding their own industrial and defense capabilities is no longer a matter of choice, but of necessity. The hegemon’s dilemma—the need to sacrifice allied interests to save its own power base—is forcing the emergence of a more multipolar world, an outcome that may not ultimately serve the U.S. priority to remain number one.

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Chapter 7: America’s Unresolved Dilemmas in an Age of Power Politics

The arc of history is long, but its inflection points are sharp. The United States, after decades of navigating a global order largely of its own making, has entered a new and more perilous era defined by the return of great power politics. The analysis in this article has not been an exercise in prediction—a futile endeavor in a world of such immense complexity and uncertainty. Rather, it has been an attempt to decrypt the structuring factors, both internal and external, that now shape and constrain American strategy. The hollowing-out of the nation’s industrial base was not a simple economic trend, but a profound strategic choice with consequences that have cascaded through its economy, its society, and its position in the world. As it now attempts a monumental course correction, the United States finds itself caught in a web of deep and unresolved dilemmas, a reality that for many in the West marks a stark reintroduction to the never-ending principles of realism.

The central lesson of the past half-century, now coming into sharp focus, is the strategic fallacy of a disembodied economy. The long-held assumption of the globalization era—that America could offshore its industrial “body” while retaining its innovative “brain”—has been shattered by the realities of geopolitical rivalry. The dawning age of Artificial Intelligence and the global race for leadership in the Fourth Industrial Revolution have made the link between innovation and manufacturing brutally clear. In a contested world, control over production is no longer just about efficiency; it is about resilience, security, and the control over the data and practical knowledge that are the very wellspring of future innovation. A nation that outsources its manufacturing base to a strategic rival creates a profound national security vulnerability, a reality that now forces a fundamental re-integration of the two.

However, the strategic response to this new reality is not monolithic. The ambition to achieve comprehensive, full-spectrum control over entire techno-industrial ecosystems is a high-stakes gambit largely confined to superpowers with continental scale, like the United States and China. Other advanced industrial powers, such as Japan and Germany, are pursuing a different, more surgical strategy. Their goal is not complete self-sufficiency—an impossibility in a deeply interconnected world—but a more focused pursuit of “indispensability” in specific, high-leverage “chokepoint” technologies.

In response to this complex, multi-layered reconfiguration of global value chains, the United States has been forced to adopt its own new operating model. The strategy is built on a realist trinity: run faster in the cutting-edge technologies that define the new economic frontier; target surgical chokepoints to control the most effective levers of geoeconomic power; and de-risk Global Value Chains to create a more favorable, U.S.-centric ecosystem. This reveals that the current struggle is not just a contest over who makes the best semiconductors, but a fundamental, systemic rivalry between two different models of social and political organization. The reconfiguration of GVCs has thus become the primary, material arena for a deeper, more existential competition over the values and rules that will govern the 21st-century global order.

This urgent strategic necessity to re-industrialize, however, runs directly into the profound internal fractures created by the very choices that led to the decline. The “Great Divergence”—the decoupling of corporate prosperity from the well-being of the industrial middle class—was not inevitable. It was the consequence of a deliberate ideological choice, but a choice that was itself made possible and incentivized by the specific contextual windows and opportunities of the post-1971 era. The un-anchoring of the dollar and the opening of global markets created a permissive structure in which the pursuit of shareholder value through offshoring became the rational path for a generation of corporate leaders. Acknowledging this context is crucial, as it cautions against hasty historical parallels and reminds us that choices are always a product of the structural possibilities of their time. This legacy has left a broken social contract, fueling the deep political polarization that now paralyzes the nation’s ability to forge a coherent, long-term strategy, a “policy whipsaw” that is a symptom of a deeper cultural crisis over America’s very purpose.

Externally, the dilemmas are no less profound. The United States is caught in a structural trap of its own making, where its greatest source of financial power—the “exorbitant privilege” of the dollar—simultaneously acts as an “exorbitant burden” on the industrial competitiveness it so desperately needs to rebuild. The global financial system persists in this state not only because the U.S. is unwilling to relinquish its privileges, but also because its primary industrial competitors are “reluctant hegemons.” Nations like China and Germany benefit from the current arrangement, which allows them to run massive trade surpluses, and are unwilling to accept the currency appreciation and potential hollowing-out of their own manufacturing base that would come with assuming the dollar’s global role. This creates a powerful structural inertia, making a smooth transition to a new order nearly impossible. The U.S. thus finds itself leading a traditional alliance network whose members are now both security partners and direct economic competitors, each driven by their own national interests and deep economic entanglement with the very rival the U.S. seeks to constrain.

This complex interplay of forces leaves the United States at a strategic crossroads. Its central objective—to remain the world’s leading power—is a firm consensus. The path to achieving it, however, is the subject of a deep and unresolved national debate between two competing realist visions: one of “order preservation” through a revitalized coalition, and one of “order recalibration” through transactional unilateralism. This internal schism, combined with the harsh realities of the external environment, leads to a final set of profound, open-ended questions that will define the future of the global order:

• Can a nation so deeply divided over its own grand strategy forge the sustained national will required for a generational competition, or will the “policy whipsaw” itself become its greatest strategic liability?
• Can the “Productivity Bet” succeed at the monumental scale required? And is the current global trend of all major powers launching simultaneous, state-led industrial policies creating not resilience, but a future of systemic and inefficient global overcapacity that will make the entire Fourth Industrial Revolution, including the urgent challenge of decarbonization, more costly and even harder to achieve that it already is?
• And finally, can a superpower accustomed to unipolar primacy successfully adapt its statecraft to a more contested, multipolar world—a world it helped create but whose new, unforgiving logic it is still struggling to master?

The answers to these questions are not preordained. They will be forged in the crucible of political choice, technological change, and the unforgiving logic of power politics. The story of the American re-industrialization gambit is not just about factories and supply chains; it is about whether a great power, confronted with the consequences of its own history, can successfully navigate the profound contradictions of a new era.