The War Economy: Batteries and drones
Target #2 for industrial policy
This is the fourth post in a series about how international competition could reshape the U.S. economy. The first post, giving an overview, is here. The second post, comparing the strength of the two emerging blocs, is here. The third post, assessing China’s advances in scientific research, is here.
Transforming the U.S. economy in order to more effectively compete with China and Russia will involve industrial policy. There’s a very basic economic reason for this. The industrial structure that the free market will tend to produce if left to its own devices does not take national security — or indeed, any political considerations — into account. Thus, if we want to have an economy that’s optimized not just for consumption but for protecting the nation and its allies, government will have to put its thumb on the economic scales in some way. This certainly happened in past wars like the Civil War and WW2, but industrial policy is not purely a wartime tool. During the Cold War, the U.S. built the interstate highways, the modern university and national laboratory systems, and a strategic trading regime. Luckily, those actions probably eventually increased national consumption as well, when private industry benefitted from Cold War infrastructure and innovation.
Anyway, competition with the China-Russia axis is heating up, and it’s time to think about what sort of industrial policies the U.S. can use to meet the challenge. In an earlier post, I explained why the first order of business — and the focus of the flawed but important CHIPS Act — is to shore up the U.S. and its allies’ domination of the all-important computer chip industry.
Today I’m going to talk about another major cluster of high-technology industries that the U.S. should target with industrial policy: batteries and drones.
Currently, China dominates both of these industries. Most of the lithium-ion batteries in the world are made in China:
China is also incredibly dominant in commercial drones, with its top company, DJI, taking a commanding 76% market share worldwide as of March 2021.
Building up market share in batteries and drones will therefore be a very different sort of industrial policy task from the typical notion of protecting or maintaining the U.S. lead in some industry. If we want to have a major position in batteries and drones, we will have to actually poach these industries — China is the leader in these areas, and we are the follower.
That’s going to be a difficult task, for several reasons, but I think it’s actually pretty doable. First, though, let’s talk a bit about why it’s important for the U.S. to maintain a position in these industries.
Why batteries and drones are important
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