From protection to promotion: The new age of industrial policy

Expanding tariffs may be capturing the headlines, but industrial-policy measures are on the rise as well. Governments have long implemented subsidies, incentives, and other interventions in domestic economies to support employment, critical manufacturing, and other national priorities. However, as the establishment of the World Trade Organization and the expansion of global trade made free-market and free-trade policies the global norm, many countries put less emphasis on supporting domestic industries.  The COVID-19 pandemic and rising geopolitical tensions, which intensified economic and global supply chain vulnerabilities, reversed that trend. Between 2017 and 2024, global industrial-policy actions increased by approximately 390 percent, with a particular focus on critical industries such as defense, semiconductors, and high-end equipment.

Such measures can significantly affect the economic environment in which businesses operate, including market access (through export and import restrictions, for example), labor availability (through interventions such as workforce development initiatives), core business operations, and the economics of capital investments (via investment subsidies, for instance). In some industries, government incentives are so sizable that they alter the competitive balance: In 2023, subsidies for battery technologies represented nearly 30 percent of global battery revenues.

Governments pursue industrial policies to advance economic and geopolitical interests. While tariffs, import and export restrictions, and regulatory barriers all play a role in shaping domestic industries, in this article the autricel  focus on three forms of industrial policy:  Financial incentives, Fiscal Incentives and Market Promotions.  Financial incentives are the most prevalent means of advancing geopolitically motivated industrial policies, comprising roughly three-quarters of all measures. They include grants, loans, capital injections, trade financing, and import incentives, among other instruments.  Aside from financial incentives, governments are increasingly applying both market promotion measures and fiscal incentives to stimulate certain sectors.

Recent industrial policies have tended to focus heavily on specific industries and technologies. The authors’ review of subsidies in 2023 and 2024 found that 13 product categories (among 26 categories assessed) accounted for 96 percent of global incentive value, and the five largest categories represented roughly two-thirds of the top 13 categories’ total incentive value.  Defense (including items on the US government’s “common high-priority items list”) and high-end equipment (such as medical devices, construction equipment, and electrical components) are currently drawing the greatest number of interventions. These sectors’ shares of government incentives are also growing faster than those of any other industry.  Analysis further shows several categories, some of them nascent, receiving growing government support. The three most notable are batteries, hydrogen energy, and iron and steel.

As companies grapple with today’s complex geopolitical landscape, understanding the full scope of government incentives can help business leaders both maximize returns on investments and navigate the competitive dynamics in global markets.  Three actions in particular can position businesses for success. First, conducting a survey of industrial-policy measures across geographies and sectors can help companies ensure they are considering all relevant programs. Second, understanding the “durability” of incentives can help decision-makers validate the resilience and longevity of business cases that incorporate such programs. Last, benchmarking the organization’s use of industrial-policy measures against primary competitors can show executives how incentives, subsidies, and other government supports affect the competitive playing field.