Geopolitic / North America
The Resurgence of Industrial Policy and Its Impact on Global Trade
Governments are increasingly re-engaging in industrial policy after decades of liberalization, signaling a major shift in global trade dynamics. This resurgence is driven by supply chain disruptions, geopolitical uncertainties, and the need for climate transition. Industrial policy involves targeted government interventions aimed at supporting specific firms, sectors, or regions for long-term structural transformation.
Source material: The rise of industrial policy - why governments are back in the business of business
Summary
Governments are increasingly re-engaging in industrial policy after decades of liberalization, signaling a major shift in global trade dynamics. This resurgence is driven by supply chain disruptions, geopolitical uncertainties, and the need for climate transition. Industrial policy involves targeted government interventions aimed at supporting specific firms, sectors, or regions for long-term structural transformation.
The perception of globalization has shifted from viewing trade as mutually beneficial to a competitive arena where countries pursue relative advantages. Experts warn that the current trend in industrial policy has significant implications for economies and international relations, highlighting a strategic focus on security over efficiency.
Industrial policy is experiencing a resurgence in advanced economies, driven by national security concerns and the need for resilient supply chains. This shift marks a significant change from previous decades of liberalization and minimal government intervention in markets.
The resurgence of industrial policy signifies a shift towards increased government intervention in both developed and developing economies, reversing a three-decade trend of liberalization. Current interventions are primarily motivated by national security, energy concerns, and competitiveness, with a notable rise in protectionist measures across various sectors.
Perspectives
Analysis of the rise of industrial policy and its implications for global trade dynamics.
Proponents of Industrial Policy
- Argue that government intervention is necessary to address market failures and enhance national competitiveness
- Highlight the importance of industrial policy in responding to geopolitical challenges and ensuring supply chain resilience
Neutral / Shared
- Acknowledge that the effectiveness of industrial policy varies based on the specific economic context
- Recognize that historical events, such as the COVID-19 pandemic, have influenced the current landscape of industrial policy
Metrics
other
30 years
duration of political and economic liberalization
This context highlights the recent reversal in policy direction
We had 30 years of remarkable growth where we saw this political and economic liberalization.
other
2020
year marking a structural break in industrial policy motivations
Indicates a shift in focus towards national security and geopolitical concerns
around 2020 we see actually a clear structural break.
other
about 1400 units
total government interventions this year
This marks a significant increase in government involvement in the economy
this year alone, we now stand at where we were total last year, which was about about 1400 government interventions.
other
30 years
duration of prosperity attributed to globalization
This highlights the long-term benefits of globalization that may be jeopardized by fragmentation
these last 30 years have brought prosperity to a lot of people across the world.
other
Made in China 2025
Chinese government initiative marking a shift in industrial policy
It signifies a strategic move towards self-sufficiency in critical industries
Made in China 2025, which is an initiative of the Chinese government from May 2015.
other
80% of China's industrial policy come from the local level
Source of China's industrial policy implementation
Highlights the decentralized nature of policy execution in China
80% of China's industrial policy come from the local level.
other
2020
turn in China's industrial policy
This year marked a significant pivot towards self-reliance in response to external pressures
after 2020, there's actually another turn of China's industrial policy
other
mid-2000s
fraud in the chip sector
This incident highlights the challenges and risks associated with state-supported industrial initiatives
in mid-2000s, there's a Chinese scientist claim that they had a domestically developed chip
Key entities
Timeline highlights
00:00–05:00
Governments are increasingly re-engaging in industrial policy after decades of liberalization, signaling a major shift in global trade dynamics. This resurgence is driven by supply chain disruptions, geopolitical uncertainties, and the need for climate transition.
- Governments are increasingly re-engaging in industrial policy after decades of liberalization, signaling a major shift in global trade dynamics
- Industrial policy involves targeted government interventions aimed at supporting specific firms, sectors, or regions for long-term structural transformation
- The resurgence of industrial policy is influenced by supply chain disruptions, geopolitical uncertainties, and the need for climate transition, suggesting traditional market mechanisms are insufficient
- The perception of globalization has shifted from viewing trade as mutually beneficial to a competitive arena where countries pursue relative advantages
- Experts warn that the current trend in industrial policy has significant implications for economies and international relations, highlighting a strategic focus on security over efficiency
05:00–10:00
Industrial policy is experiencing a resurgence in advanced economies, driven by national security concerns and the need for resilient supply chains. This shift marks a significant change from previous decades of liberalization and minimal government intervention in markets.
- Industrial policy is resurging in advanced economies, driven by national security concerns, geopolitical tensions, and the need for resilient supply chains
- Since the global financial crisis in 2009, there has been a growing emphasis on sectoral competitiveness and climate objectives within industrial policies, as noted by the New Industrial Policy Observatory
- The motivations for government intervention in industrial policy have evolved post-2020, increasingly focusing on addressing national security and geopolitical challenges
- Key instruments of industrial policy include subsidies, trade tariffs, export controls, government procurement, and localization mandates for foreign investors
- Historically, industrial policy has transitioned from a phase of globalization with minimal government involvement to a renewed emphasis on strategic economic engagement by governments
10:00–15:00
The resurgence of industrial policy indicates a significant shift towards increased government intervention in economies worldwide, reversing decades of liberalization. This trend is primarily driven by national security, energy concerns, and competitiveness, with a notable rise in protectionist measures.
- The resurgence of industrial policy signifies a shift towards increased government intervention in both developed and developing economies, reversing a three-decade trend of liberalization
- Current interventions are primarily motivated by national security, energy concerns, and competitiveness, with a notable rise in protectionist measures across various sectors
- In 2023, government interventions surged to around 1,400, marking a significant increase and indicating a major transformation in economic policy
- Key historical events, such as the 2008 financial crisis and Chinas entry into the World Trade Organization, have influenced this shift, as China maintained its industrial policy focus while Western nations moved away from it
- The decline of the rules-based international economic system has fostered a more insular approach to economic policies, leading to a growing sentiment of every economy for itself
15:00–20:00
The resurgence of industrial policy reflects a significant shift from free market ideologies to increased government intervention in economies worldwide. This change is driven by national security concerns, energy issues, and the need for resilient supply chains.
- The shift in industrial policy indicates a significant change in global economic perspectives, moving from free market ideologies to increased government intervention aimed at addressing market failures
- The narrative surrounding globalization has transformed, with countries now viewing trade through a competitive lens, prioritizing their own advantages over mutual benefits
- Political support for industrial policies has surged in response to job losses attributed to globalization, potentially leading to a fragmented global economy with long-term repercussions
- Geopolitical considerations, particularly regarding control over critical economic choke points, are increasingly shaping national security strategies and the implementation of industrial policies
- Recent events, such as the blockade in a key trade route, underscore the importance of choke points in global trade and energy security, illustrating the interplay between economic and geopolitical factors
20:00–25:00
The resurgence of industrial policy reflects a significant shift towards increased government intervention in economies worldwide, driven by national security concerns and the need for resilient supply chains. This trend is marked by a response to China's economic achievements and the decline of manufacturing jobs in the West.
- Choke points in technology, particularly critical materials and minerals, are increasingly crucial for national security and economic strategy, influencing global trade dynamics
- Countries can utilize their choke points as tools of economic statecraft, but excessive dependence may lead others to seek alternatives, as evidenced by Chinas advancements in its domestic chip industry and rare earth mining
- Chinas Made in China 2025 initiative marks a notable shift in its industrial policy, highlighting central government control while permitting local governments to adopt varied implementations, resulting in a decentralized economic framework
- The revival of industrial policy in Western nations is largely a response to Chinas economic achievements and the decline of manufacturing jobs, fostering bipartisan political support for reshoring initiatives
25:00–30:00
The rise of industrial policy marks a significant shift towards government intervention in economies globally, driven by national security and technological self-reliance. This trend is particularly evident in China's strategic initiatives aimed at enhancing its manufacturing capabilities and reducing dependency on foreign technology.
- Since 2014, Chinas industrial policy has shifted from sporadic support for key industries to a structured approach, highlighted by the Made in China 2025 initiative aimed at boosting advanced manufacturing in sectors like robotics and semiconductors
- The Chinese government has taken on a role similar to that of a venture capitalist, investing public funds in startups and strategic sectors to drive economic growth
- U.S. export controls have inadvertently reinforced Chinas commitment to developing self-sufficient industries, particularly in technology fields such as semiconductors and artificial intelligence
- Chinas industrial policy effectiveness is often contingent on access to foreign technology, with past issues, including fraudulent practices in the chip sector, underscoring the difficulties in achieving true technological independence
- In response to export restrictions, the Chinese government has directed domestic tech firms to focus on local chip procurement, signaling a strategic pivot towards self-reliance in essential technologies