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21. Green Industrial Policy: A Holistic Approach

Author:
Ilaria Mazzocco
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
In the United States, the rise of the economic-climate agenda and green industrial policy has coincided with growing attention to supply chain resilience, economic security, and a deteriorating U.S.-China relationship. As a consequence, the interaction between trade, geopolitics, domestic economic policy, and climate policy demands a new holistic approach from policymakers and civil society to find more politically sustainable and effective policy solutions. More consideration should be given to the specifics of U.S. climate strategy when it comes to trade and international relations and how to integrate climate strategy with the Inflation Reduction Act and green industrial policy efforts.
Topic:
Economics, Industrial Policy, Geopolitics, Trade, Sustainability, and Green Economy
Political Geography:
China and Asia

22. Leveraging EU industrial policy to reshape Greece’s productive model

Author:
Aggelos Tsakanikas and Petros Dimas
Publication Date:
04-2024
Content Type:
Policy Brief
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
This policy brief explores the evolution and goals of industrial policy in the EU, aiming to identify the ways in which these recent developments can provide significant opportunities for Greece. In this context, we outline some of the key features of the fragmented landscape of Greek industrial strategies and suggest future directions through which the country can leverage the current momentum of industrial policy in the EU to pursue the restructuring of its productive base along the lines of sustainability, the twin (green and digital) transition, and European strategic autonomy. Since the Great Recession of 2008, the EU has openly supported coordinated and complementary policies in an effort to tackle structural deficiencies that render its productive systems vulnerable. The pandemic crisis, the Ukrainian war, and the general call for action against climate change have highlighted the need for the further reconfiguration of industrial development across the world along the lines of inclusion, sustainability, and resilience. The EU New Industrial Strategy and its update in the aftermath of the pandemic provide blends of horizontal and vertical actions that target resilience in the Single Market, EU strategic autonomy, and the acceleration of the green and digital (twin) transitions. In response to the energy crisis, the EU Green Deal Industrial Plan for the Net-Zero Age has been promoted to ensure that sustainable competitiveness goals are on track with the recent geopolitical developments. Greece has already aligned its strategic planning to the EU’s industrial policy objectives through a dedicated National Industrial Strategy and other strategic documents that target innovation, the green transition and sustainable development, and digitalization across key industrial ecosystems and value chains. Key initiatives, such as industrial alliances and Important Projects of Common European Interest (IPCEIs), major reforms through dedicated Acts, and an unprecedented wealth of financing and regulatory instruments outline significant opportunities of transformative potential Greece’s productive model. The country must meet the challenges of implementing its ambitious action plans, while simultaneously monitoring, evaluating, and updating its strategic orientation against the backdrop of a volatile global market environment. Different strategies should be integrated into a unified system of policies that creates a clear connection between, and path dependence for, different objectives, diverse market reforms and policy interventions.
Topic:
Industrial Policy, European Union, Sustainability, Strategic Autonomy, Green Transition, and Digital Transition
Political Geography:
Europe and Greece

23. Joint public procurement as a tool for European Union industrial policy

Author:
Francesco Nicoli and Roel Beetsma
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Joint procurement is an important tool that is currently under-exploited at European Union level. It can greatly enhance the effectiveness of public spending in Europe, achieving greater coherence between spending across different countries, exploiting monopsony power, producing economies of scale, reducing downward competition between public authorities, improving the single market and producing a degree of solidarity without resulting in redistribution between EU countries. The EU has already implemented several joint-procurement projects, including for COVID-19 vaccines, gas supplies and ammunition for Ukraine. These previous experiences can work both as a blueprint and as a pilot for larger-scale actions. Joint procurement could be particularly relevant in sectors with substantial economies-of-scale and industry-government ties, such as defence. Despite some degree of political opposition, experimental public opinion studies have shown consistently that joint procurement in such areas can strongly improve public support for EU-level action. Measures that could expand European joint procurement in a politically sustainable way include the use of framework contracts, which allow for ad-hoc commitments tailored to the needs of different EU countries; reporting by countries of their future large public procurement plans as a part of the European Semester so that the European Commission could propose coordinated actions if necessary; and the use of staggered contracting and multiple-award strategies, which can ensure a level playing field among companies of similar market power, promoting market-building and supporting the entry of new competitors.
Topic:
Industrial Policy, Governance, European Union, Macroeconomics, and Public Spending
Political Geography:
Europe

24. The three pillars of effective European Union competition policy

Author:
Fiona M. Scott Morton
Publication Date:
09-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Competitiveness is a region’s ability to achieve high productivity, attracting businesses, creating jobs and fostering innovation. It stems from efficiently using resources, is driven by competitive markets and is supported by three pillars: competition policy, procompetitive industrial policy and regulation. Competition enforcement keeps markets competitive by preventing harmful practices such as cartels, dominance abuse and anticompetitive mergers. While there is a push to relax European Union merger laws to promote European ‘champions’, this risks inefficiency and monopolisation. Instead, expanding the EU’s market size while maintaining competition is essential, especially in digital sectors. Procompetitive industrial policy addresses market failures and fosters well-functioning markets by targeting externalities such as worker training, R&D and infrastructure. Unlike outdated policies favouring national champions, this approach should focus on EU-level initiatives that promote competition and deepen the single market. This allows firms to achieve scale and drive innovation. Monopolised markets, whether state-created or naturally formed, need regulation to ensure competitive outcomes. The EU Digital Markets Act (DMA) aims to enhance competition and innovation on digital platforms by mandating data sharing, non-discriminatory access and interoperability. However, resistance to compliance on the part of tech giants poses enforcement challenges. Without effective and timely enforcement, trust in the law will erode, stalling innovation and reducing Europe’s global regulatory influence. When competition enforcement, procompetitive industrial policy and monopoly regulation work together, markets benefit consumers, firms and workers. Effective EU policy will refine competition enforcement, regulate monopolies where necessary and redesign state aid strategically to create welfare-enhancing markets. This comprehensive approach ensures an economy that serves its people and remains competitive.
Topic:
Industrial Policy, European Union, Microeconomics, and Economic Competition
Political Geography:
Europe

25. The state of the UK economy 2024

Author:
UK in a Changing Europe
Publication Date:
01-2024
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
The state of the UK economy is always an important matter, but it is all the more so in what looks likely to be an election year. This UK in a Changing Europe report takes stock of the UK economy in order to assess how it can break from the current economic and political ‘doom loop’. The report provides a constructive framework to address the need for a longer-term, joined up approach in policy areas, ranging from education to immigration, to public services and artificial intelligence. It shows that there is no single silver bullet for the problems facing the UK economy, however a number of themes have emerged. The UK has long been plagued by short-termism and political instability which needs to be addressed. Edited by Senior Fellow Professor Jonathan Portes, it brings together leading UK academics on the economy from universities across the UK, the Migration Observatory, the Institute for Fiscal Studies and other research institutions.
Topic:
Education, Industrial Policy, Migration, Economy, Tax Systems, Macroeconomics, Trade, Artificial Intelligence, Housing, Labor Market, Public Service, Productivity, and Net Zero
Political Geography:
United Kingdom and Europe

26. Electric Vehicles and the Changing Automotive GVC: A Window of Opportunity for African Countries?

Author:
Tobias Wuttke
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:
Only two African countries have successfully integrated with the automotive GVC to date: South Africa and Morocco. Their experiences, compared to other even more successful developing and emerging economies with automotive industries, highlight both the opportunities as well as the limitations of automotive GVC participation as an economic development engine. Scale in vehicle production, facilitated by government industrial policy, is the key prerequisite for successful participation with localisation benefits. These fundamentals do not change with the shift to electric vehicles. Governments in Africa and elsewhere need to attract FDI in electric vehicle production and from there can support the development of a local component and materials value chain. Once these basics are covered, governments and local firms can aim for making use of the technological window of opportunity by investing in EV-related technology, mainly battery technology, to potentially capture more value from automotive GVC participation than has traditionally been possible in the ICE vehicle value chain.
Topic:
Development, Industrial Policy, Foreign Direct Investment, Global Value Chains, Automotive Industry, and Electric Vehicles
Political Geography:
Africa

27. Current Capabilities and Future Potential of African Textile and Apparel Industries

Author:
Lindsay Whitfield and Chema Triki
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:
The textile and apparel industry is a globalised industry characterised by a high degree of dependency and fragmentation in global supply chains. From the mid-20th century, cotton textile and apparel manufacturing production relocated from industrialised to developing countries, particularly in Asia, and was quickly followed by the emergence of the petrochemical industry and synthetic fibre production in East Asian countries, while South Asia continued to focus on cotton and natural fibres. China, Bangladesh, and Vietnam are currently the central players in global apparel supply chains, with China and increasingly Vietnam having vertically integrated industries with access to a diverse range of fabrics and thus a large product portfolio. The largest apparel consumer markets are concentrated in Europe, North America, and other wealthy countries such as Japan, as they have higher purchasing power and economically larger markets. Large emerging economies such as China and India largely supply their domestic markets but have not yet become major destination consumption markets for other developing economies. Changes in international trade over the past 30 years fostered the textile and apparel global value chain dynamic. These changes were marked by opening trade borders, lowering tariffs, tax breaks or subsidies offered by various governments, and free trade agreements. Low labour costs and lower production costs have shaped the decisions of global actors to relocate their operations from one country to another. Current global trends are set to transform the global value chains of textiles and apparel again. These trends include increasing production costs in China, the drive to shorten supply chains post-Covid pandemic through nearshoring and seeking countries with yarn-to-garment (or vertical) production capabilities, and a sustainability shift. These trends are leading global apparel buyers to diversify their sourcing away from China and Asia more generally and to consider new supply bases. These structural trends in the industry, together with the AfCFTA, represent a window of opportunity for African countries. African industry actors and their governments should build new textile and apparel industries that seek to participate in global and regional markets and engage with global technologies and international partnerships. Attracting foreign firms with the necessary technical, organisational, and managerial capabilities is essential. The AfCFTA represents a powerful tool to respond to the verticality need of the industry, considering the current production levels of raw materials, but also an opportunity to increase the number of African countries with industrial capabilities in textile and apparel. The ongoing negotiations on rules of origin will significantly impact the continent's potential to create synergetic regional value chains.
Topic:
Development, Industrial Policy, International Trade and Finance, Business, Supply Chains, and Textile Industry
Political Geography:
Africa

28. Section 232 reloaded: the false promise of the transatlantic ‘climate club’ for steel and aluminium

Author:
David Kleimann
Publication Date:
07-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In using the removal of Section 232 ‘national security’ tariffs on steel and aluminium imports as a bargaining chip, the United States demands that the European Union engage in negotiations on “global steel and aluminium arrangements to restore market-oriented conditions and address carbon intensity”. The US demand has reportedly been inspired by a blueprint that would establish an international institutional arrangement – labelled a ‘climate club’ – which would externalise market-access restrictions afforded by US Section 232 tariffs to the customs borders of club members. While the declared objective is to incentivise non-members to adopt low-carbon steel (and aluminium) production methods the US blueprint suffers from various design flaws including inefficient incentives, WTO inconsistency and incompatibility with the EU Carbon Border Adjustment Mechanism. The effectiveness of the proposed US scheme is severely compromised by the plethora of policy objectives it pursues, which go far beyond the goal of incentivising industrial decarbonisation in third countries, including secondary (ie protectionism) and tertiary (ie global power competition with China) objectives. The initial negotiation proposal submitted by the United States Trade Representative (USTR) to European Commission trade negotiators incorporates many if not all the problematic elements of this blueprint, setting the US on a collision course with the negotiation proposal put forward by the European Commission. This paper concludes that the adoption of the scheme proposed by USTR would result in a step backwards for international climate and trade cooperation, whereas not adopting the EU proposal would make for a missed opportunity. Given the sharply diverging negotiation positions and associated respective domestic constraints on both sides, however, policymakers should start to engage stakeholders now to manage expectations towards a low-ambition negotiation result, if any.
Topic:
Security, Climate Change, Industrial Policy, Governance, European Union, Economy, Trade Policy, and Transatlantic Relations
Political Geography:
Global Focus

29. China’s quest for innovation: progress and bottlenecks

Author:
Alicia Garcia-Herrero and Robin Schindowski
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
As the Chinese economy continues to decelerate, the central government is investing heavily in innovation, doubling down on research and development (R&D) spending and STEM-oriented human capital. In this paper, we assess China’s progress so far, looking at the inputs to innovation (R&D and human capital) as well as intermediate targets, such as scientific research and patents. We then evaluate how China has fared with respect to the ultimate goal of commercialising this progress, by looking at the value-added of Chinese exports and the overall productivity of the economy. We identify three potential bottlenecks that might be hindering the translation of China’s innovation efforts into productivity growth.
Topic:
Industrial Policy, European Union, Economic Growth, Innovation, and COVID-19
Political Geography:
China, Europe, and Asia

30. A new measure of aggregate trade restrictions: cyclical drivers and macro effects

Author:
Julia Estefania-Flores, Davide Furceri, Swarnali A. Hannan, Jonathan Ostry, and Andrew K. Rose
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper presents a new measure of aggregate trade restrictions (MATR) using data from the International Monetary Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions. MATR is strongly correlated with existing measures of trade restrictiveness but is more comprehensive in terms of country and time coverage. It is available for an unbalanced sample of up to 157 countries during 1949-2019. We use MATR to re-examine how trade restrictiveness varies with the business cycle, and how the macroeconomy looks in the aftermath of changes in trade restrictiveness. For the sample as a whole, MATR is typically a-cyclical but this average finding is heterogeneous across income groups: aggregate trade restrictions are a-cyclical in advanced economies but are counter-cyclical in emerging market and developing economies, especially in response to increases in unemployment. As to macroeconomic effects, increases in MATR are robustly associated with declines in GDP and in labour productivity (as well as being adverse for a range of other macroeconomic indicators).
Topic:
Industrial Policy, Economy, Multilateralism, and Trade Policy
Political Geography:
Global Focus