European Countries Embrace Industrial Policies to Counter U.S. and China
Last week, top officials from France, Germany, and Italy met outside Paris to discuss a coordinated economic policy in response to increased efforts by the United States and China to protect their own businesses. The three European countries, along with many others, are embracing industrial policies aimed at steering their economies through targeted subsidies, tax incentives, regulations, and trade restrictions.
According to a new study, over 2,500 industrial policies were introduced last year, triple the number from 2019, with most coming from the wealthiest and most advanced economies. While these measures are popular domestically, some international leaders and economists are concerned that such interventions could slow global growth.
The debate over industrial policies will be a focal point at the upcoming spring meetings of the International Monetary Fund and the World Bank in Washington. The shift towards industrial policies marks a departure from the traditional free-market ideology that has dominated economic thinking in recent decades.
Recent global challenges, such as the pandemic, supply chain disruptions, and geopolitical tensions, have prompted countries to prioritize security, resilience, and self-sufficiency in their economic policies. The United States and Europe have taken cues from China and implemented industrial policies focused on critical technology and climate change.
While some economists view industrial policies positively, others remain skeptical, warning that these interventions could hinder overall growth. The International Monetary Fund has developed guidelines for implementing industrial policies effectively, emphasizing the importance of addressing market failures and avoiding discrimination against foreign firms.
As Europe seeks to compete with the United States and China, the European Union is moving towards more coordinated economic interventions, despite differing opinions among member states. France has proposed aggressive measures to support European-made products, while Germany has been more cautious.
Overall, there is broad support for increasing funding, reducing regulations, and promoting a unified market for investments and savings within the European Union. The focus is on stimulating green and digital technologies to ensure the region’s competitiveness in the global economy.
With industrial policy no longer considered taboo, European leaders are determined to defend their industries and promote economic growth through strategic planning and collaboration.
