Introduction

Industrial policy has changed significantly as the global economic environment has shifted from an era centered on trade liberalization and efficiency toward one increasingly shaped by geopolitical competition, supply-chain resilience, technological rivalry, and economic security concerns. Earlier industrial policies primarily focused on export competitiveness, infrastructure development, and integration into global value chains. Contemporary industrial policy is broader and more strategic, combining industrial development with national security, climate transition objectives, technological sovereignty, and resilience against external shocks.

Contextual background

From the 1990s through the early 2000s, globalization encouraged many economies to prioritize market liberalization, comparative advantage, and internationally fragmented production networks. Industrial policy during this period often emphasized attracting foreign direct investment, expanding manufacturing exports, and integrating into global supply chains.

The global financial crisis of 2008, rising geopolitical tensions, the COVID-19 pandemic, and disruptions in critical supply chains altered policy priorities. Governments increasingly viewed dependence on concentrated suppliers, strategic technologies, and external production networks as vulnerabilities rather than efficiencies. As a result, industrial policy evolved from a primarily economic tool into a mechanism for managing strategic competition, resilience, and national security.¹²

How industrial policy has changed

1. Industrial policy has shifted from efficiency toward resilience and economic security

Earlier industrial policy frameworks focused heavily on maximizing productivity and export growth through global integration. Today, governments increasingly prioritize resilience, redundancy, and domestic production capacity in sectors considered strategically important, including semiconductors, pharmaceuticals, clean energy technologies, and critical minerals.

This shift reflects concerns over supply-chain concentration and geopolitical risk. Industrial policies now frequently include reshoring incentives, “friend-shoring,” stockpiling measures, and domestic content requirements aimed at reducing exposure to external disruptions.³ Economic security considerations have become embedded within trade, investment, and industrial strategies, especially in advanced economies competing over technological leadership.⁴

2. Climate transition objectives have become central to industrial policy

Industrial policy increasingly serves climate and decarbonization goals. Governments now use subsidies, tax credits, procurement rules, and regulatory frameworks to accelerate investment in renewable energy, electric vehicles, batteries, hydrogen, and low-carbon manufacturing.

This represents a major departure from earlier industrial policy models that concentrated primarily on manufacturing expansion or export competitiveness. The green transition has transformed industrial policy into a tool for simultaneously pursuing environmental objectives, technological leadership, and employment creation.⁵

Competition over clean energy supply chains has intensified accordingly. China’s large-scale support for solar photovoltaics, batteries, and electric vehicles prompted substantial industrial policy responses in the United States, the European Union, Japan, and other economies seeking to avoid excessive dependence on external suppliers.⁶

3. Governments now rely more heavily on subsidies and state intervention

Industrial policy today involves more direct and expansive state intervention than in previous decades. Governments increasingly deploy subsidies, concessional financing, public investment funds, export controls, and investment screening mechanisms to shape industrial outcomes.

This expansion partly reflects the weakening consensus around strictly market-oriented economic governance. Strategic sectors are increasingly treated as areas where governments must actively guide investment and technological development rather than rely exclusively on market allocation.²

Industrial subsidies have expanded significantly across advanced and emerging economies, particularly in sectors tied to advanced manufacturing, semiconductors, artificial intelligence, and clean energy technologies.⁷ These interventions have contributed to growing trade tensions and concerns about subsidy competition between major economies.

4. Industrial policy has become more closely linked to geopolitical competition

Contemporary industrial policy increasingly reflects strategic rivalry between major powers. Technology controls, export restrictions, investment screening, and restrictions on strategic sectors have become integrated into broader geopolitical competition.

Semiconductors illustrate this transformation clearly. Governments now treat semiconductor manufacturing capacity as a strategic national capability tied to defense, technological leadership, and economic resilience.⁴ As a result, industrial policy increasingly intersects with foreign policy, security policy, and alliance structures.

This geopolitical dimension differs substantially from earlier phases of globalization, when industrial policy was more closely associated with development, competitiveness, and integration into global production networks rather than strategic fragmentation.

Conclusion

Industrial policy has evolved from a framework centered primarily on export competitiveness and market integration into a broader strategic instrument shaped by resilience, climate transition goals, technological competition, and national security concerns. Governments increasingly use industrial policy to secure supply chains, develop strategic industries, reduce external dependence, and compete in emerging technologies. These changes reflect a global economic environment characterized by geopolitical fragmentation, strategic rivalry, and growing skepticism toward unrestricted economic interdependence.