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by Fernando Martín Espejo Published 26 August 2024 in Management • 5 min read
Shortly after President Joe Biden signed the CHIPS and Sciences Act, he boasted that the “groundbreaking” bill would bring “hundreds of billions of dollars” worth of semiconductor investment into America.
“We learned that companies will follow if the federal government will invest in industries that we know we need and we’re prepared to help in,” Biden said.
As it turns out, America’s trade partners thought this formula was a pretty good idea too. Over the past two years, Biden’s domestic manufacturing push has propelled a global wave of industrial policy measures that have allocated more than $300bn in investments toward the global semiconductor industry.
In this environment, businesses need to understand the consequences of industrial policy to both benefit from, and avoid, the negative externalities of transformative government measures like the CHIPS and Sciences Act.
Here is a brief look at some of the top questions businesses should consider as they navigate this new era of industrial policy.
Industrial policies include targeted interventions such as subsidies, export incentives, and favorable public procurement rules.
The phrase “industrial policy” is a catch-all term for a range of government interventions that seek to shape the economy, often by developing or supporting domestic manufacturing. A key feature of industrial policies is that they are selective, meaning they favor specific sectors, technologies, firms, and even stages of the value chain.
Industrial policies include targeted interventions such as subsidies, export incentives, and favorable public procurement rules. Industrial policies also include punitive measures aimed at protecting domestic production from foreign rivals, such as export restrictions, tariffs, and other import barriers.
In recent years, the world’s largest economies have put tens, sometimes hundreds of billions of dollars on the table in the form of financial incentives, grants, low-interest loans, and other forms of subsidies. Examples include:
industrial policy's goal is to support domestic manufacturing of goods and associated services to achieve economic and non-economic objectives.
In general, industrial policy’s goal is to support domestic manufacturing of goods and associated services to achieve economic and non-economic objectives. These can include structural transformation of economies, promoting public health, enhancing national security, climate change mitigation, increasing supply chain security, support for regions that have fallen behind, and management of scarce resources like critical minerals.
In many cases, yes. Industrial policy is often framed by advocates as supporting the development of innovative firms and sectors. But the same policy tools can just as easily be used to prop up underperforming and failing firms.
Low-complexity industries, such as raw materials and basic agricultural goods, are more likely to face trade barriers such as tariffs and other import restrictions.
It depends. Industrial policies focused on public procurement, localization, and domestic subsidies tend to cover more complex goods such as advanced machinery, electronics, and chemicals. Low-complexity industries, such as raw materials and basic agricultural goods, are more likely to face trade barriers such as tariffs and other import restrictions.
Tracking incentives available to firms – both your own as well as your rivals – is more important than ever. Recognizing government priorities opens the door for some companies to align their corporate objectives with national interests, which, in turn, can foster a competitive advantage. Some firms may get a leg up on their rivals by accepting state subsidies to develop the next generation of products and services for their customers.
Head of the the Analytics Unit at the Global Trade Alert
Fernando Martín Espejo leads the Analytics Unit at the Global Trade Alert. His work focuses on trade and industrial policy with a special focus on geopolitics and geoeconomics. He holds a PhD in business economics from KU Leuven and an MSc in political economy of Europe from the London School of Economics and Political Science.
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