From Cold War Factories to Green Supply Chains: Why Current Fragmented Industrial Policy Will Lose the Climate Race
Business & Economics 2025-2026 High School Essay Contest Honorable Mention
American technological dominance did not emerge from free markets alone. In reality, it was built through deliberate cooperation between government and private industry during the Cold War when the government funded early-stage research, created demand through procurement, and set the missions within which firms competed and scaled production. The United States returned to industrial policy at scale through the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act as well as the Inflation Reduction Act (IRA), abandoning the assumption that markets alone could secure strategic industries. That commitment has continued under the Trump administration, but in a different form. Clean-energy incentives have narrowed substantially, tariffs and negotiated equity stakes play a larger role, and semiconductor support is constantly renegotiated case by case. The central weakness of modern industrial policy is the lack of institutions able to coordinate government and private firms across administrations, worsened by the greater bargaining power that established firms now hold over the government. While Cold War firms competed within government constraints, today’s incumbent firms aim to push policies that grant them increased regulatory and financial advantages. Without durable institutions, industrial policy remains vulnerable to political turnover and corporate bargaining rather than anchored to a consistent national mission.
Cold War Public-Private Model
Cold War industrial policy succeeded because the federal government controlled private markets rather than attempting to replace them. The state acted as an investor of first resort, absorbing early-stage risk that private capital was unwilling to bear. Agencies such as the Defense Advanced Research Projects Agency (DARPA), created in 1958 and backed by hundreds of millions of dollars in early Cold War funding, financed high-risk research in computing and networking long before private investors considered it commercially viable. The government also set the terms of the mission itself: establishing the technical goals, deadlines, and coordination that private firms would then work toward. National Aeronautics and Space Administration (NASA)’s Apollo program (1961-1972) exemplified this role, coordinating production across thousands of firms toward a single national objective that the government alone had defined.
The result was a hybrid system in which the government assumed the risk and set the goals and direction, while private firms competed to execute those goals by conducting research, securing contracts, and developing the manufacturing capacity needed to produce at scale.
To complete the circle, the federal government also functioned as a buyer of last resort, using military and space procurement to create markets for the technologies it had funded. According to NASA, federal contracts made up over half of early demand for advanced semiconductors during the 1950s and 1960s, along with a substantial share of corporate R&D funding in computing and electronics. Firms responded to this guaranteed demand by expanding production, refining manufacturing methods, and competing to meet the government’s technical standards. The strategy was straightforward: procurement reduced market uncertainty, and firms could invest in developing a technology knowing that a buyer existed once it became functional. This predictability allowed firms to scale production and lower unit costs, converting technologies that had been too risky or too expensive for private markets into commercially viable industries. The effect extended beyond any single technology, with government purchases building lasting industrial capacity in aerospace, computing, and microelectronics, entrenching U.S. dominance in these fields for decades. Cold War policy solved coordination failures that markets alone could not by linking public funding, guaranteed demand, and private production around shared strategic objectives.
The early semiconductor industry is a strong example of how government procurement converted an immature technology into durable private industrial capacity. Integrated circuits in the early 1960s were expensive, technically unproven, and lacked a substantial civilian market. Military and space programs supplied that market: as late as 1962, government purchases accounted for 100 percent of total U.S. integrated-circuit sales, allowing manufacturers to expand production before commercial demand existed. Defense and space customers continued to account for the majority of integrated-circuit sales through much of the 1960s, working with private suppliers to develop the capacity and reliability required for advanced systems. Manufacturers responded to these dependable orders by increasing output, improving production yields, and refining fabrication methods. The resulting economies of scale contributed to dramatic price declines between 1962 and 1968, making integrated circuits increasingly practical for commercial use. As costs fell and performance improved, demand expanded beyond government programs, and subsequent industry growth was increasingly driven by the American computer sector. The government created the early market and established demanding technical requirements, while private firms developed the production capacity needed to satisfy them. Procurement therefore did more than support individual research projects. It helped create an industry capable of surviving after government demand significantly reduces. This case suggests that guaranteed demand can help immature technologies reach commercial scale. That model offers a useful benchmark for today’s industrial policy, which has revived government intervention but without the same coordination, stability, or long-term direction.
Industrial Policy Under Trump
Industrial policy under the current Trump administration has shifted away from Biden-era climate-centered investment and toward selective support for domestic manufacturing and strategic industries. Trump’s biased retreat from federally backed clean-energy technologies risks slowing American innovation in industries it could gain major technological and competitive advantage. The July 2025 reconciliation law either terminated, shortened, or restricted several major clean-energy credits and a recorded $34.8 billion in clean-energy projects under the IRA, weakening the predictable incentives on which many firms in the clean energy and renewable sectors had based long-term investment plans. While the effects cannot be attributed to federal policy alone, but still, the retreat coincided with growing instability in the sector. Semiconductor policy followed a different path. Unlike clean-energy subsidies, semiconductor support aligns closely with Trump’s stated goal of expanding strategic manufacturing in the United States and reducing dependence on foreign supply chains. CHIPS funding continued, but the administration converted $8.9 billion in Intel grants into a 9.9 percent equity stake and transferred the CHIPS Program Office to the United States Investment Accelerator, which was instructed to renegotiate stronger terms for taxpayers. That shift also reflects the administration’s preference for using federal support to attract private investment while demanding more direct returns and commitments in exchange. This approach gives the government greater leverage over individual firms, yet it replaces broad and predictable policy with selective, deal-by-deal intervention. Private companies remain responsible for investment and production, but their incentives increasingly depend on presidential priorities and negotiated arrangements. Trump-era industrial policy is therefore active and interventionist, but its volatility limits the durable coordination necessary for long-term industrial development.
When Firms Bargain with the State
The central weakness of modern industrial policy is the absence of stable coordination between government institutions and private firms, even where federal intervention remains substantial. Policy is dispersed across tax credits, executive orders, regulatory agencies, negotiated grants, and trade restrictions, each operating on its own timeline and exposed to different political pressures. The position of recipient firms also matters. During the Cold War, semiconductor producers such as Fairchild Semiconductor and Texas Instruments depended heavily on military and space procurement to create demand and make large-scale production viable, giving Washington substantial leverage to impose technical standards, deadlines, and performance requirements, but today’s recipients are different. CHIPS and IRA support often flows to established firms such as Intel, TSMC, and major clean-energy companies that already possess deep capital reserves, lobbying operations, and political relationships. These firms are not dependent on a single government buyer and therefore begin negotiations with far greater leverage. The Intel agreement illustrates this more transactional relationship: the administration converted $8.9 billion in grants into a 9.9% equity stake, replacing a standard subsidy relationship with a company-specific arrangement. Lobbying reveals the same shift, where the American Clean Power Association spent $3.8 million in the second quarter of 2025, its highest quarterly lobbying total since at least 1999, as Congress considered and eventually carried out cuts to IRA programs. Private-sector influence is not inherently harmful, and these firms still supply the expertise, investment, and production capacity that industrial policy requires. The problem is that modern policy is increasingly negotiated between long-standing powerful firms and temporary administrations, weakening the government’s ability to impose a consistent strategic direction. The result is an active but unstable system in which industrial priorities depend on both bargaining power and national planning.
A Blueprint for Durable Industrial Policy
These recommendations depart from the current administration’s approach, which has converted CHIPS grants into equity stakes, relied more heavily on tariffs,negotiated agreements, and terminated or narrowed several major IRA clean-energy credits. The clearest precedent is the semiconductor case discussed above: guaranteed procurement gave firms the confidence to scale production before a civilian market existed, and the same logic should extend to long-term offtake contracts for immature technologies such as green steel, clean cement, and grid-scale storage. Congress should also establish independent and durable mission agencies with multiyear budgets that survive beyond a single administration. Moreover, they should tie subsidies and contracts to enforceable production and delivery requirements rather than lenient terms that shift whenever political priorities change. Infrastructure reform belongs in this framework as well. The median wait from an interconnection request to a signed agreement exceeded three years in 2025, while commercial operation often took more than five, delaying investment regardless of which party held office. Finally, allied supply-chain coordination and sustained public R&D funding, which declined from 1.86% of GDP at its 1964 peak to 0.63% in 2024, would help close the gap between invention and commercial deployment. These proposals rest on a historical precedent: predictable demand, enforceable conditions, and institutional continuity must outlast any single president’s priorities.
Periods of geopolitical and economic competition highlight the limits of relying on markets alone to build strategic industries. Cold War success came from coordinated public investment, guaranteed demand, clear national missions, and private execution. Industrial policy remains active under the Trump administration, but it has become more selective, transactional, and vulnerable to shifts in presidential priorities. The central weakness is the lack of durable institutions to coordinate policy across administrations. Modern firms remain essential to production and innovation, but their greater bargaining power makes consistent national direction harder to sustain. Tariffs, equity stakes, and renegotiated grants may support individual industries, but they fall short of providing the predictable demand and institutional continuity required to build long-term capacity. Future administrations should establish permanent mission institutions, use procurement and offtake contracts, and coordinate infrastructure and supply chains over decades. Industrial policy succeeds when public direction and private execution align around goals that survive political turnover. Without that durability, American industrial policy will remain active but unstable, hurting the US’s competitive edge and technological development capacity.
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Jackson Faber is a junior from San Francisco in the Class of 2027 at Marin Academy. Academically, Faber is interested in reading, Model UN, debate, history competitions, and exploring complex ideas through writing and discussion. Outside the classroom, Faber loves playing sports, serving as captain of the school’s cross-country and tennis teams, and also playing varsity soccer.