**Introduction** Industrial policies influence global supply chain structures by affecting the location of production, the organization of value chains, and patterns of cross-border sourcing. Through subsidies, trade and investment measures, and coordinated industrial strategies, governments increasingly shape supply chains to advance objectives related to resilience, technological capability, and economic security. These interventions are contributing to a reorientation of global value chains away from purely efficiency-driven configurations toward structures more closely aligned with national and regional policy priorities[1]. **What are industrial policies?** Industrial policy refers to government measures that seek to influence the allocation of resources across sectors, technologies, and stages of production. Since the early 2020s, the use of industrial policy has expanded across advanced and emerging economies, reflecting supply chain disruptions, geopolitical tensions, climate-related objectives, and competition in strategic industries. As these policies increasingly affect trade, investment, and production decisions, they have become an important determinant of global supply chain organization[2]. **How industrial policy reshapes global supply chains** **1.** **Subsidies and incentives redirect production and investment** Production subsidies, tax credits, and preferential financing change relative costs across jurisdictions and influence firms’ decisions about where to locate manufacturing and upstream activities. When access to incentives is conditional on domestic production, local content, or regional sourcing, firms adjust supply chains to meet policy requirements rather than relying on the most cost-efficient global suppliers. Over time, this leads to greater concentration of production and investment in economies offering sustained industrial support. By 2023, government support measures affecting trade exceeded US$1.6 trillion globally, more than double pre-pandemic levels, with manufacturing and clean energy accounting for a significant share. This scale indicates that industrial incentives are sufficiently large to influence global investment patterns and reshape supply chain geography[3]. **2.** **Trade and investment measures fragment cross-border value chains** Industrial policy is increasingly implemented through trade and investment measures, including tariffs, export controls, public procurement preferences, and foreign investment screening. These measures raise the cost and uncertainty associated with cross-border sourcing, encouraging firms to shorten supply chains, diversify suppliers, or duplicate production capacity across jurisdictions. The cumulative effect is a fragmentation of global value chains, particularly in sectors considered strategically important. Since 2020, more than 3,000 new trade-restrictive measures have been introduced worldwide, with a growing share affecting industrial goods and intermediate inputs. The persistence of these measures suggests that supply chain fragmentation is becoming a structural feature of the global trading system rather than a temporary response to shocks[4]. **3.** **Industrial policy coordination reinforces regional production ecosystems** Beyond firm-level support, many governments pursue industrial policies that emphasize the development of domestic or regional production ecosystems, integrating suppliers, infrastructure, logistics, and research capacity. Measures such as local content requirements and targeted procurement policies encourage firms to source inputs domestically or within a region, deepening regional supply chain linkages. These dynamics reinforce geographic concentration and reduce reliance on globally dispersed sourcing. Between 2019 and 2023, the share of manufacturing intermediate inputs sourced within the same region increased across Asia, Europe, and North America, reversing earlier trends toward greater global dispersion. The expanding use of local content and related industrial policy instruments has reinforced this regionalization of supply chains[5][6]. **Conclusion** Industrial policies are reshaping global supply chains by redirecting investment, fragmenting cross-border production, and reinforcing regionally concentrated manufacturing ecosystems. While these policies can strengthen resilience and support strategic objectives, they also weaken the efficiency gains associated with globally integrated value chains and contribute to capacity duplication and higher production costs. As industrial policy becomes a durable feature of economic strategy, global supply chains are increasingly shaped by policy and geopolitical considerations, rather than being driven solely by comparative advantage.
