The governments that once led the charge for free trade are now picking winners and losers themselves. Industrial policy - where the state, not the market, decides which sectors deserve support - was long considered toxic in countries with market-oriented economies. Today it is mainstream, and the shift keeps accelerating.
In a Foreign Affairs essay, trade policy professor Eswar Prasad has outlined the reversal, "Hvylya" reports. Industrial policy, Prasad wrote, "was once anathema to countries with market-oriented economies but has now come to be seen by many as a legitimate tool."
The Biden administration's Inflation Reduction Act, which took effect in August 2022, became a landmark case. Its stated aim was preserving US technological supremacy and pushing domestic investment into green technology. In practice, it deployed subsidies and tax breaks that steered production of electric vehicles and renewable energy components toward American factories - effectively erecting barriers to foreign competitors.
Trump went further after returning to office. His Made in America Manufacturing Initiative promotes domestic firms and encourages domestic procurement at the direct expense of foreign companies. His administration has also "weaponized trade policy to extract concessions from partners, often on issues unrelated to trade," Prasad noted. The tariff regime that followed injected fresh uncertainty into global commerce.
For businesses that depend on the free movement of goods, the consequences are severe. Tariffs from one country trigger retaliatory tariffs from others, and the cascading breakdowns can halt entire industries. A single broken link in a global supply chain "can bring entire industries grinding to a halt," Prasad warned. The system that advanced economies built over four decades is now being taken apart by the same governments that championed it.
"Hvylya" earlier reported on why China holds the minerals the West needs to rebuild its arsenal.