Charting Distortionary Industrial Policy Measures

Governments have traditionally used targeted interventions known as industrial policy to make domestic producers more competitive or promote growth in selected industries. While some developing countries continued to use it, industrial policy fell out of favor across most of the world for years, because of its complexity and uncertain benefits.

Now, industrial policy appears to be back everywhere. The pandemic, heightened geopolitical tensions, and the climate crisis raised concerns about the resilience of supply chains, economic and national security, and more generally about the ability of markets to allocate resources efficiently and address these concerns. As a result, governments came under pressure to have a more active industrial policy stance.

The IMF recently joined forces with the Global Trade Alert to monitor developments. Our new research shows that there were more than 2,500 industrial policy interventions worldwide last year. Of these, more than two thirds were trade-distorting as they likely discriminated against foreign commercial interests.

Recent measures focus more on the green transition and economic security, and less on competitiveness. Competitiveness was the objective for one-third of all industrial policy measures last year. The remaining two-thirds were motivated by climate mitigation, supply chain resilience, and security considerations.

Interestingly, the most-active sectors were military-civilian dual use products and advanced technologies, including semiconductors and low-carbon technologies, as well as their components, such as critical minerals.

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