Industrial Policy: A New Age of State-Guided Capitalism (Part I)

The Wealth of Nations, the Will of States

The past few years have seen a dramatic pivot toward national industrial policy across the world as each major economy is pouring public funds into strategic sectors. On one hand, this reflects a fragmenting geopolitical and economic landscape marked by rising trade tensions, friendshoring, and the decoupling of supply chains.

On the other hand, there is a paradoxical unity of focus as all these industrial strategies concentrate on the same strategic sectors such as semiconductors, advanced computing and quantum, clean energy and net zero technologies, and biotech.

In short, the world’s leading powers may be diverging in their geoeconomic blocs, but they are converging on what they build.

This two-part report examines how North America, the European Union, and Asia are each drafting and implementing industrial policy. Part one focuses on developments in North America and Europe, with particular emphasis on the United States.

Part two turns to Asia, highlighting China’s expansive strategy alongside key initiatives in Japan and South Korea. Despite diverging national aims, these strategies reveal a shared focus on high-tech and clean-tech frontiers.

At a high level, the common threads include:

• Rampant subsidies and tax incentives to reshore semiconductor fabrication

• Major investment tax credits and grants to catalyze development of batteries, solar panels, wind turbines, hydrogen, and electric vehicles

• State-led research and development programs in quantum computing and artificial intelligence

• New restrictions to reduce foreign dependence, including export controls, domestic content requirements, and critical mineral strategies

These moves are overtly defensive in seeking to reduce reliance on geopolitical rivals and offensive in aiming to capture future industries. Yet the outcome is that every economy is trying to seize a larger share of the semiconductor market, the quantum computing race, and the renewable energy supply chain.

North America

In North America, effectively dominated by U.S. federal policy, the recent trend has been unprecedented fiscal activism in what was once mostly private sector driven manufacturing and research and development. The United States has enacted several historic laws and initiatives, many under the banner of supply chain security and economic competitiveness.

Notably, three sweeping packages under the Biden administration and a bipartisan Congress have reoriented industrial policy: the Bipartisan Infrastructure Law passed in 2021, the CHIPS and Science Act passed in 2022, and the Inflation Reduction Act passed in 2022.

Together, these bills represent more than two trillion dollars of new spending and tax incentives to rebuild U.S. capacity in strategic industries. In parallel, the Biden White House has issued executive orders to harden critical supply chains, and even the prior Trump administration issued new directives on minerals.

Semiconductors have become a central focus of U.S. industrial policy, most notably through the CHIPS and Science Act of 2022. The legislation authorizes roughly 280 billion dollars in new science funding, with 52.7 billion dollars specifically earmarked to bolster domestic semiconductor production.

Of that amount, approximately 39 billion dollars is allocated as direct subsidies for chip manufacturing facilities, while the remainder supports investment tax credits and research initiatives. The CHIPS Act is explicitly framed as a strategic effort to strengthen supply chain resilience and to counter China’s dominance in advanced manufacturing.

According to estimates and press releases from the U.S. Commerce Department, the goal is to increase America’s share of global leading-edge chip production to nearly 30 percent by the 2030s, a sharp rise from what was essentially zero just a few years ago.

Since the law’s passage, it has catalyzed a wave of private investment announcements, with companies such as Intel, TSMC, Samsung, and GlobalFoundries unveiling plans for new fabrication facilities across multiple states. These projects collectively represent hundreds of billions of dollars in investment, incentivized by the law’s federal backing.

Washington has adopted the posture of a full-fledged industrial policy apparatus. Federal agencies routinely issue solicitations targeting foundational microelectronics, coordinate with state-level initiatives, and provide digital tools to guide regional development. One such example is an interactive online map released by the Commerce Department to help localities identify available incentives for semiconductor manufacturing.

Clean energy and climate policy in the United States took a significant turn with the passage of the Inflation Reduction Act of 2022. Despite its name, the law is primarily a climate and industrial policy, allocating approximately 369 billion dollars over ten years for energy security and climate programs.

Central to this legislation are expanded tax credits for renewable energy sources such as solar, wind, advanced nuclear, and carbon capture technologies, along with strong incentives for domestic manufacturing of clean energy components.

The Inflation Reduction Act doubles tax credits for solar and wind installations and introduces a new investment credit for panels and turbines made in the United States. It also establishes a Manufacturing Credit of up to 30 percent for facilities producing components like panels, electrolyzers, and batteries.

Electric vehicles receive considerable support, particularly through subsidies that favor North American assembly and the use of battery minerals sourced under stricter regulations.

Analysts widely view the…