Industrial Policy

Governments use industrial policy to promote sectors they consider strategically important, such as advanced manufacturing, semiconductors, clean energy, defence or technology, and to support regions affected by economic change.

Tools include grants and subsidies, tax credits, low-cost loans, government purchasing, investment in infrastructure and research, training programmes, and restrictions on imports or foreign investment in sensitive sectors.

For example, several major economies, including the United States, the European Union and China, have introduced large programmes since the early 2020s to encourage domestic production of semiconductors and clean energy technology, through subsidies and tax incentives.

Supporters argue industrial policy can correct market failures, build new industries, strengthen national security and support the transition to a low-carbon economy. Critics argue governments are poor at picking winners, that subsidies can be wasteful or captured by special interests, and that competing programmes between countries can trigger subsidy races and trade disputes. After falling out of favour for decades, industrial policy has made a significant comeback.