Implications of Industrial Policy for Global Businesses: Opportunities and Challenges Ahead

Industrial policy is making a comeback around the world, and its implications for global businesses are significant. While these policies may not supercharge economic growth in the near term, they could lead to advancements in technology and green energy. However, protectionist measures embedded in these policies could create inefficiencies and distortions. Business leaders will need to adapt to this rapidly changing landscape.

Industrial policy involves government intervention to support specific sectors or industries, such as through tariffs, subsidies, or trade restrictions. While these policies can help boost economic growth and job creation, they can also lead to inefficiencies if not implemented correctly. For example, protectionist measures in Tunisia in the late 1990s ultimately led to a decline in economic activity.

The new wave of industrial policy is focused on securing supply chains, reducing greenhouse gas emissions, and advancing technological capabilities. Policies like the US Inflation Reduction Act and the EU’s Horizon Europe policy aim to support research and development in key sectors. However, protectionist measures in some policies could slow economic growth over the long term.

While industrial policy may not lead to a significant reduction in headline inflation, it could impact prices in specific sectors. Investments in semiconductors, for example, could lead to a fall in prices, while energy-related disinflation may take longer to materialize. The push beyond the technological frontier and efforts to achieve climate goals are more likely to create new opportunities for businesses.

The return of industrial policy is also creating a regulatory domino effect, with countries around the world implementing their own policies in response to others. This could lead to challenges at the World Trade Organization and currency interventions to remain competitive. Businesses will need to consider these implications and adapt to the changing landscape.

Overall, industrial policy is back in fashion, and businesses will need to navigate this new environment to stay competitive and seize opportunities for growth. By engaging with policymakers, reevaluating human capital policies, and rethinking supply chains, businesses can position themselves for success in this evolving landscape.