Getting industrial policy right is a tricky business

INDUSTRIAL policy is back as a powerful motivator for government intervention. This is true in many parts of the world. It appears to be truer for Xi Jinping’s China than it was for the country under Deng Xiaoping, especially now that it wishes to replace investment in property as its engine of economic growth.

But the most striking shift is in the US. Ronald Reagan declared that “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.” Today, the Biden administration is “helping” enthusiastically. Donald Trump, too, is an interventionist, the difference being that his way of helping is to raise tariffs. Given the US’ historic role as proponent of the open world economy, this shift matters.

The evidence that industrial policy has become more pervasive as both an idea and a practice is clear. The Return of Industrial Policy in Data, published by the IMF last January, shows a marked increase in mentions of industrial policy in the business press over the past decade. A paper on The New Economics of Industrial Policy, published by the National Bureau of Economic Research and co-authored by Reka Juhasz, Nathan Lane and Dani Rodrik, shows a steep increase in industrial policy interventions worldwide, from 228 in 2017 to 1,568 in 2022 – predominantly in high-income countries (probably because they have more fiscal room). This also lets the rest of the world accuse them of hypocrisy.