Industrial Icebreaker Policy

Why Jake Sullivan is "obsessed" with ships that break ice

Here at ChinaTalk, today we are diving into a topic that is snow joke –  icebreakers! 

We interviewed William Henagan and Robert Obayda, both directors of the NSC. We discuss:

• Why icebreakers are important enough for Jake Sullivan to be “obsessed” with them

• “Industrial policy for the rest of us”—how bureaucrats can get creative to support strategic industries even when they don’t get billions to hand out like the Chips Act

• How Canada, Finland, and the United States are leveling up their cooperation in the Arctic through the Icebreaker Collaboration Effort (ICE Pact)

• Why cranes matter for national security, and the benefits of using carrots vs sticks

• What icebreakers are for, and how Finland is punching above its weight in the NATO alliance.

Listen to the podcast by clicking the link below for Spotify! The audio features one minute of puns in the opener I’m too embarrassed to publish in the newsletter. Click here to listen on Apple Podcasts.

Co-hosting today is former ChinaTalk intern Alexander Boyd, who now works at the China Digital Times. 

Cranes, trains, and global supply chains

Jordan Schneider: Robert, what’s the case for industrial policy?

Robert Obayda: Under President Biden, the NSC has been pursuing a modern industrial strategy, which is the convergence of economic and national security strategies. The basic idea is that if we invest in our economy, we will advance our national security.

There are two key assumptions underpinning this approach. First, the modern vision of public investment recognizes that markets don’t always allocate capital productively and efficiently, regardless of our competitors’ actions or the scale of our shared challenges. While no one discounts the power of markets, in the name of oversimplified market efficiency, entire supply chains of strategic goods, along with industries and jobs, moved overseas.

The second assumption was that all economic growth was good growth. Various reforms strengthened some sectors of the economy, like finance, while other essential sectors, such as semiconductors and infrastructure, atrophied. As a result, our industrial capacity, which is crucial to the country’s ability to innovate, took a significant hit.

The problem with the previous approach is that it assumed the free market was equally free in each country and that no government was interfering to advance their own interests at a scale large enough to create an imbalance. Looking at the PRC’s efforts to create market entry barriers around strategically important sectors and cultivate those sectors through various government subsidies, you’ll see it’s no longer truly free.

We’ve created a strategy to compete with that. The modern American industrial strategy identifies specific sectors that are foundational to economic growth and strategically important from a national security perspective, where the private sector alone isn’t poised to make the investments needed to secure our national ambitions.

Jordan Schneider: What led you to focus on icebreakers and cranes as the first two areas?

Robert Obayda: Honestly, it was general interest. We read the strategy, thought it was brilliant, and wanted to see if we could apply it. We started looking at sectors that fit the bill, and for various reasons, cranes were the first applicable area, followed by icebreakers.

Jordan Schneider: When you say “presented itself,” can you elaborate on how you decided to invest time and energy in one area versus another?

William Henagan: Our industrial strategy takes a 10,000-foot view. We then dial into sectors of strategic importance. Chips are an obvious example, as are our efforts to facilitate the clean energy transition and some of our infrastructure investments.

In this case, we looked at areas with intense market concentration, predominantly in the PRC, but we’d be concerned about market concentration in any country. For example, with cranes, there’s a significant position in the market for a product critically important to global supply chains. These cranes pick containers off ships and put them on docks, handling an incredible percentage - 80-90% - of all goods in the world.

The question is one of resilience versus dominance. In areas like chips, we’re looking to lead the world. But for cranes, icebreakers, and some of our shipbuilding work, this is more about resilience. We’re considering how to maintain strategic sectors and products that we need to make, and that our allies and partners need to be good at making, to ensure diversity within our supply chains and resilient economies.

Robert and I started this work in our office on the homeland side, focusing on critical infrastructure protection. We were trying to think through the implementation of the multi-trillion dollar spending package under the Investing in America agenda, looking at where we need to be resilient and protect pieces of our economy to maintain a minimum level of capability. We also wanted to prove that our national security policy can facilitate strong industrial policy, economic growth, and promote a foreign policy for the middle class.

Jordan Schneider: Let’s talk through some of the tools you’ve deployed for cranes and icebreakers. The CHIPS Act, as ChinaTalk listeners are familiar with, had grants, loans, tax credits, and a big R&D portion in the NSTC. What are some tricks up your sleeve?

William Henagan: This is a good place to talk about what we’re good at and what we’re not so good at in the American government. We have a robust set of restrictive tools of economic statecraft, like tariffs and export controls. We also now have the ability to make real investments on the domestic side.

One area we’re trying to improve is our affirmative tools of economic statecraft. We have a hard time investing abroad and lack good tools for creating patient capital that we can invest here or in other countries. These are some of the questions people are starting to raise as we get more sophisticated about strategic government investment.

We learn from the work that we’ve been doing over the last three years, which is getting a lot of bipartisan support, and is something that’s going to be carried forward as you see a convergence of economic and national security policymaking in the American system.

Jordan Schneider: Robert, you spent time in the Treasury Department on the enforcement side, dealing with sanctions and OFAC. That’s a more straightforward approach of prohibiting certain actions and then fending off lobbyists. Incentivizing positive behaviors, where the government doesn’t hold all the cards, is a more amorphous and challenging task.

Robert Obayda: The Treasury Department has a long history of private-public partnerships and relies on the private sector to mitigate global risks. Historically, we’ve used various sanctions and regulations as deterrents, acknowledging that the private sector is driven by profit rather than national security. Our industrial policy now aims to use both sticks and carrots by creating market incentives for private sector partners to act in ways that advance our national security.

Jordan Schneider: Let’s discuss our case studies, starting with cranes. What carrots were you able to offer?

Robert Obayda: The sticks we were using ultimately led to the carrots. We planned to use regulations and tariffs to mitigate risks, but this would create a market gap we needed to fill. This forced us to consider how to incentivize the private sector to step in and meet that demand.

See a podcast we did on the topic here:

William Henagan: Earlier this year, we considered issuing a maritime security directive. This order from the Coast Guard would require all ports across the country to examine their ship-to-shore cranes, identify those made in China, conduct cybersecurity hygiene work, and report back to the port captain. This increases the cyber compliance costs for cranes manufactured in China.

If you’re a port authority or terminal operator concerned about the risks of having a Chinese-built crane in your U.S. port, you’d be looking for alternatives. The largest Chinese company making ship-to-shore cranes is ZPMC. The main alternatives are in Japan, Finland, and Germany - close U.S. allies and partners.

We reached out to E&S, a Japanese company that makes ship-to-shore cranes, to discuss what it would take to encourage them to establish a facility in the United States for crane assembly or, at minimum, increase capital investment in Japan to meet U.S. demand for non-Chinese alternatives.

As we released the maritime security directive, E&S issued a statement about investing in the United States and expanding operations in Japan. We’ve had productive conversations with various allied and partner-based crane producers, encouraging people to consider them as trusted suppliers and alternatives.

We surveyed infrastructure investment programs that could potentially fund ship-to-shore crane purchases, such as the Ports Infrastructure Development Program at the Department of Transportation and the EPA Clean Ports Program. We pointed people towards these federal funding sources, which must comply with the Build America, Buy America Act. This requirement acts as a pull factor, incentivizing multinational companies to set up operations in the United States to take advantage of the generational investment in American infrastructure.

This approach allowed us to present a positive narrative alongside the restrictive tools like tariffs or security directives. We’re constantly looking for ways to carry forward this type of industrial policymaking in combination with our other tools.

Jordan Schneider: Let’s move on to our icebreaker conversation. From a macro perspective, there’s a fascinating chart showing the percentage of total ships launched over the 20th and 21st centuries. It reveals dramatic spikes in American production during World Wars I and II, followed by the rise of European, Japanese, and Korean shipbuilding. More recently, China has come to dominate, producing over 50-60% of global ship tonnage in the past 10-15 years.

Icebreakers are a particularly interesting case study due to their specialized nature. They’re incredibly powerful ships that break ice by pushing themselves onto it and then falling down. Russia even has nuclear-powered versions, while Finnish icebreakers can move sideways to clear wider paths.

Russian nuclear-powered icebreaker. Source.

These ships are crucial for opening trade routes that would otherwise be closed for many months of the year. Why should America care about icebreakers beyond occasionally freeing stuck boats around Alaska?

William Henagan: To understand the importance of icebreakers, we need to consider the global shipbuilding landscape. Historically, only one or two major powers have dominated the global order book at any given time. Currently, China accounts for about 49% of the global order book by tonnage, South Korea is in the 30% range, Japan is around 10-13%, and the United States is at a mere 0.2%.

While tonnage isn’t the perfect metric for icebreakers, as they don’t primarily carry freight, these vessels are crucial for opening shipping pathways. As climate change affects sea ice thickness, we’re seeing increased demand for icebreakers, particularly in areas like the Northwest Passage.

Our industrial strategy focuses on competing in sectors where we can excel, such as high-tech, high-specialty ships that require precision manufacturing and significant design IP. Icebreakers perfectly exemplify this category of ultra-specialized, complex vessels. Moreover, our allies and partners, like Canada and Finland, possess the best capabilities and know-how in this field.

A Finnish-made icebreaker, the Baltika, can drift. This video is hypnotizing.

By focusing on icebreakers, we aim to increase the U.S. share of the global order book from 0.2% to perhaps 1-2%. This growth is necessary to maintain a resilient shipbuilding economy that can be converted to support naval shipbuilding or cargo ship production during wartime.

Our icebreaker initiative, the ICE Pact, demonstrates how we can implement industrial policy alongside our allies and partners. This approach creates jobs in the United States while collaborating with our closest friends and sending important geopolitical signals to our adversaries.

Robert Obayda: Ultimately, our goal is to project power into high latitudes alongside our allies and partners. This requires a continuous surface presence in polar regions to counter Russian aggression and limit China’s influence. Without this arrangement, we risk our adversaries developing an advantage in a technology with geostrategic importance and potentially becoming the preferred supplier to other countries interested in purchasing icebreakers. It’s in our interest, both geopolitically and economically, to pursue this initiative.

Jordan Schneider: Robert, I understand all of that. But have you guys thought about also making the ice around Russia colder?

Robert Obayda: Haha yeah, we’re working with the Emiratis on that, actually.

Alexander Boyd: William, what you described sounds similar to a concept familiar to Chinatalk listeners: civil-military fusion, a controversial Chinese industrial policy. How does it differ from Chinese policy, which President Biden has specifically said he’s examining closely? What makes this approach American, as opposed to simply copying what the Chinese have done?

William Henagan: One key difference, as we’ve examined this problem, is the overlap in the civil fusion concept in the PRC. I won’t claim to be a PRC expert; we’re the economic and industrial policy team from the White House, not necessarily our China team. 

The evidence isn’t necessarily there about how building hulls in the same shipyards creates economies of scale. The type of work to build an icebreaker or a warship, including the specialty skills and materials needed, isn’t a one-to-one match. However, what’s important is having healthy shipyards capable of building all the associated vessels necessary for a country to stay competitive during both war and peace.

Our approach focuses on increasing the density of the supplier base that supports American shipyards and the demand for key inputs. We can leverage economies of scale on steel to drive down production costs. While the PRC uses non-market policies and practices to reduce input costs and keep shipyards afloat, that’s not the approach we would take in the United States.

Instead, there are interesting opportunities to be strategic about investing in shipbuilding here. This helps build a density of skilled labor and workforce proficient at building ships and sophisticated types of welding. It also attracts auxiliary businesses necessary to make component parts for ships.

Ultimately, we aim to have multiple healthy shipyards with strong order books, capable of bidding for Navy contracts and possessing the muscle memory and know-how to do so. While it’s not a perfect one-to-one comparison with what the PRC is doing, there are reasonable parallels to be drawn. We’re all thinking about how to create a strong shipbuilding sector in our respective countries.

The United States isn’t aiming for global dominance in this sector. We want to ensure we have the resilience and capability we need, with sufficient economies of scale to bend the cost curve. Our core objective is to make shipbuilding here competitive, not four times more expensive than in other countries. This differs from the PRC’s goal of true dominance in this particular sector.

Robert Obayda: Another key difference between our approach and China’s industrial policy execution is that we’re doing it alongside our partners and allies. China is hyper-focused on their own industry and going at it alone. For example, with icebreakers, we’re working alongside Finland and Canada toward our collective interests of maintaining the international order.

Similarly, our crane initiative not only supports U.S. industry but also invites our partners and allies to collaborate with us in the United States. We’re not limiting ourselves to only U.S. industry; we’re expanding our view across oceans to work alongside our partners and allies.

Jordan Schneider: Let’s talk about that a bit. Will alluded earlier to the “Buy America” policies, which limit a lot of what can be done. When you called the Finns, were they confused that someone from the White House wanted to talk about icebreakers? What was that conversation like?

William Henagan: No, the Finns were not confused. They know they have the best capabilities and one of the strongest shipyards in the world. They’ve been trying to talk to us about icebreakers for a long time. However, to build Coast Guard icebreakers, which is the government agency that builds and operates icebreakers in the United States, there’s something called Title 14. It’s similar to the Build America, Buy America Act, which mandates that these ships must be built in the United States.

The President is clear about this: American ships in American shipyards. However, that doesn’t preclude us from working with Finland or Canada to share information, exchange technical expertise, and collaborate. This cooperation sends a message to their neighbor, Russia, that democracies will work together on industrial policy and stand against autocracy and aggression by actors willing to violate international norms.

For President Stubb — Finland’s new president elected in March for a six-year term — this is a significant start to his administration.

It demonstrates that Finland will be a partner for the United States as a NATO member. This deal represents Finnish values and showcases Finland’s strong industry and business potential.

Prior to their NATO ascension, Finland was experiencing a slight economic downturn. Since joining, they’ve been experiencing what some call a “NATO bump.” ICE Pact is a natural follow-on, encouraging global partners to look to Finnish shipyards as an alternative for icebreaker construction, particularly for geopolitical swing states.

Finnish companies like Kone, Cargotec, and Wärtsilä produce many key inputs for these vessels and efficient shipyards. Our economic analysis suggests that, excluding commodities from our trade data, there could be a four or five-percentage point increase in goods and equipment manufactured by Finnish companies flowing into allies and partners to build icebreakers.

This mutual benefit is why the Finns were fully committed to this effort and why they’re such important partners.

Chinese Snow Dragons – Made in Finland? 

Alexander Boyd: William, I have a question. Despite all this, Finnish firms are also partners with Chinese firms. China’s first indigenously built icebreaker, Xuelong 2 [雪龙2], was actually designed by a Finnish company. Is part of the ICE Pact telling the Finns to stop designing Chinese ships? How does that work, given their pre-existing economic partnerships with China?

William Henagan: That’s a great question. Let’s back up and discuss the Helsinki shipyard, which will address this issue. Before 2019, the Helsinki shipyard, known for building the majority of the world’s icebreakers, worked closely with Aker Arctic, the state-owned corporation holding most of the IP for icebreakers. This is the company from which the PRC bought the design.

Xuělóng means “snow dragon” in Mandarin

The Helsinki shipyard was actually owned by the United Shipbuilding Corporation, a Russian state-owned enterprise created by a presidential charter signed by President Putin in 2007. The 2019 sanctions regime hit United Shipbuilding Corporation, forcing them to sell their holdings to Algador Holdings, a Cyprus-based investment company owned by Russian businessmen.

Three years later, although Algador Holdings wasn’t directly hit with sanctions, the secondary effects of sanctions on companies trying to buy ships started to prevent this shipyard from getting business from the Russians. This forced them to sell the yard to Davie Shipbuilding, based in Canada.

Our economic tools essentially encouraged the sale of this incredibly important strategic asset from Russian ownership to Canadian ownership. One year later, Finland ascended into NATO, and a year after that, we’re inking the ICE Pact. This is essentially embracing Finland and saying that as democracies, we’ll collaborate on industrial policy and send a message to autocracies and U.S. adversaries that we don’t view industrial policies as a zero-sum game. We see our alliances as fundamental to our strength abroad.

This approach differs significantly from that of the PRC and Russia. When the PRC bought the design from Aker Arctic, they built that ship in their shipyard and then didn’t continue working with the Finns. What we’re proposing is technical exchange, exchange of IP, and a long-term relationship committed to the success of both our countries, creating jobs in the United States as well as in Finland. This is an offer that China can’t make.

Alexander Boyd: Speaking of ships, you’ve partnered with the Finns, but how are the Canadians treating this? We’re obviously close allies, but we’re also right next to each other in the Arctic. Are the Canadians as willing to invest in United States shipbuilding capabilities as the Finns are?

William Henagan: That’s an excellent question. The Russians, and to some extent the Chinese, are the pacing threat in terms of the number of icebreakers. The Russians have over 40, some of the most advanced and powerful in the world. The Chinese have three or four total icebreakers, some being research vessels.

The Canadians are a natural partner because, with the exception of Russia, no country in the world is building as many ships or icebreakers. Their fleet consists of over 20 vessels, with plans to build around 28 icebreakers across three different shipyards in Canada (Irving, Seaspan, and Davie) over the next 10-15 years.

Canada is putting their money where their mouth is in terms of building icebreakers for both domestic use and maintaining a continuous surface presence. As one of our closest geostrategic partners and a member of the Five Eyes alliance, this is a natural area for collaboration. We have much to learn from Canada, and we’re also investing in our own icebreakers.

We’re exploring what expertise, skills, and capabilities we can bring from Canadian firms to support our shipyard, Bollinger Shipyard in Louisiana, in building the first domestically built heavy icebreaker in the United States in the last 50 years, called the Polar Security Cutter. The Coast Guard says we need up to nine icebreakers, a mix of heavy Polar Security Cutters and medium Arctic Security Cutters.

This collaboration and interoperability in designing and building these ships with the Canadians will allow us to use Canadian, U.S., and Finnish resources as force multipliers. In the high latitudes, there’s a strong argument that you can’t go it alone in this field.

Jordan Schneider: Breaking news: The Canadian coach of the women’s soccer team has just been let go for flying drones over competing countries’ practices. I’m curious if this might impact your comfort in working with them on icebreakers going forward.

William Henagan: It sounds like the Canadians have got hustle.

Robert Obayda:William laid it out perfectly. Canada made sense when we began; we were going at this alone. I wound up at the Finnish embassy one night and found myself talking to cutting-edge industry people, realizing they wanted to partner up. That’s how it became a bilateral thing. Then we wanted it to be a true multinational arrangement. We started looking around and turned to the north for all the reasons William outlined. The Canadians made sense, so we gave them a call, and sure enough, they were interested.

Jordan Schneider: What’s up with Norway? Don’t they make icebreakers?

William Henagan: This is a good place to talk about the theory of economies of scale. When thinking through why it’s so hard to build an icebreaker in the United States, we realized shipyards that build one-off, two-off, or three-off vessels often experience significant financial hardship or go out of business.

We asked ourselves if we could either get together as allies and partners to collaborate and consolidate demand around shipyards with experience and capital investment to build these highly specialized vessels, or if we should all go it alone. Going alone won’t reach the economies of scale and efficiencies needed in building these vessels.

Robert and I worked on a demand study, concluding that governments worldwide will try to buy 70 to 90 vessels over the next decade. The question is, what piece of that pie can the United States, Canada, and Finland try to capture?

We’re trying to create a consortium as an alternative to building in places like the PRC for geopolitical swing states. We’ve seen reports that countries like India and Gulf states want icebreakers as research vessels.

The Norwegians, Swedes, and other Nordic countries have expertise and capability to offer. However, when you look at who’s put up money to build icebreakers and which yards are doing so, it’s the Finnish yard in Helsinki, the yards in Canada, and our own yards with our $1.8 billion appropriation for building the polar security cutters.

We plan to build in a mechanism to invite allies and partners to participate in future iterations of ICE Pact. This could be an opportunity for Norway, Sweden, or others to come on board.

Alexander Boyd: Let’s stay on this topic briefly. Bollinger Shipyards is building those polar security cutters in Louisiana. Can you tell me about it? Outside of Shanghai, China has one shipyard, Zhenglong Shipyards, with more capacity than all American shipyards combined. What’s happening at Bollinger Shipyards? How big is it? What are we making? Will this radically transform the place, or are they ready to hit the ground running?

William Henagan: Bollinger Shipyards, a Louisiana-based firm, has already secured the contract to build the polar security cutter. They have various shipyards in the Gulf, with the yard in Pascagoula, Mississippi, building the polar security cutter over the next five years or so to finish the first PSC and subsequent PSCs.

These shipyards will invest in developing specialized capabilities and expertise necessary to build these ships. Under ICE Pact, we want to ensure they have a stable, long-term order book. The United States has stated through public statements that we need eight to nine icebreakers. To justify capital investment and make this the core of their business, Bollinger needs confidence in getting more than one ship of a particular specialty class built.

After building a couple of ships for the Coast Guard, we still need to help Bollinger compete to build icebreakers from the global vessel order book of 70 to 90 ships. This will provide them with the long-term stable contracts necessary to become a world leader in the sector.

If we can prove this model with icebreakers, it could serve as an example of how to create healthy, strong shipyards in the United States capable of grabbing an increasingly larger share of the global shipbuilding market.

Alexander Boyd: Would you say that U.S. government capital is a kind of icebreaker, and private capital will follow?

William Henagan: That’s a fair point. Shipbuilding is undercapitalized. It’s a difficult business requiring significant, patient capital because the margins on building ships are small. You need to invest billions of dollars to build a successful shipyard, train the workforce, and increase the density of suppliers around the yard. The whole ecosystem is largely driven by multi-million or multi-billion dollar products with small profit margins.

As the government, we want to develop our yards to build high-quality, cost-effective ships that can be sold in the international market, not just used in a market protected by the Jones Act or for U.S. military purposes. The question is how to get that flywheel going and use government funds through Coast Guard contracts, grant programs, or other investments.

There are various bills floating around on Capitol Hill right now discussing revitalizing American shipbuilding and developing a maritime strategy. Senators like Kelly and Wicker are working hard on this difficult, intractable problem. We can try to prove this concept using icebreakers because there are multiple justifications for why this is a good first case.

Jordan Schneider: That was an impressive display of knowledge, which speaks to the broader question of whether the USA should rely on a handful of experts like William showing up in the White House to handle these matters, or if there’s a more institutionalized way to tackle questions requiring different industry specializations and understanding of potential industrial policy carrots and sticks. Robert, I’d love to hear some broader reflections about working in this field and what long-term government capability in doing these sorts of things might look like.

Robert Obayda: You’re absolutely right. Having just two, three, or four people working on this is neither efficient nor particularly effective. To truly institutionalize this approach, especially within the national security community, we need to institutionalize the idea of using incentives or “carrots.” The national security community is accustomed to using “sticks,” whether through military functions or similar measures. However, there’s less familiarity with incentivizing the private sector, partly because it doesn’t come naturally and because many don’t understand how it works or what tools are available.

To execute this properly at scale, we need to continue doing it and adopt a top-down approach. We should direct our respective offices to have real industry analysts on hand who can study markets and determine what tools and levers we have to incentivize the private sector to take actions advantageous to us. We should have an office at the NSC exclusively focused on this, along with teams at each department and agency in the national security space. This way, we’re not limiting ourselves to just punitive measures. There are plenty of incentives in our toolkit, and if we learn to understand and use them effectively, it will be more productive.

William Henagan: Robert hit the nail on the head. This is an enormous team effort that in certain instances must be driven by the White House because you have to convince different departments and agencies, all with their own core missions, to work with a corporate mindset in the government. It’s incredibly difficult to institutionalize that corporate-style thinking because the way you actually institutionalize something in the government is by placing it at an agency in some kind of entity.

Robert’s point about industry analysts is crucial. To be effective at industrial policy and encouraging capital markets to allocate capital in line with American strategic objectives, we need people who deeply understand how capital markets work, how businesses make decisions, and how government action can incentivize and drive those decisions in ways valuable to us. This is challenging in our system, where people have to consider the five-year internal rate of return on investments rather than what an investment unlocks for the American economy.

The government is building that muscle now. We’re experiencing it being built in real-time, and I’m excited to see where it goes over the next ten years.

Robert Obayda: To add to William’s point, we’ve accepted as a community that the private sector is not driven by national security but by profit. However, that’s often where the thinking stops, leading to the belief that we can only use punitive measures to force action. We can have a relationship where we make it advantageous for the private sector to take these steps, but that requires a completely separate set of tools and a different way of thinking.

William Henagan: The United States has the most innovative financial system in the world, yet our government has no ability to harness it. The question we face is how to use the most dynamic, innovation-forward economy in the world to help us compete with our adversaries in the current environment. This is particularly important because over the next century, or at least the next couple of decades, competition in the economic sphere will be the determining factor in our success as a country and the continuity of our alliances.

We need to demonstrate that democracy is better than autocracy. If we don’t, it will be extremely difficult for us to be successful going forward.

Jordan Schneider: The White House versus agency question is really interesting with these types of problems. The number of different departments we’ve referenced throughout this interview illustrates two things: first, there clearly needs to be some White House component, but also that it might make sense to redistribute some of these responsibilities within the agencies to allow for fewer people to be involved, enabling a more rational approach. I don’t know if it’s within your remit to propose a Goldwater-Nichols Act for Industrial Policy here on ChinaTalk, but it really struck me that there shouldn’t be this many cooks in the kitchen when thinking about doing stuff like this.

Robert Obayda: Ideally, yes, but I don’t know if that’s entirely possible. If you look at icebreakers, the Coast Guard, Department of Transportation, and State Department all play significant and unique roles. I don’t know if there’s any way to consolidate that. What would be easier is if there was buy-in at an earlier stage - fundamentally accepting that we can play a role in creating incentives for the private sector to take these actions. There’s just a lot of fear that prevents people from doing that or from thinking outside the box more broadly.

Jordan Schneider: How does that change? Just through good case studies?

Robert Obayda: The messaging right now is coming from the top down, but it’s so new that, frankly, most people haven’t even heard of it. We just need to continue doing it. Future administrations need to continue pushing industrial policy strategy that uses both sticks and carrots, pushing that thread down through cabinet secretaries, departments, and agencies. We need to build up these small offices that exist at every department but are largely operating in the shadows as an afterthought.

This is truly one of the first administrations where we’re doing this effectively. We’re going to need a couple more cycles for it to really build itself out. But you’re seeing it slowly. William and I are turning people into believers every day, it seems. The more we do, the more we flip, the stronger the coalition becomes. When we transitioned from cranes to shipbuilding, people who wanted nothing to do with it the first time were now on the sidelines, wanting to participate and get involved.

William Henagan: It’s worth putting that in historical context, too. From the beginning of the United States, there was an initial era where we had a national industrial strategy called the American System. We were making investments in infrastructure and creating a national bank. Then, at the beginning of the 20th century, towards the Second World War, and immediately after, we made major strategic investments that developed emerging technologies and industries like microelectronics, biotech, etc.

What we’re in right now, catalyzed by a multi-trillion dollar effort through the Investing in America agenda, is the beginning of a third era of American industrial policy. It just takes a long time for an entity like the federal government, with millions of employees who often can’t or don’t talk to each other, to let that seep in. We are three or four years deep into that. Five to ten years down the line, people who have seen this as the norm of the way the government does business are going to get better at doing their jobs.

Change in the government at an institutional level is slow. We’ve also pitched ideas that Jordan is alluding to, such as having an agency focused on industrial policy or industrial analysis. Those are ideas that have been proposed by Congress. We might propose one of those in the Build Back Better agenda. We’ll see how it sticks going forward.

Alexander Boyd: This actually relates to Robert’s point about needing future administrations to continue this work. After Henry Clay’s American System, which never really got passed in full, Andrew Jackson killed the national bank. So how bipartisan is this thinking? We don’t know what will happen in the election, but is your approach to promoting shipbuilding capacity shared by people in the Republican Party?

Robert Obayda: The structure is bipartisan. We have that foundation to build off of. The strategy we’re employing, which involves incentivizing the private sector, is new but interesting and not something people are running away from.

William Henagan: As the National Security Council, we can’t discuss politics. However, I would point you to the supportive statements made by House Homeland Security Committee Chairman Mark Green and Subcommittee for Transportation and Maritime Security Chairman Carlos Jimenez, both Republicans from Texas and Tennessee, after we released our work on shore cranes and Ice Pact. This is extremely encouraging, especially in the context of our otherwise polarized, occasionally partisan environment. It’s indicative of the kind of support we hope everyone can get behind because it’s hard to argue against wanting to create a strong domestic economy in the United States that allows us to project power into other parts of the world.

Robert Obayda: We’re also fundamentally putting American business first and looking to strategic alliances when we alone can’t accomplish something. It’s a blend of both ideologies.

Outtro music: