Introduction ------------ Industrial policy has returned because governments now place greater weight on resilience, security, technological leadership, and decarbonization than they did during the high period of market-led globalization. The result is a broader use of subsidies, tax incentives, public procurement, export controls, local-content rules, and state-backed investment to shape production in strategic sectors[1][2]. Main drivers of the resurgence of industrial policy --------------------------------------------------- 1. **Geopolitical rivalry has made industrial capacity a strategic asset** Industrial capacity is increasingly treated as part of economic security rather than simply an outcome of comparative advantage. Competition in semiconductors, advanced manufacturing, clean technology, and other strategic sectors has pushed governments to reduce dependence on geopolitical rivals and to secure domestic or allied production capabilities. This shift has reinforced the use of industrial policy not only for growth, but also for strategic autonomy, technology control, and national security purposes[1][3]. 2. **Supply-chain shocks exposed the risks of concentrated production** The pandemic, energy disruptions, and broader geopolitical tensions exposed how vulnerable global production networks can be when critical goods and inputs are concentrated in a small number of locations. Governments responded by encouraging reshoring, near-shoring, stockpiling, supplier diversification, and domestic capacity-building in areas viewed as essential. Industrial policy therefore re-emerged as a tool for managing supply risk and reducing exposure to external shocks that markets alone had not adequately priced[1][2][4]. 3. **The green transition has turned climate policy into industrial policy** The transition to a low-carbon economy requires substantial investment in sectors such as batteries, electric vehicles, renewable energy equipment, electricity grids, hydrogen, and critical mineral processing. Because these industries involve significant scale economies, technological learning, infrastructure requirements, and coordination challenges, governments have increasingly integrated climate objectives with industrial strategy. Policy support is therefore directed not only toward emissions reduction, but also toward strengthening domestic manufacturing capacity, innovation capabilities, and employment associated with the energy transition[1][4]. 4. **Slower productivity growth and declining confidence in market adjustment** The resurgence of industrial policy also reflects dissatisfaction with the idea that open markets on their own will reliably deliver diversification, innovation, and regional adjustment. Governments are under pressure to revive productivity growth, develop new technological capabilities, and respond to uneven economic outcomes across sectors and regions. This has increased support for targeted interventions, especially where policymakers see coordination failures, public-goods gaps, or strategic externalities that private investment may underprovide[1][2]. 5. **Other countries’ interventions have encouraged competitive responses** Industrial policy has become partly self-reinforcing. As major economies introduced large subsidy programs and strategic trade measures, other governments faced pressure to respond in order to avoid losing investment, production capacity, or technological capabilities. This dynamic has contributed to the wider diffusion of subsidies and other support measures, particularly in sectors linked to climate, energy, and national security, while also increasing the risk of policy spillovers and trade tensions[2][4][5]. Conclusion ---------- The resurgence of industrial policy reflects structural changes in the global economy rather than a temporary policy shift. Strategic competition, supply-chain vulnerabilities, climate transition imperatives, and slower productivity growth have all encouraged governments to play a more active role in shaping industrial development. As these pressures persist, industrial policy is likely to remain a central feature of economic strategy.
