The Inflation Reduction Act (IRA) marks the most consequential shift in U.S. industrial policy in batteries and electric vehicles in half a century, while the CHIPS and Science Act performs an analogous role for semiconductors. Though publicly framed as climate, competitiveness, and national security legislation, the operational logic of both statutes closely mirrors core elements of China’s state-led industrial strategies in batteries and integrated circuits. The emulation is real but politically camouflaged: the United States is adopting China’s mechanisms rather than its language, substituting mandates and direct state control with conditional subsidies, tax credits, grants, and localization requirements to avoid accusations of authoritarian mimicry.
Across both sectors, Washington is converging on the same industrial math Beijing internalized years earlier—scale depends on guaranteed demand, patient capital, and state absorption of early-stage risk. The difference lies not in the economic logic or intended outcomes, but in presentation and governance. The IRA and CHIPS Acts together constitute a liberal-democratic adaptation of China’s state-led model, engineered through market-compatible instruments and framed as responses to climate change, supply-chain resilience, and national security, rather than as explicit industrial policy.
Strategic Reframing as Industrial Policy: How Climate, Security, and Technology Became the New Language of State Intervention
China has long treated batteries and semiconductors as explicitly strategic industries, openly justified by national imperatives rather than market logic. In batteries, state support was framed around energy security, electrification, and export competitiveness. In semiconductors, the rationale extended further to technological sovereignty, control over digital infrastructure, and geopolitical leverage. These priorities were not implicit but formally articulated, culminating in programs such as Made in China 2025 and reinforced through large, state-backed capital vehicles like the China Integrated Circuit Industry Investment Fund and its successor, Big Fund II. Industrial policy was named as such, and the state’s coordinating role was neither hidden nor contested domestically.
The United States, by contrast, has adopted a strategy of deliberate linguistic and institutional indirection. In the battery sector, the Inflation Reduction Act avoids the language of industrial policy altogether, framing intervention instead as climate mitigation, supply-chain resilience, and national security—particularly the reduction of strategic dependence on China. These justifications allow for large-scale state intervention while preserving continuity with America’s market-oriented self-image and constitutional norms.
A similar reframing is evident in semiconductors under the CHIPS and Science Act. Rather than invoking industrial policy or national champions, the legislation situates state support within the imperatives of defense readiness, artificial intelligence leadership, critical infrastructure protection, and resilience against geographic concentration in Taiwan and East Asia. Semiconductor manufacturing is presented not as an industry to be built by the state, but as a security-sensitive capability that markets alone have failed to safeguard.
This rhetorical strategy is not accidental. Openly acknowledging emulation of China’s approach would risk ideological backlash, invite legal and political challenges, and fracture fragile bipartisan coalitions. By embedding industrial objectives within the more politically legitimate frames of climate action, national security, and technological leadership, U.S. policymakers achieve functional equivalence without ideological confrontation. The result is Chinese-style strategic prioritization carried out through liberal-democratic language: substantively similar in intent and effect, yet carefully differentiated in presentation and political justification.
Demand Without Decrees: How the United States Replicates Quotas Through Market-Compatible Guarantees
China’s industrial ascent in batteries and semiconductors relied fundamentally on the state’s willingness to guarantee demand. In electric vehicles and batteries, New Energy Vehicle (NEV) quotas mandated adoption, ensuring that domestic producers such as CATL and BYD could scale production even when costs were high and efficiency was low. In semiconductors, a similar logic prevailed through state-directed procurement and implicit purchase guarantees by state-owned enterprises and government agencies. In both sectors, demand certainty—not short-term profitability—was the enabling condition for rapid capacity expansion.
These demand guarantees allowed Chinese firms to build manufacturing scale far in excess of what market signals alone would have justified. By reducing utilization risk, the state enabled companies to invest aggressively in capital-intensive facilities, absorb early losses, and move down the cost curve. Quotas and procurement mandates thus functioned as industrial scaffolding, holding firms upright until scale itself became a competitive advantage.
The United States has adopted a structurally similar approach while avoiding explicit mandates. In batteries, the Inflation Reduction Act ties consumer electric-vehicle tax credits to domestic battery production and localized mineral sourcing, while production credits reward U.S.-based cell, module, and vehicle assembly. These provisions do not compel consumers or firms to choose domestic batteries, but they strongly condition market access on domestic capacity, thereby steering demand toward U.S.-based producers.
In semiconductors, the CHIPS and Science Act operates through long-term grants, investment tax credits, and procurement preferences for trusted and domestically produced chips, particularly in defense and critical infrastructure. At the same time, restrictions on advanced Chinese suppliers narrow the set of viable alternatives, further reinforcing demand for domestic fabs. As with batteries, production is not mandated; instead, demand is engineered through fiscal incentives and regulatory constraints.
This approach reflects a shared economic reality across both sectors: battery plants and semiconductor fabs only scale when demand is predictable, utilization risk is constrained, and investors believe the state will not withdraw support mid-cycle. The IRA and CHIPS Acts address this problem in precisely the way China did—by guaranteeing demand—but through tax law, grants, and procurement rules rather than quotas and planning directives. The mechanism differs, but the industrial logic is the same.
Hidden Backstops: How the State Absorbs Industrial Risk Without Owning the Industry
China’s industrial strategy in both batteries and semiconductors has long rested on the state’s explicit willingness to absorb risk that private capital would not tolerate. Policy banks extended credit on non-commercial terms, state investment funds accepted prolonged inefficiency, and firms were repeatedly recapitalized after setbacks. In semiconductors, the China Integrated Circuit Industry Investment Funds—Big Fund I and Big Fund II—embodied this logic, recycling capital into fabs and design houses even when financial returns disappointed. Failure was not terminal; it was often a precondition for eventual scale.
The United States has converged on a comparable risk-sharing model while carefully avoiding the appearance of state capitalism. In batteries, the Inflation Reduction Act’s production tax credits effectively socialize downside risk by guaranteeing revenue per unit of output regardless of market conditions. These long-duration credits function as quasi-offtake agreements, implicitly underwriting early losses and stabilizing cash flows during the most capital-intensive phases of expansion. Although no public entity owns the plants, the Treasury absorbs much of the commercial uncertainty.
A similar structure operates in semiconductors under the CHIPS and Science Act. Large upfront grants reduce capital expenditure risk, while investment tax credits lower the effective cost of building and equipping fabs. The federal government thus co-invests in semiconductor manufacturing without taking equity stakes or managerial control, insulating private balance sheets from the full consequences of cyclical downturns and technological missteps.
In both sectors, the United States preserves the formal distinction between public and private enterprise, yet the economic substance is unmistakable. Losses remain real, but they are diffused through fiscal instruments rather than visible on state balance sheets. This is risk absorption without ownership, and industrial policy without the label—an American variant of state capitalism in which incentives and grants quietly perform the work once done by policy banks and state funds.
Manufacturing Patience: How the State Engineers Long-Term Capital Horizons
China’s advantage in building globally competitive battery and semiconductor industries has rested in large part on time. Multi-decade industrial planning, political continuity, and a willingness to sustain unprofitable capacity for years allowed firms such as CATL and SMIC to survive prolonged periods of low utilization and weak margins. Capital was deployed with the expectation that scale, learning effects, and strategic relevance—not near-term returns—would ultimately justify the investment.
The United States lacks the institutional and political foundations to replicate this model directly. Electoral cycles, fragmented authority, and deep skepticism toward long-term state planning impose hard limits on how far capital patience can be stretched through administrative discretion alone. Yet the underlying economic reality remains: battery plants and semiconductor fabs require investment horizons far longer than those typically tolerated by venture capital or public markets.
The response under the Inflation Reduction Act and the CHIPS and Science Act has been to approximate long-term planning through statute. Both laws lock in a decade or more of predictable tax credits, grants, and incentives, materially reducing policy uncertainty for investors contemplating multi-billion-dollar, capital-intensive facilities. By anchoring expectations well beyond quarterly earnings cycles, the state effectively reshapes the temporal assumptions under which private capital operates.
For semiconductors in particular—where fabs often depreciate over twenty to thirty years—this statutory commitment is decisive. It does not eliminate political risk, nor does it match China’s capacity for sustained planning, but it meaningfully alters the investment calculus. The result is a synthetic long-term horizon, engineered through legislation rather than party continuity: an imperfect yet historically unprecedented attempt by the United States to counter structural short-termism in strategic manufacturing.
Champions by Design: Building National Leaders Without Officially Naming Them
China’s industrial strategy has been explicit in its cultivation of national champions. In batteries, firms such as CATL and BYD benefited from concentrated capital, coordinated policy support, and protective measures that accelerated their rise to global dominance. In semiconductors, companies including SMIC, YMTC, and Hua Hong were similarly elevated through targeted financing, preferential procurement, and regulatory insulation. The state did not merely create favorable conditions; it openly selected and reinforced the firms meant to lead.
The United States operates under a fundamentally different political and legal constraint. It cannot formally designate national champions or overtly privilege individual firms without triggering political backlash and legal scrutiny. Industrial favoritism must therefore be indirect, embedded in rules and eligibility criteria rather than expressed as policy intent.
Under the Inflation Reduction Act, this logic is evident in the battery sector. Production tax credits and manufacturing incentives are structured so that only firms achieving massive scale can capture their full value. Vertical integration across cells, modules, and vehicle assembly is implicitly rewarded, while smaller or less integrated players struggle to reach economic viability. Selection occurs through economics rather than proclamation.
The same dynamic applies in semiconductors under the CHIPS and Science Act. Meaningful access to grants and incentives is limited to firms capable of executing multi-billion-dollar fab investments and meeting stringent technical, security, and political conditions. Scale, integration, and alignment with national priorities become the de facto criteria for success. Smaller entrants are not banned, but they are steadily priced out by the structure of the program itself.
If globally competitive U.S. champions in batteries or advanced semiconductors ultimately emerge, they will not be the result of formal designation. They will be “accidental” champions—market-selected, yet unmistakably shaped by the state. The outcome mirrors China’s approach, even as the method remains distinctly American.
Nationalizing Supply Chains Without Ownership: Industrial Control Through Law and Regulation
China’s rise in batteries and semiconductors was inseparable from the state-led integration of entire supply chains. Through centralized coordination, capital controls, overseas resource acquisition, and disciplined export policies, Beijing aligned upstream inputs, midstream manufacturing, and downstream deployment under a unified strategic framework. Vertical integration was not left to market evolution; it was actively engineered to ensure control over critical nodes and long-term strategic leverage.
The United States has moved toward a functionally similar outcome, but through fundamentally different instruments. Rather than direct ownership or centralized planning, Washington relies on trade rules, tax law, and regulatory constraints to shape which supply chains are viable. In batteries, the Inflation Reduction Act deploys Foreign Entity of Concern provisions, local content requirements, and allied-country mineral sourcing rules to redirect investment away from Chinese-linked inputs and toward domestically anchored or politically aligned supply networks.
In semiconductors, the same logic is reinforced through the CHIPS and Science Act in conjunction with export controls. Restrictions on advanced-node technology transfers, subsidy clawbacks tied to expansion in China, and preferences for trusted suppliers and allied fabs collectively narrow the permissible geography of production. Firms are not compelled to relocate, but access to capital, technology, and markets increasingly depends on compliance with U.S.-defined supply-chain boundaries.
Taken together, these measures amount to supply-chain nationalization without expropriation. The U.S. government does not own mines, fabs, or refineries, nor does it formally direct corporate strategy. Yet it determines which inputs qualify for subsidies, which firms can access public support, and which cross-border linkages are politically and economically sustainable.
This form of control operates through incentives and prohibitions rather than ownership and command. But its effect is unmistakably strategic: the state shapes industrial structure by defining the contours of permissible supply chains. What emerges is industrial steering by legal and fiscal means—nationalization in function, if not in name.
Learning Without Acknowledgment: Why the United States Disavows Its Industrial Precedent
The United States is unlikely to openly acknowledge that its recent industrial interventions in batteries and semiconductors draw lessons from China’s experience. Explicit admission of emulation would undermine ideological legitimacy by challenging the long-standing narrative that American economic strength flows primarily from markets rather than state coordination. It would also empower critics who warn of “authoritarian convergence,” framing U.S. policy as a departure from liberal economic principles rather than a pragmatic adaptation to global competition.
Such acknowledgment would further clash with America’s self-image as an innovation-first, market-led economy. Political discourse in the United States has historically treated industrial policy as an exception justified only by extraordinary circumstances, not as a model to be learned from foreign systems—particularly those associated with centralized authority. To admit learning from China would therefore risk reframing necessary policy adjustments as ideological capitulation.
Instead, the Inflation Reduction Act and the CHIPS and Science Act are carefully narrated as responses to discrete and defensible problems. They are presented as corrections to market failure, remedies for unfair competition, and safeguards for national security. This framing preserves continuity with liberal economic norms while providing political cover for large-scale state intervention in strategic sectors.
This rhetorical posture is best understood not as denial, but as narrative management. The United States is not importing China’s political system, nor is it endorsing its governance model. What it is adopting—quietly and selectively—is the underlying industrial logic that China applied earlier: scale requires sustained demand, patient capital, and state-mediated risk. The politics differ, but the math is the same.
The Ceiling of Emulation: Why U.S. Industrial Policy Cannot Fully Replicate China’s Model
Despite growing convergence in tools and objectives, the Inflation Reduction Act and the CHIPS and Science Act remain structurally constrained in ways that distinguish them sharply from China’s industrial model. The United States lacks a centralized execution authority capable of coordinating strategy across ministries, regions, and firms. Implementation is fragmented among federal agencies, state governments, and local actors, each with distinct incentives and political constraints. This diffusion of authority limits coherence and slows adjustment when policies underperform.
More fundamentally, the U.S. political economy offers little tolerance for prolonged inefficiency. Whereas China has repeatedly sustained firms through years or even decades of losses in pursuit of scale and strategic dominance, American support is conditioned on visible progress and political defensibility. Subsidies must be justified to voters, credits are periodically contested, and program design reflects an expectation of eventual commercial viability rather than indefinite state backing.
Political reversibility further reinforces these limits. Unlike China’s continuity of industrial strategy across leadership cycles, U.S. policy remains vulnerable to electoral turnover, budget renegotiation, and judicial challenge. As a result, the state can seed capacity in batteries and semiconductors, but it cannot incubate firms through extended periods of failure in the same way China can. The outcome is an industrial policy that narrows the gap—but stops short of full convergence.
Key Takeaways
The Inflation Reduction Act and the CHIPS and Science Act are best understood as liberal-democratic adaptations of China’s state-led industrial strategy—executed through tax law, grants, and regulatory conditions, framed as climate action and national security, and justified by geopolitical competition. The United States has abandoned the pretense that markets alone can deliver battery giants or advanced-node semiconductor capacity at scale. Yet it remains unwilling to acknowledge that China confronted—and resolved—the problems of scale, capital patience, and risk absorption earlier and more explicitly. In essence, the United States has not adopted China’s ideology, but it has adopted its industrial playbook—quietly, selectively, and defensively, across both batteries and semiconductors.