June 2, 2026
By Vanguard with the work of Mariana Mazzucato, Dani Rodrik, Michael Porter, Gary Pisano, and Pankaj Ghemawat.
The Return of the Strategic State
Industrial policy has returned to the center of economic strategy. For decades, many advanced economies treated targeted state intervention with caution. Governments still funded research, managed trade rules, supported infrastructure, and regulated markets, but the dominant language of economic policy favored open competition, private capital allocation, and relatively neutral market frameworks. Industrial policy was often associated with inefficient subsidies, political favoritism, protectionism, or failed attempts to pick winners.
That period has ended. Across the United States, Europe, China, Japan, South Korea, India, and other major economies, governments are intervening more directly in strategic sectors. Semiconductors, artificial intelligence, batteries, electric vehicles, clean energy, critical minerals, defense technology, pharmaceuticals, and advanced manufacturing are no longer treated as ordinary industries. They are increasingly viewed as foundations of economic competitiveness, national security, energy resilience, and technological sovereignty.
The resurgence reflects a broader shift in the global economy. Supply chain shocks exposed overdependence on distant production networks. U.S.-China competition turned technology into a geopolitical battleground. Climate commitments created demand for green industrial transformation. The pandemic revealed vulnerabilities in medical and manufacturing capacity. AI increased the strategic importance of chips, data centers, power systems, and cloud infrastructure. Rising political pressure also forced governments to respond to deindustrialization, regional inequality, and public skepticism toward globalization.
The result is a new operating environment for business. Corporate strategy can no longer be separated from government strategy. Firms must understand incentives, restrictions, local-content rules, export controls, procurement policies, tariffs, tax credits, national security reviews, and sustainability mandates. Public policy is becoming a competitive variable. The central question for executives is not whether industrial policy is good or bad in theory. It is how to operate in a world where governments are reshaping markets on purpose.
Why Industrial Policy Has Returned
Industrial policy has returned because governments no longer believe that market allocation alone can solve strategic economic problems. The first driver is national security. Technologies once viewed as commercial are now treated as strategic assets. Semiconductors, AI systems, cloud infrastructure, telecommunications networks, drones, satellites, quantum computing, and advanced batteries all have military, intelligence, and critical-infrastructure implications. Governments are unwilling to leave these capabilities entirely to global market forces.
The second driver is supply chain resilience. The pandemic, shipping disruptions, export controls, and geopolitical tension revealed how dependent firms and countries had become on concentrated suppliers. Resilience now has economic value even when it raises cost. A supply chain that is cheap but fragile may no longer be acceptable when disruption can halt production, limit national capacity, or expose companies to geopolitical pressure.
The third driver is the climate and energy transition. Decarbonization requires large-scale deployment of clean technologies, electrification, grid modernization, storage, and industrial transformation. Governments are using subsidies, tax credits, procurement, regulation, and financing to accelerate investment because the transition is too capital-intensive and too strategically important to rely on market forces alone.
The fourth driver is domestic politics. Voters in many countries have become skeptical of globalization when they associate it with job loss, regional decline, wage pressure, and weakened industrial communities. Industrial policy offers a political response: rebuild manufacturing, protect strategic industries, and create domestic employment. Whether these policies deliver on that promise is still uncertain, but the political demand for visible economic intervention has become stronger.
The fifth driver is technological rivalry. China’s state-backed industrial strategy has forced other economies to reconsider whether market-led approaches can compete with long-term state coordination. China’s industrial strategy now touches nearly every major sector and underlying supply chain, expanding foreign dependence on Chinese manufacturing while accelerating the country’s influence in strategic technologies. Industrial policy is therefore not a temporary policy fashion. It is a response to structural insecurity.
The United States: Strategic Subsidies and Security Logic
The United States has moved from a largely market-led industrial posture toward targeted intervention in strategic sectors. The CHIPS and Science Act, the Inflation Reduction Act, the Bipartisan Infrastructure Law, export controls on advanced semiconductors, critical minerals initiatives, and defense-industrial investments all reflect this shift. The U.S. approach is not fully centralized, but the intent is clear: rebuild domestic capacity, reduce dependence on strategic rivals, support clean technology, and maintain leadership in advanced innovation.
The American model combines private-sector dynamism with public incentives. The government is not generally attempting to operate industries directly. Instead, it is using grants, loans, tax credits, procurement, regulation, and restrictions to shape private investment. For companies in semiconductors, batteries, clean energy, manufacturing equipment, grid technology, defense, AI infrastructure, and critical minerals, the opportunity is significant. Policy support can improve project economics and accelerate investments that may otherwise be too costly or uncertain.
The risk is that U.S. industrial policy remains vulnerable to political discontinuity. Industrial strategy requires long investment horizons, while American politics can change quickly. A company may commit capital based on current incentives, only to face modified rules, delayed approvals, or shifting priorities after elections. For executives, the lesson is clear: incentives matter, but they are not strategy. Companies should use policy support to strengthen long-term competitiveness, not to justify projects that depend permanently on political preference.
Europe: Competitiveness Under Constraint
Europe faces a different industrial-policy challenge. The European Union is attempting to reconcile climate ambition with industrial competitiveness. Its emerging industrial strategy focuses on reducing energy costs, creating lead markets, financing industrial transformation, improving circularity, and strengthening global partnerships. Europe wants to decarbonize without surrendering its industrial base to lower-cost competitors.
The difficulty is that Europe is operating under several constraints at once. Energy costs remain a concern. Technology commercialization can be slower than in the United States. Regulation is often complex. National implementation can be fragmented. Competition from China and the United States is intense. European manufacturers are increasingly concerned that climate policy without competitiveness policy could accelerate industrial decline rather than renewal.
This tension is especially visible in automobiles, batteries, steel, chemicals, and clean technology. European firms face pressure from Chinese EV competitors, high costs, and the need to electrify rapidly. Europe’s industrial policy response is built around strategic autonomy: the desire to reduce dependence on external suppliers while preserving openness to trade. The risk is overcomplexity. If Europe creates a policy environment that is too slow, fragmented, or compliance-heavy, companies may invest elsewhere. The reward, if the strategy works, is a high-standard industrial base capable of combining decarbonization with technological sophistication.
China: State Coordination at Scale
China remains the most developed example of modern industrial policy at scale. Made in China 2025 sought to reduce dependence on foreign technology, upgrade manufacturing, and build competitiveness in strategic sectors such as robotics, semiconductors, and new energy vehicles. The outcomes have been mixed but consequential. China has not achieved full self-sufficiency in frontier semiconductors, but it has built formidable manufacturing strength in electric vehicles, batteries, solar, and industrial supply chains.
This concentration creates both economic advantage and geopolitical tension. China’s scale lowers costs and accelerates deployment, but it also increases foreign dependence. Export controls, licensing restrictions, tariffs, and retaliatory measures have made critical supply chains less predictable. In some sectors, foreign companies now face the difficult reality that Chinese firms benefit from scale, subsidies, domestic demand, integrated supply chains, and policy support. Competing purely on market terms may be unrealistic. At the same time, avoiding Chinese supply chains entirely may also be impractical.
For companies, the China question is no longer simply about market entry. It is about strategic exposure. Firms must decide where to compete, where to partner, where to localize, and where to diversify. They must also identify which parts of their supply chains remain dependent on Chinese inputs even when final assembly has moved elsewhere.
Emerging and Middle Powers: The New Industrial Opportunity
Industrial policy is also becoming central to the strategies of emerging and middle powers. India, Indonesia, Vietnam, Brazil, Mexico, Saudi Arabia, the United Arab Emirates, Turkey, and others are using industrial strategy to capture investment, move up value chains, and position themselves in a reconfigured global economy. Some countries are benefiting from supply chain diversification away from China. Others are using critical minerals, energy resources, domestic markets, or strategic geography to attract investment.
For multinational companies, these markets create opportunity, but not all opportunities are equal. A country may offer incentives, but still lack the infrastructure, workforce, legal stability, supplier depth, or energy systems required for advanced manufacturing. Firms should evaluate emerging industrial policy environments through practical criteria: labor quality, logistics, political stability, power availability, supplier depth, contract enforcement, corruption risk, local market potential, and policy continuity.
Industrial policy can create openings, but it cannot substitute for operational readiness.
The Free-Market Tension
The return of industrial policy creates an ideological and practical tension. Free-market principles emphasize competition, price signals, private investment discipline, and the risk of government failure. Industrial policy introduces targeted intervention, subsidies, protection, and state-directed priorities. The danger is real. Governments may misallocate capital, protect inefficient firms, distort competition, fuel retaliation, or reward politically connected companies. Subsidies can become permanent dependency. Local-content rules can raise costs. Protectionism can reduce innovation. Firms may spend more time lobbying than improving productivity.
Yet the opposing view is also incomplete. Markets do not always price national security, resilience, carbon externalities, regional decline, or strategic dependency. In a world where rival governments actively shape industrial outcomes, non-intervention can itself become a policy choice with consequences. The practical issue is not whether governments should intervene at all. They already are. The relevant question is how to intervene intelligently.
Good industrial policy should be targeted, time-bound, transparent, performance-based, and disciplined. It should solve market failures or strategic vulnerabilities without insulating firms from competition indefinitely. It should build capability, not dependency. For companies, the challenge is to capture policy upside without surrendering strategic independence.
Risk and Reward for Business
Industrial policy creates several business opportunities. Incentives can improve project economics. Policy alignment can create market access. Resilience investments can strengthen long-term competitiveness. Public-private partnerships can accelerate innovation. Government funding for research, pilot projects, and infrastructure can reduce early-stage risk.
But these opportunities come with serious risks. Policy dependence can weaken discipline. Regulatory complexity can delay execution. Incentive programs often come with compliance burdens, reporting obligations, domestic-content rules, labor requirements, and audit risk. Geopolitical exposure can rise when accepting public support in one jurisdiction complicates operations in another. Subsidized competitors can alter market dynamics. Policy reversals can damage long-term plans.
This is why companies should treat industrial policy neither as a subsidy hunt nor as an external political issue. It is now part of corporate strategy. The firms that succeed will be those that understand how public priorities affect market structure, capital allocation, supply chains, and competitive position.
Case Pattern: The Semiconductor Manufacturer
The semiconductor industry illustrates the new reality. A company considering a fabrication plant must now evaluate much more than land, labor, tax, and customer proximity. It must assess subsidy availability, national security rules, export controls, power reliability, water access, talent pipelines, local suppliers, permitting timelines, and geopolitical restrictions.
Public incentives can reduce capital burden, but fabs are expensive, slow to build, and vulnerable to demand cycles. A poorly conceived project does not become strong simply because it receives government support. The winning approach is disciplined alignment: using public support to build capabilities that remain competitive even if subsidies decline.
Case Pattern: The Clean Technology Firm
Clean technology firms face a related but distinct challenge. A battery or solar manufacturer may benefit from domestic production incentives, but global price competition remains intense. Chinese scale can compress margins. Domestic-content rules may create demand, but supply chains for minerals, components, or equipment may still be foreign-dependent.
The company must decide whether it is competing on cost, technology, localization, carbon transparency, resilience, or customer trust. Subsidy-supported markets can buy time, but they cannot replace innovation, operational excellence, and supply chain depth.
Case Pattern: The Multinational Buyer
Multinational buyers face their own strategic adjustment. The lowest-cost supplier may carry geopolitical risk. The domestic supplier may be more expensive but strategically safer. The allied supplier may qualify for incentives. The Chinese supplier may be technologically strong but vulnerable to tariffs or export restrictions.
Procurement has become strategic. Companies must balance cost, resilience, compliance, customer expectations, and policy exposure. A sourcing decision is no longer just an operational decision. It can determine regulatory exposure, brand risk, margin stability, and long-term market access.
The Corporate Playbook
For executives, the response begins with policy intelligence. Companies need systematic monitoring of industrial policy, incentives, trade rules, export controls, procurement programs, and regulatory changes. This cannot be left to occasional government affairs updates. Policy now influences capital allocation, supply chain design, product strategy, and competitive positioning.
Companies should map where they are exposed to sectors likely to be affected by industrial policy: chips, batteries, AI infrastructure, clean energy, defense, critical minerals, pharmaceuticals, data systems, and advanced manufacturing. They should distinguish between projects that are fundamentally competitive and projects that work only because of incentives. They should engage early with policymakers, not simply to seek benefits, but to provide evidence on supply chains, permitting, workforce needs, technology bottlenecks, and investment conditions.
Compliance must also become a strategic capability. Incentives and restrictions come with obligations. Companies need controls for domestic content, labor standards, reporting, export compliance, sanctions, procurement rules, and auditability. A firm that cannot prove compliance may find that public support becomes a liability rather than an advantage.
The Board Agenda
Boards should treat industrial policy as a strategic risk-and-opportunity category. They should ask management to present a map of policy exposure across major business lines, a summary of available incentives and associated obligations, a review of export controls and national security restrictions, a supply chain concentration analysis, a scenario plan for policy reversal or escalation, and a capital allocation framework for subsidy-linked investments.
The board should also ensure that management does not confuse public funding with strategic quality. Policy support can enhance a good strategy. It cannot rescue a weak one indefinitely.
What Good Industrial Policy Means for Business
From a corporate perspective, good industrial policy should be predictable enough to support long-term investment, targeted enough to solve real bottlenecks, transparent enough to reduce favoritism, and performance-based enough to prevent dependency. It should be coordinated enough to align incentives, regulation, infrastructure, and workforce development. It should also remain open enough to preserve competition and realistic enough to acknowledge existing supply chain constraints.
Business leaders should advocate for these principles. Poorly designed industrial policy creates uncertainty, rent-seeking, and inefficiency. Well-designed industrial policy can reduce strategic vulnerability, support innovation, and accelerate investment. The corporate role is not passive. Firms have information governments need. They understand supply chains, cost structures, technology timelines, and operational barriers. Engagement should be serious, evidence-based, and transparent.
Strategic Implications
Industrial policy’s return changes how companies plan. Capital allocation must include policy scenarios. Supply chain strategy must account for national priorities. M&A must account for security review. Procurement must account for domestic-content and geopolitical risk. Sustainability strategy must account for industrial incentives. R&D strategy must consider public funding and export controls. Government affairs must move closer to strategy.
The companies that adapt will not simply chase subsidies. They will build policy-aware strategy. They will identify where government priorities align with durable market opportunities. They will use incentives to accelerate investments they would want to make anyway. They will avoid dependence on fragile political commitments. They will treat compliance as a strategic capability. They will build flexibility across regions and supply chains.
The companies that misread the shift may face stranded assets, regulatory delays, sudden cost changes, or competitive disadvantage against subsidized rivals.
The State Is Back in Strategy
Industrial policy has returned because the global economy has become more strategically contested. Governments are reshaping markets to secure technology leadership, accelerate decarbonization, rebuild manufacturing, protect supply chains, and respond to geopolitical rivalry. This creates opportunities for firms aligned with public priorities, but also exposes companies to policy volatility, compliance burdens, and distorted competition.
The old separation between business strategy and public policy is no longer reliable. Executives must understand how government decisions influence capital flows, technology access, market structure, and competitive advantage.
The return of industrial policy does not mean the end of markets. It means markets are increasingly being shaped by strategic state involvement. For business leaders, the winning posture is neither ideological resistance nor opportunistic dependency. It is disciplined engagement.
Companies must learn to operate in partnership with policy without becoming captive to it. They must use public support to build real capability. They must preserve flexibility as governments change direction. They must compete in markets where strategy is now written partly in boardrooms and partly in ministries.
Industrial policy is back. The companies that understand its logic will be better positioned to shape the next economy rather than merely react to it.