Industrial policies are having a moment. Here are 4 examples to explain how they work 

In a period defined by economic shocks, volatile inflation and geopolitical tensions, countries are increasingly turning to industrial policy to set the direction of future economic performance.

Broadly speaking, industrial policy refers to targeted measures taken by governments to support specific sectors or industries and boost national economic development or competitiveness. It’s also something that virtually all governments do to one degree or another.

Experts note that international trade and geopolitical tensions lie at the heart of the current revival of industrial policy, which is having an enormous impacts on businesses and consumers in many countries.

“The North Star of geopolitically motivated policy design should be to pick sensible objectives that take due account of the many commercial options that firms have, and to attain geopolitical goals through means that do the least harm to cross-border commerce,” states a whitepaper from the World Economic Forum titled Geopolitical Rivalry and Business: 10 Recommendations for Policy Design.

But what exactly does industrial policy look like? Here are four examples:

In August 2022, the Inflation Reduction Act (IRA) was signed into law in the United States, marking what the US Treasury called “one of the largest investments in the American economy, energy security and climate that Congress has made in the nation’s history”.

The Act created more than 20 tax incentives designed to prompt a surge in the development of clean energy infrastructure to drive the green transition. The legislation is also intended to enhance green energy supply chains to ensure the availability of materials and equipment for the transition.

The US government says investment in green energy manufacturing has grown rapidly to reach $70 billion since the middle of 2022. Moreover, US officials say the IRA will lower energy bills for consumers and ensure supplies are more resilient to external crises that push up the cost of energy.

In 2015, China launched Made in China 2025 to transform the countries manufacturing sector and comprehensively upgrade the industry with the latest digital technology.

According to an analysis by the Center for Strategic and International Studies, Made in China 2025 has a number of focus points. These include ensuring that manufacturing is driven by innovation and should aim to operate in line with green principles.

Making China a world leader in car manufacturing was a key aim of the industrial policy –and one that has paid off in the nine years since Made in China 2025 was launched.

Statista’s analysis of data from the China Association of Automobile Manufacturers shows China exported almost 5 million vehicles 2023, making it the world’s second-largest exporter behind Japan.

China’s share of the global electric vehicle (EV) market is driving significant growth in its vehicle industry. In 2023, China was responsible for 25% of global EV exports, a significant increase from 21% in 2021.

Competition for semiconductors is soaring as economies become increasingly digital.

In response, the European Union (EU) launched an industrial policy in 2023 known as the European Chips Act. The policy aims to “reinforce the semiconductor ecosystem in the EU” and “ensure the resilience of supply chains and reduce external dependencies”.

There are the five key components of the European Chips Act:

The EU says the initiative is designed to bolster its technological position by fostering large-scale capacity building, innovation, and the development of cutting-edge semiconductor and quantum technologies across the bloc.

Following the severe supply chain disruptions during the COVID-19 pandemic, the government of Japan is seeking to build greater resilience through a new programme.

The Ministry of Economy, Trade and Industry says it aims to “strengthen supply chain resilience by supporting businesses in building new plants and introducing new facilities for these important products and materials in Japan”.

The programme received 280 applications for funding of which 151 were approved by the government. These companies shared in a total investment of $1.3 billion. The funds, the government says, will be used to bolster local production of vital components that are mainly made overseas, including semiconductors, EV components and parts for wind turbines.

There is also a drive to ensure that equipment required to respond to future pandemics is readily available, including syringes, cold chain logistics for pharmaceuticals and personal protective equipment for medical workers.