Search

Begin New Search Topic Industrial Policy Publication Year within 1 Year

1. Investing in a Green Future: Finance, Industrial Policy and the Green transition

Author:
Ramaa Vasudevan
Publication Date:
01-2025
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
We present a framework to assess green climate finance and the pathways to building a climate aligned financial system. This would involve the strategic reorientation of central bank interventions, national development banks and multilateral and regional banks and coherent purposive collaborations between these institutions and interventions to decisively reshape the contemporary global financial system that is out of tune with the long-term imperatives of climate action. Aligning finance to climate goals at the necessary scale, pace and direction requires the calibration of financial flows across three axes: ‘public-private’; ‘real-financial’ and ‘national-international’. Along the first axis the naturedepleting, climate imperiling logic of short-term private profitability needs to be contained in order to pursue the public priorities of climate action. Along the second axis, policy efforts have to be geared to ensuring that financial flows are financing investments in climate mitigation and adaptation and not simply providing more fodder for the global portfolio glut and financial accumulation. Finally, along the third axis warding global funding and support on appropriate terms has to be provided to the most vulnerable countries while buttressing national ownership of the green mission.
Topic:
Climate Change, Industrial Policy, Banking, and Green Transition
Political Geography:
Global Focus

2. How Export Restrictions Threaten Economic Security

Author:
Chad P. Bown
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The fear that a foreign government will impose an export restriction that imperils another country’s economic and national security has driven part of the recent turn to industrial policy and the increased use of tariffs. Countries now worry about disruption not only to their access to energy but also to critical minerals, semiconductors, medical supplies, and other essential goods. Modern use of industrial and trade policy is thus often an attempt to move supply chains in the short term and to sustain them in those new places over the long term, in order to reduce national vulnerability to disruptions caused by export restrictions. However, achieving even modest forms of international cooperation on trade and industrial policy between countries seeking to improve their collective economic security will also require that these same countries take on new commitments to discipline their own use of export restrictions toward each other.
Topic:
Industrial Policy, Tariffs, Exports, and Economic Security
Political Geography:
Global Focus

3. Models of Industrial Policy: Driving Innovation and Economic Growth

Author:
Andrea Dugo, Fredrik Erixon, and Oscar Guinea
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s approach to industrial policy has undergone a dramatic transformation in recent years, with state aid reaching 1.4 per cent of GDP in 2022, levels unseen since the early 1990s. While advocates of substantial state aid argue that this intervention is necessary to maintain competitiveness in a world where the US and China are implementing large-scale industrial strategies, the effectiveness of this approach remains contested. This paper critically examines the evolution of EU industrial policy, contrasting it with alternative models adopted globally and within Europe itself. While EU economic strategies since the 1980s had focused mainly on horizontal policies such as market liberalisation, competition enforcement and support to Research and Development (R&D), recent developments have shifted towards a more interventionist stance. This shift has largely been driven by crises – the financial crisis of 2008, the COVID-19 pandemic, geopolitical tensions, and the energy transition – which have prompted calls for greater state involvement in shaping industrial outcomes. However, this paper shows that, while industrial policy can support good economic development, it is not a determinant of economic success. All successful economies have pursued industrial policy, but so have all unsuccessful ones. This suggests that industrial policy, in and of itself, is not a determinant of economic growth and competitiveness. The effectiveness of industrial policy depends on its design, its ability to avoid market distortions, and its capacity to stimulate genuine private-sector investment rather than crowding it out. The revival of industrial policy in the EU – best exemplified by a series of high-level reports, including the Enrico Letta and Mario Draghi Reports of 2024 – signals a shift towards an industrial strategy that embraces state aid as a central tool for economic restructuring. Unlike earlier EU economic strategies that prioritised the deepening of the Single Market as the best form of industrial policy, recent proposals advocate for a relaxation of state aid rules to enable greater public subsidies for European industries. The rationale is that the EU must respond to global competitors who are no longer playing by the rules of free trade. As documented in this study, across a diverse range of EU countries, sectors, and policy targets, the prevailing industrial policy model in Europe consistently prioritises a selection of incumbent firms over the private sector as a whole, direct grants over other policy instruments, middle-technology sectors over high-tech ones. This paper argues that such an approach will not generate the desired outcome and assesses its shortcomings to encourage careful review by policymakers before Europe embarks on more of the same. In search of other policy solutions, this paper contrasts the broad European model of industrial policy with other approaches, particularly those of the US, South Korea, Switzerland, and Ireland, which offer, in different fields, alternative frameworks for fostering industrial competitiveness. These models are attractive because they respond to specific and growing problems in the EU economy that public policy can help to alleviate: low levels of investment, declining inward Foreign Direct Investment (FDI), lagging R&D-based innovation, and problems supplying industry with adequate human capital.
Topic:
Industrial Policy, European Union, Economic Growth, and Innovation
Political Geography:
Global Focus

4. How can Europe’s nuclear deterrence trilemma be resolved?

Author:
Andrea Gilli and Francesco Nicoli
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The United States under President Donald Trump has adopted an ambiguous position on European security. Although no immediate risk of abandonment is apparent, European countries are rethinking their defence strategies in case the US declines to support them, or provides only partial support, in a crisis. This discussion is particularly sensitive in relation to nuclear weapons, the ultimate deterrent, for which European countries depend extensively on the United States. We argue that a possible future US withdrawal from European nuclear security will force European countries to face a policy trilemma. If they stick to the existing policy framework of no proliferation and no joint deterrence, they expose themselves to nuclear blackmail, should the US withdraw its external guarantee. If they want to protect themselves from nuclear blackmail, they must choose how to provide nuclear security: either collective nuclear security, which would compromise some national sovereignty, or independent provision by individual countries, leading to nuclear proliferation in Europe. Having established that uncontrolled proliferation is an inferior outcome to some form of joint deterrence, we identify four main alternatives: an extension of the Franco-British nuclear deterrent; an extension complemented by a jointly financed expansion of existing deterrence; the absorption of the French (and perhaps British) nuclear arsenals into a European arsenal; and the construction of a separate European submarine deterrent (with Europe using French or British technology or developing new technology). We also discuss briefly forms of non-nuclear deterrence, which however would likely be a complementary rather than a substitute for a nuclear deterrent. We compare these options using a set of parameters: strategic autonomy and credibility, changes to treaties (including non-proliferation), costs, capabilities and readiness. Our analysis shows that all options have advantages and disadvantages, but some are politically, financially and militarily more feasible.
Topic:
Security, Arms Control and Proliferation, Industrial Policy, Nuclear Weapons, Geopolitics, Macroeconomics, Deterrence, Transatlantic Relations, and Vulnerability
Political Geography:
Europe, North America, and United States of America

5. Not yet Trump-proof: an evaluation of the European Commission’s emerging policy platform

Author:
Heather Grabbe and Jeromin Zettelmeyer
Publication Date:
01-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The economic strategy being defined by the 2024-2029 European Commission seems to follow the prescriptions on innovation and single market reform, and the expansive approach to industrial policy, set out by Mario Draghi in his September 2024 report on European Union competitiveness, with two important differences. First, the Commission stops short of calling for World Trade Organisation-prohibited subsidies – this is welcome. Second, the Commission proposes a new state aid framework for national industrial policy rather than expansion of EU-level public investment funding. This runs the risk of weakening the single market and harming competition, with the unintended consequence of protecting incumbents and inhibiting structural change. In terms of specific policies, on defence, the Commission is right to face up to the challenge of defining an EU procurement mechanism that offers sufficient speed and cost advantages to justify large-scale funding. On economic security and international partnerships, the Commission is right to take a broader approach than a foreign economic policy focused only on supply chains. What is lacking is a much greater commitment to providing support for climate mitigation in developing countries. The second Trump presidency creates risks for the Commission strategy. President Trump has gone further than expected in threatening territorial expansion and with the speed, aggression and disregard for the rule of law with which he has started to implement his policies. These factors will complicate the EU-United States relationship. The best defence against both Trump and the competitive and security threats posed by China is to accelerate policies that address the EU’s structural weaknesses: raising productivity growth, defence capacity and economic security. Economic security, in turn, requires more resilient trade relationships, less financial dependence on the US and an improved standing with emerging market and developing economies. The EU should also seize the opportunity offered by the shift in US policy from subsidies to deregulation. While the EU should not race Trump to the bottom on environmental or financial deregulation, it should rapidly improve its own regulatory framework while building on its core strengths: human capital and the rule of law. Unlike tariff wars or discriminatory subsidies, a competition to provide a good business environment is not a zero-sum game.
Topic:
Security, Economics, Industrial Policy, Budget, European Union, Digital Economy, Trade Policy, Donald Trump, Sustainability, European Commission, and Energy
Political Geography:
Europe and United States of America

6. Will China’s economy follow the same path as Japan’s?

Author:
Alicia Garcia-Herrero and Jianwei Xu
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Since the bursting of China’s real-estate bubble in mid-2021, there has been a growing concern that the Chinese economy could end up like that of Japan in the early 1990s. Some structural patterns are strikingly similar: low private consumption over a long period, especially when compared to the rest of the world, and an excessively high savings ratio, though China’s imbalances now are even larger that Japan’s were then. Initial policy responses to the bursting of their respective bubbles have also been similar. Both China now and Japan then were initially hesitant to ease monetary and fiscal policies, and opted to expand manufacturing, with an eye on external demand, supported by more research and development expenditure. In both cases, the outcomes were stubborn trade surpluses and a mercantilist attitude to their growth problems, leading to the United States taking protectionist measures. China also seems to be following Japan’s offshoring of production to mitigate the impact of protectionism. The main difference, though, is that China now is a poorer country than Japan was then, with still more convergence opportunities ahead. China is also a much bigger military and geopolitical contender than Japan ever was. China’s geopolitical weight is behind the US technological containment of China, but also gives China more room for manoeuvre globally, especially in the Global South. It remains unclear – though globally significant – whether China will be able to deviate from the path followed by Japan in the 1980s and 1990s.
Topic:
Industrial Policy, Geopolitics, Economy, Economic Growth, Innovation, and Real Estate
Political Geography:
Japan, China, and Asia

7. Ukraine: European democracy’s affordable arsenal

Author:
Jacob Funk Kirkegaard
Publication Date:
03-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
European NATO members must raise defence spending by enough to deter through strength an irredentist Russia. This must be done possibly without the United States and when ageing populations demand higher social spending. Raising defence spending to sufficient levels could result in a doubling of current primary deficits to just over 3 percent of GDP on average. This seems likely to be a fiscally unattainable goal for this group of countries. European NATO members, in addition to their quantitative defence spending challenge, face the qualitative challenge of significantly increasing their outlays on new modern military equipment, especially drones, to credibly deter Russia. This will require all European NATO members to significantly increase investments in their domestic and regional military-industrial capacities. While its armed forces are physically defending their country against Russia’s onslaught, Ukraine is transforming gradually into a very large, advanced and cost-competitive military equipment and weapons producer. Through the so-called ‘Danish Model’, individual European Union and NATO members are already actively funding Ukrainian defence production, helping it to help itself against Russia. Much more focus should be put on Ukraine’s ability, if fully integrated with the military-industrial sector in the rest of Europe, to produce much of the modern military equipment wanted by itself and the rest of Europe. This Policy Brief shows how Ukraine already produces drones and modern howitzers, arguably the two most important weapons in defensive warfare today, at prices well below those achieved by other Western military suppliers. The EU, with a fully integrated and funded Ukrainian military-industrial sector, will have the capacity to produce much of the cost-competitive military equipment it will need in future, while continuing to fund its welfare systems. To facilitate this development, the EU must in all defence and military-related matters begin treating Ukraine immediately as a full EU member.
Topic:
Security, NATO, Industrial Policy, Governance, European Union, Geopolitics, Transatlantic Relations, and Russia-Ukraine War
Political Geography:
Europe and Ukraine

8. Building coalitions for climate transition and nature restoration

Author:
Jean Pisani-Ferry, Beatrice di Mauro, and Jeromin Zettelmeyer
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Global climate and biodiversity outcomes will largely be determined in emerging and developing economies (EMDEs). We propose a four-pillar strategy to support climate and nature preservation in line with the economic interests of both developing and advanced countries. This would move beyond voluntary pledges to embed climate and nature objectives into the structures of trade, finance and industrial policy, creating a self-reinforcing system of cooperation and reducing the net costs of the green transition. Under Pillar 1, a coalition of advanced and developing countries would link tiered carbon pricing with a common carbon border adjustment mechanism (CBAM). Pillar 2 would create a climate-finance coalition to decarbonise the power sectors of developing countries. Pillar 3 would involve partnerships to develop clean energy-intensive industrial production stages in developing economies with rich renewables endowments; these would feed into the supply chains of the European Union and other energy-importing advanced economies. Pillar 4 would redesign markets to create scalable and credible mechanisms to fund carbon removals. Technology-based removals can be incentivised through the introduction of clean-up certificates into the EU emissions trading system, while nature-based removals would require improved market design centred on a new asset class: nature shares. The four pillars reinforce each other. A multi-country CBAM and carbon pricing coalition (Pillar 1) would reduce the cost of financing power sector decarbonisation (Pillar 2). Linking EMDE membership of the CBAM and carbon-pricing coalition to financial support for the decarbonisation of power sectors would also make it more attractive for EMDEs to adopt carbon prices. Decarbonisation of power sectors (Pillar 2) would be a precondition for developing clean, highly energy-intensive industry in renewables-rich EMDEs (Pillar 3). The Pillar 1 coalition should include the EU, China and as many other countries as possible. Advanced countries and China could underpin the Pillar 2 financier coalition. Pillar 3 would involve the EU and potentially other energy-poor advanced countries, along with EMDEs that are richly endowed with renewables. Pillar 4 would include the main custodians of the planet’s natural capital. Enabling these coalitions will require EU leadership.
Topic:
Climate Change, Economics, Industrial Policy, Trade, Sustainability, Decarbonization, and Green Transition
Political Geography:
Europe

9. Reconciling the European Union’s clean industrialisation goals with those of the Global South

Author:
Ben McWilliams, Simone Tagliapietra, and Jeromin Zettelmeyer
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Clean industrialisation is a political and economic priority for the European Union. For it to work, affordable clean energy is needed. However, producing this energy in Europe is constrained by limited renewable energy endowments (sunshine and wind) and land availability, while the transportation costs for imported clean energy (in the form of electricity or hydrogen) are much higher than for fossil fuels. An alternative way to fuel Europe’s clean industrial sector would to import energy-intensive primary tradeable products such as ammonia, methanol and reduced iron. We estimate that more than ten percent of total future EU clean energy demand will be met by such products. Public policy in Europe should aim to facilitate trade in energy-intensive intermediate inputs, which are cheaper to import than energy directly. Imports of these inputs could boost the competitiveness of downstream stages in the energy-intensive value chain (such as steel production). By lowering overall energy demand and thus electricity prices, such imports would also raise EU competitiveness more broadly. In many cases, they would replace imports of less energy-intensive commodities such as iron ore, therefore not adding to Europe’s overall import dependency. The direct economic impact in terms of jobs and value added that would be offshored is not substantial. The international benefit of such a strategy would be that it would embed third countries – especially emerging and developing economies – into clean industrial value chains. Stable European demand can help such countries develop export-driven, clean industrial strategies. Politically, this could be an important incentive that could offset the EU’s carbon border adjustment mechanism. Governments should therefore not use taxpayer money to fight the relocation of energy-intensive and tradeable primary products, beyond some minimum threshold that is desirable for economic security and innovation reasons. Meanwhile, ongoing negotiations with third countries to establish Clean Trade and Investment Partnerships should put trade in energy-intensive clean products at the core of new international clean supply chains.
Topic:
Industrial Policy, European Union, Global South, Industrialization, Decarbonization, Energy, and Emerging Economies
Political Geography:
Europe

10. Trade policy, industrial policy, and the economic security of the European Union

Author:
Chad P. Bown
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Out of fear about its economic security, the European Union is transitioning to a new form of international economic and policy engagement. This paper explores some of the major trade issues surrounding the bloc’s economic security, the role of trade and industrial policies in achieving its objectives, and some of the economic costs of doing so. It begins by explaining why economic security is suddenly playing such a prominent role and providing early evidence to motivate these government interventions. It then turns to a case study—new policies associated with China’s exports of electric vehicles and graphite—that highlights the difficult choices and practical challenges the European Union faces in tailoring policy to address concerns over economic security. The paper then introduces the domestic policy instruments that the European Union, its member states, and other governments are pursuing to address economic security, including stockpiling and inventory management, investment or production subsidies, tariffs, export controls, and regulations on foreign investment, as well as the scope for selective international cooperation over such policy instruments. The paper concludes with some caveats about abandoning interdependence and lessons from history.
Topic:
Security, Industrial Policy, European Union, Trade Policy, and Economic Security
Political Geography:
Europe