US Can’t Shield Its Way to Prosperity
TL/DR –
The success of a nation’s industrial policy depends on supply, demand, and competition, with a nation’s prosperity reliant on recognizing market forces beyond its borders. The article argues that nations which shield their industries from these forces are only delaying an inevitable reckoning, using China’s economy as an example of a model which is now showing its cracks due to stagnating domestic demand and deflating overcapacity. In contrast, Singapore’s economy, which is consistently ranked high in economic freedom, demonstrates the effectiveness of balancing government intervention with free-market principles.
Global Economies Rely on Market Forces Despite Increased Adoption of Industrial Policies
Across the globe, from Washington to Beijing, governments have shown a renewed interest in industrial policies. However, irrespective of the level of subsidies, planning, or protection offered, a nation’s success is still grounded on the age-old market forces of supply, demand, and competition. While industrial policies can influence participants in the economic boxing ring, the real match is dictated by market dynamics.
What this implies for any nation is that it cannot prosper in a global market if it does not reflect the same market forces internally. Internationally, there is no government setting prices or shielding preferred businesses. Instead, market forces reward genuine efficiency.
Revival of Industrial Policies Still Bows to Global Market Forces
Despite the resurgence of industrial policies, as seen in U.S. President Joe Biden’s CHIPS Act and Inflation Reduction Act, and China’s Belt and Road investments, the ultimate determiner of value is still the global market. Prices, productivity, and consumer choices dictate the winners, not government decisions.
A company that flourishes under subsidies but fails to compete internationally is not truly competitive. The global market operates as a tireless meritocracy, recognizing efficiency, innovation, and adaptability. Countries that insulate their industries from this pressure merely postpone the unavoidable adjustment.
China’s Economic Model: Cracks Emerge Despite Apparent Strength
The economic model of China, a mix of state control and capitalist energy, is showing growing weaknesses. Dr. Desmond Lachman of the American Enterprise Institute warned in 2024 that China’s growth had slowed to 4.75%, approximately half of its former speed. The model that fueled China’s rise, dependent on heavy investments, exports, and debt, has reached its limit. Without significant reforms to boost domestic consumption, Lachman warned, China risks experiencing a “Japanese-style lost decade.”
Similarly, a June 2025 Bruegel report, Ten Challenges Facing China’s Economy, revealed an economy trapped in a cycle of deflation, overcapacity, and stalling domestic demand. Despite China’s official fiscal deficit widening to 4% of GDP, most of that new debt serves merely to refinance local governments instead of stimulating consumer spending.
The report noted that China continues to produce significantly more than it consumes, pushing it to “export its way out” of structural weakness. However, this export-driven strategy is clashing with the rise of Western protectionism and the limitations of global demand.
At a deeper level, China is dealing with structural difficulties. Manufacturing investment continues to increase, while the returns on both state-owned and private assets are declining. The country’s household savings rate, at 44% of GDP, is the highest in the world, reflecting insecurity rather than thrift. This insecurity stems from inadequate social safety nets, pensions, and unemployment protections. President Xi Jinping has rejected welfare reform as “welfarism,” opting instead to expand state direction rather than allow market-based consumption to thrive.
Consequently, China’s economy operates on borrowed competitiveness, expanding its output without enhancing productivity or consumer welfare. The industrial policies that once powered China’s rise are now obstructing the efficiency, innovation, and openness markets demand. According to Bruegel, Beijing’s expansion strategy does not appear to address the root causes of the economic slowdown, and only structural liberalization can restore balance.
In essence, China’s apparent competitiveness is less a long-term advantage and more a temporary strength built on credit and compulsion, not on efficiency and freedom.
Singapore’s Success Story: Freedom Combined with Strategy
On the other hand, consider Singapore. The city-state, often hailed as a model of “state capitalism,” ranks second globally in overall economic freedom according to the Fraser Institute’s 2025 Economic Freedom of the World Report. It also scores highly for freedom to trade internationally and regulatory openness.
Singapore’s government is active but aligns with market principles. It invests in infrastructure and education without favoring specific sectors. The domestic market emulates the pressures of the global one, enabling Singaporean firms to compete and succeed internationally.
What sets Singapore apart is its competitiveness relative to its size. Despite a population of fewer than six million people, the nation ranks among the top economies in terms of per capita GDP and global trade integration. It exports goods and services nearly twice its GDP each year. In real terms, each Singaporean worker contributes more to global output than their contemporaries in almost any other country. Singapore’s system boosts the power of scale through efficiency, openness, and institutional design, demonstrating that market freedom can substitute population size as a strength source.
Markets as a Source of Discipline Rather Than Dogma
The take-home message from this analysis is pragmatic rather than ideological. If a nation’s domestic economy matches the competitiveness of the global market, its businesses become resilient. On the other hand, distortions from subsidies, protectionism, and bureaucratic favoritism can lead businesses to become complacent.
The United States’ recent shift toward industrial policy, characterized by tariffs, governmental stakes in private firms, and reshoring incentives, risks repeating the same mistakes it criticizes in other nations. While protection and ownership may provide temporary relief, they ultimately undermine efficiency and weaken competitive instincts. A dynamic economy doesn’t require insulation; it needs confidence in its market strength, grounded in open trade, reliable energy, smart regulation, and education systems that help workers adapt.
This is not to suggest the elimination of all strategic policies. Industries like defense, critical technologies, and infrastructure necessitate coordination. However, such interventions should aim to enhance competitiveness rather than shield inefficiencies. The objective is not laissez-faire for its own sake, but market discipline as a national fitness program.
The global economy serves as a mirror, reflecting how well America’s own system prepares its firms and workers for competition. When we cloud that mirror with protectionism and industrial favoritism, we may gain time, but we lose the clarity that markets demand.
Economic nationalism might feel reassuring, but it dulls our competitive edge. As President Ronald Reagan warned in 1987, apparent patriotic actions such as imposing tariffs on foreign imports breed complacency, inefficiency, and, ultimately, job losses. His timeless warning rings true today: markets reward innovation, not insulation.
For the United States to lead in a free global marketplace, it must maintain its economy as free, open, and disciplined domestically.
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