U.S. Industrial Policy Expands as China Pushes “Common Prosperity” Agenda

Two powers, one question: who gets the bigger slice? Courtesy of The Economist.

United States legislation enacted in August 2022, including the Inflation Reduction Act and the CHIPS and Science Act, has expanded federal involvement in directing investment across key industries. America has celebrated the free market’s "invisible hand” as a subtle and superior stabilizing force for the market and U.S. policy makers warned that the United States must resist “authoritarian capitalism.” If we take a close look at how U.S. policy is evolving, we are witnessing something that–though very different from the Communist Party’s campaign–resembles a political logic that treats government not simply as a referee, but as an active shaper of economic life. 

In Beijing, the term “common prosperity” was resurrected in 2021 by President Xi Jinping to simultaneously address the rising socioeconomic inequality and insist that China’s extraordinary growth must be more evenly distributed through higher wages, expanded social services, and development in lower-income regions. According to expert analyses, common prosperity encompasses raising incomes for lower-income groups, managing regional development, and ensuring a “people-centered growth.” 

Some analysts, including researchers at international policy think tanks, say the initiative reflects efforts to expand state oversight of private industry alongside redistribution goals. The campaign has manifested in regulatory oversight of entertainment, education, and technology sectors that are justified in part by inequality concerns, but also deeply motivated by broader governance goals. 

In the United States, on the other hand, industrial policy and government intervention have long been controversial, traditionally justified on national security grounds or crisis management. In recent years, policymakers from both parties have supported measures that expand the federal government’s role beyond regulation to direct investment in specific industries.

In the past decade, U.S. economic policy has shifted toward increased federal investment in strategic sectors such as energy, infrastructure, and manufacturing. Recent legislation passed with bipartisan support includes funding for semiconductor manufacturing, electric vehicle production, and clean energy projects aimed at strengthening domestic supply chains. 

For instance, the Inflation Reduction Act (IRA), established on August 16, 2022 is not just climate policy, but it further represents the largest federal effort to channel investment into renewable industries and economically distressed regions. The U.S. Treasury explains how the IRA directs funds to wage equity, workforce development, and climate justice-oriented deployment. This is an explicit example of public policy shaping not only markets but distributional outcomes. 

Similarly, the CHIPS and Science Act established on August 9, 2022 intentionally funnels subsidies into domestic semiconductor production to ultimately reduce reliance on foreign supply chains. They are structural interventions that profoundly shape where industries locate, how they compete, and who benefits. 

This shift is partly a reflection of domestic pressures. Political economists have long highlighted how growing inequality in the United States has fueled populist resentment across the political spectrum. Recent studies have found that economic gaps between major metropolitan areas and rural regions have contributed to increased political polarization across the United States. 

Some economists warn that poorly designed industrial policy can lead to subsidies benefiting large, established firms with strong lobbying influence, instead of smaller competitors or consumers. The historical record offers cautionary tales that the U.S. National Industrial Recovery Act of 1933, one of the most prominent state-directed economic programs born from the New Deal, was later criticized for ensuring monopolistic practices. 

Nonetheless, the shift is real. A political culture long committed to market equality is embracing strategic federal action in order to shape who prospers. Whether it’s green energy tax credits that favor domestic corporations, technology subsidies that favor “national champion” firms, or workforce investments aimed at uplifting historically disadvantaged communities, the state is no mere referee. Although this doesn’t mean America is adopting “China’s model”,  the political logic of active state involvement in economic distribution is now gaining momentum. 

The shift has prompted debate over whether current U.S. policies are shaping economic outcomes in ways that influence income distribution and regional development. If so, how can we still ensure they enhance opportunity without sacrificing competition and accountability? 

The convergence of economic approaches across the U.S. and China highlights ongoing debates about how governments balance market competition with broader economic inclusion. As these policies continue to develop, discussions about “common prosperity” increasingly reflect broader global debates over the true role of government in shaping modern economic systems.