For decades, globalization followed a simple logic: governments set the stage, and companies competed. That’s no longer the case.
In recent years, states have moved from the sidelines to the center of economic competition. From Washington to Brussels, Beijing to Seoul, policymakers are investing heavily in key sectors, shielding domestic firms, and reshaping the rules of the global economy.
This shift isn’t anecdotal. An analysis we conducted with International Monetary Fund (IMF) economists of more than 34,000 policy interventions in 75 economies since 2009 shows how deep this transformation runs.
Since 2020, amid pandemic shocks, supply chain disruptions, and rising geopolitical tension, the annual number of new industrial policy interventions has nearly doubled, led by the United States, the European Union, China, Japan, and Korea. That period marks a distinct turning point in how governments engage with markets. Industrial policy, once about competitiveness and green growth, is now increasingly shaped by resilience, security, and geopolitics.
This marks a new phase: a more security-driven, and at times defensive, use of industrial policy. For businesses operating across borders, understanding how governments are rewriting the rules of the game has become essential.
Before 2020, most industrial policy measures followed a familiar logic where governments offered tax breaks, subsidies, or research grants to make their economies more competitive. The goals were straightforward: create jobs, foster innovation, and accelerate the green transition.
That logic has changed. Our analysis shows that since 2020, the motives behind industrial policy have shifted sharply. Today, governments are less focused on productivity and far more concerned with security of supply and control of certain corporate transactions and investments. Industrial policy has become the instrument of choice for managing geopolitical risk.
This is clearest in sectors that sit at the intersection of technology and national security. Semiconductors, batteries, critical minerals, and clean energy now attract the lion’s share of new state support. Fiscal incentives, including subsidies, grants, and public procurement, now account for more than two-thirds of new interventions, displacing tariffs and trade measures as the dominant tools of industrial policy.
This marks a move in interventionist logic from market correction to market creation. Governments are no longer fixing what they view as failings in private markets; they are seeking to secure access to supplies of critical commodities, components, and technologies. The market logic of globalization has given way to a more defensive, strategic one that puts a lot of emphasis on reducing vulnerabilities.
“These tit-for-tat dynamics are especially visible in clean technology and semiconductors.”
Industrial policy is no longer a domestic affair. What one government does increasingly shapes what others feel compelled to do next. Our analysis shows clear signs of this contagion effect.
When large economies expand support for a product, others are more likely to respond in kind. It may start as an effort to “level the playing field,” but it quickly becomes a race to match the scale and scope of foreign initiatives. Between 2020 and 2023, more than 50 economies introduced new industrial policy packages: clear evidence of how quickly this contagion has spread.
The result is a policy spiral that blurs the line between industrial strategy and industrial defense. These tit-for-tat dynamics are especially visible in clean technology and semiconductors.
This feedback loop risks becoming self-reinforcing. Governments justify new support measures as “defensive”: a response to what others have already done. But when everyone plays defense, escalation becomes inevitable.
For business, this creates both opportunity and uncertainty. Firms that qualify for state support can scale faster than ever. But those outside these new industrial alliances face a more fragmented, politicized market, where access depends as much on policy alignment as competitiveness.
In effect, industrial policy has become a common language across the global economy, but not a shared grammar.
One of the most striking findings in our data is how much convergence has occurred between higher-income and emerging economies. The traditional narrative, rich nations liberalize while developing nations intervene, no longer holds.
Wealthy economies are deploying subsidies, insisting firms localize and target procurement more intensively, while emerging economies have increased their use of subsidies and adjusted their policy mix.
Yet convergence doesn’t mean uniformity. The same tool – subsidy, tax credit, procurement preference – can serve very different ends. Wealthier economies tend to use them to repatriate strategic value chains, while emerging markets use them to attract that very investment. The symmetry is striking, though the motivations diverge sharply.
In effect, industrial policy has become a common language across the global economy, but not a shared grammar. Each country defines “strategic” differently, yet almost all are expanding the state’s role in shaping markets. This growing convergence complicates coordination: distinguishing fair from unfair support is harder, and trade friction risks are rising.
Industrial policy is no longer a low-profile technocratic exercise – it is now inseparable from headline politics. Governments are making choices about where production should happen, who should benefit, and how those benefits are distributed.
This shift carries major implications. State support often comes with local content, local sourcing, and local hiring conditions. For multinational firms, these requirements can influence investment decisions and supply chain design. In short, industrial policy is no longer the background noise of globalization; it’s the soundtrack.
What we are witnessing is not the end of globalization but its transformation.
What we are witnessing is not the end of globalization but its transformation. The world economy is being reorganized around strategic priorities, not solely efficiency.
Trade flows are adjusting to new fault lines; investment is clustering where governments offer predictability and purpose. Cross-border business is still possible, but it now demands political literacy.
In this environment, competition is no longer just between firms. It’s between policy regimes. That reality demands a rethink of both corporate strategy and risk appetite.
Industrial policy has become one of the defining features of today’s global economy.
Industrial policy has become one of the defining features of today’s global economy. The data leaves little doubt that 2020 marked a structural break, a turning point in how states engage with markets. The resurgence of state activism is not a temporary response to the COVID-19 pandemic, but a structural realignment of how economies pursue growth and security in tandem.
For policymakers, the challenge will be to balance resilience with efficiency, and to avoid turning security measures into trade wars. For business, the challenge is to adapt quickly to a world where governments are not just regulators, but market-makers and competitors in their own right.
Globalization isn’t disappearing. It’s being rewritten – one policy intervention at a time.
This article is based on a new International Monetary Fund Working Paper, “Industrial Policy Since the Great Financial Crisis.”
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