The increase in partisan polarization at the national level has corresponded to an increase in partisan resistance and a decline in the ability of the federal government to respond to public concerns with effective policy. While literature has shown that state politics has polarized in tandem with the national political parties, there are abundant examples of recent bi-partisan cooperation between national and state governments. This dissertation explores the conditions under which American federalism might offer a mechanism for mitigating polarization by producing these opportunities for bi-partisan policy implementation. I argue that conflict between national and state governments is a product of the electoral motivations of state politicians, as they are structured by two interrelated political institutions. First, national political parties produce a national partisan agenda to which state politicians are held electorally accountable. Alongside their identification with a political party, state politicians must also contend with distinct local interests organized under American federalism and represented within state governments. I argue that, when the electoral incentives associated with American federalism and political parties encourage conflicting responses to federal policy, it can cross-pressure state officials resulting in negotiation between state politicians and partisan rivals at the national level. By examining the history of federalism and historical trends in decentralization of federal funding, I show that polarization has encouraged national political parties to produce more coercive policy and to increasingly decentralize policy implementation to state partisan allies. This increases the potential for conflict with moderate state partisan allies due to variation in local constituent pressures. Examining a new database of state legislative response to federal preemption law, I find that there is significant bi-partisan implementation during the recent period of high polarization, with conflicts between state and federal agents more regularly arising from variation in local policy preferences. In examining the highly polarized Affordable Care Act, I find that unique local constituent preferences encouraged state politicians to deviate from the agenda of national partisan allies. This effect was magnified when the state majority party risked loss of control of state institutions due to a strong competitive partisan environment within the state. These results suggest that the potential for state politicians to engage in bi-partisan policy implementation with the national rivals is a direct product of national polarization and can provide an avenue for policy compromise and continued effective governance.