The views expressed in this article are solely those of the author and do not represent the official views or policies of the U.S. Government or any of its agencies.
American industrial policy is broken. Not because it lacks ambition or resources, but because it is structurally biased toward mega-cap companies while overlooking the mid-sized firms that are essential for scaling innovation into manufactured products. This bias undermines policy objectives, creates supply chain vulnerabilities, and leaves the United States exposed to competition from countries that treat the entire industrial ecosystem as strategically important.
The CHIPS Act allocated $39 billion to semiconductor manufacturing, but the vast majority went to Intel, Samsung, and TSMC—companies with market capitalizations exceeding $100 billion. Meanwhile, mid-sized suppliers of specialized materials, equipment, and services that these fabs depend on received minimal support. The Inflation Reduction Act's $369 billion in clean energy investments similarly favored established players: Tesla, already dominant in electric vehicles, became the primary beneficiary, while smaller battery producers and component manufacturers struggled to access capital.
This pattern reveals a deeper structural problem. Mega-cap companies are visible to policymakers, have sophisticated government affairs teams, and can absorb grant complexity. Mid-cap companies—those with revenues between $100 million and $10 billion—lack this visibility and capacity. Yet they are precisely the firms that translate lab innovation into scalable manufacturing. They are the suppliers, the integrators, the specialized producers that make supply chains resilient.
Consider semiconductor manufacturing. A leading-edge fab costs $20 billion and employs 3,000 people directly. A mid-cap equipment supplier serving that fab might cost $500 million to build and employ 500 people. But without it, the fab cannot operate. The U.S. semiconductor supply chain has been hollowed out at the mid-cap level: we lack domestic suppliers of critical materials, specialized gases, and precision equipment. China and Taiwan have invested heavily in these tiers, creating resilient ecosystems.
The same dynamic appears in critical minerals, battery production, and advanced manufacturing. A $5 billion lithium refinery is useless without mid-cap suppliers of catalysts, equipment, and logistics infrastructure. A $100 billion automotive OEM is dependent on thousands of mid-cap Tier 1 and Tier 2 suppliers.
Current U.S. policy treats mid-caps as secondary. Grant programs require matching capital, accounting sophistication, and legal compliance that mid-caps cannot easily manage. Tax incentives favor large-scale capital expenditure, not the incremental capacity-building that mid-caps pursue. Export financing through EXIM favors large deals with sovereign borrowers, not the sustained relationships that mid-caps need.
The result is perverse: U.S. policy subsidizes the construction of advanced manufacturing capacity while inadvertently incentivizing dependence on foreign suppliers for the underlying ecosystem. TSMC builds a $20 billion fab in Arizona supported by CHIPS Act grants. To operate, it imports 60% of its specialized materials and 40% of its equipment from Asia because U.S. mid-cap suppliers lack the capital and certainty to invest in production capacity.
Fixing this requires three changes:
Demand Coordination: The U.S. government should use its procurement authority to aggregate demand and commit to multi-year purchases from mid-cap suppliers, reducing their capital risk. Defense production, infrastructure build-out, and energy transition programs could collectively create visible, predictable markets for specialized suppliers.
Patient Capital: The government should establish venture-debt and growth-equity facilities specifically for mid-cap scaling. Unlike grants or tax incentives, patient capital removes the matching requirement and accommodates the 5-10 year timelines that mid-caps need to build capacity.
Supply Chain Transparency: The government should map critical supply chains and identify mid-cap dependencies, then actively support consolidation, capacity-building, and geographic diversification in those tiers through targeted financing and procurement.
Without these changes, American industrial policy will continue to subsidize factory construction while inadvertently outsourcing the ecosystem that makes those factories function. That is a recipe for resilience theater—the appearance of onshore manufacturing without the underlying resilience that competition or conflict demands.