Shaping Trade: The Rise of Industrial Policies and Their Global Impact
On the latest episode of our Foreign Press Podcast, the Association of Foreign Press Correspondents had the opportunity to learn more about industrial policies. Industrial policy refers to government actions that intervene in domestic industries to influence market dynamics. This can include measures such as subsidies, tax incentives, trade policies, and other strategies aimed at promoting specific sectors, supporting companies, or shielding them from foreign competition.
This is a landscape of competing priorities and how industrial policies interact with global trade rules can have significant ramifications for sustainable development. On hand to discuss this matter with AFPC-USA’s Editorial Supervisor Alan Herrera was Jia Hui Tee, a Senior Trade Policy Analyst in the Trade Policy program at the Hinrich Foundation. The Foundation recently published its 2024 Sustainable Trade Index and held a launch event to discuss the implications of industrial policy on national resilience and global trade.
This episode of the Foreign Press Podcast was produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode.
Alan Herrera: Hello and welcome to the Foreign Press Podcast! I'm Alan Herrera. This podcast is an educational program brought to you by the Association of Foreign Press Correspondents in the United States. That's AFPC-USA. This episode has been produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode.
Today, we’re exploring the rise of industrial policies—a powerful tool governments use to shape their economies by supporting specific industries or sectors. From subsidies and tax incentives to strategic investments, these policies aim to address challenges like economic growth, environmental sustainability, and societal needs that markets alone can’t tackle. But how do industrial policies interact with global trade rules, and what do they mean for sustainable development? While they can drive innovation and resilience, they also risk fueling trade tensions and protectionism. With the world increasingly interconnected, the implications for smaller economies, trade partners, and the global market are profound.
Here to share their insights is Jia Hui Tee, a Senior Trade Policy Analyst in the Trade Policy program at the Hinrich Foundation specializing in research on international trade, digital trade and development economics. She has worked as a senior analyst at the Asian Trade Centre in regional and international trade research projects spanning Asia, the US and Europe. Jia Hui is experienced in quantitative and qualitative research on trade, free trade agreements and development economics. Join us as we unpack how industrial policies influence sustainable trade, balancing national interests with global responsibilities.
Jia Hui, thank you for being here with me today on our Foreign Press Podcast. It's always a pleasure to partner with the Hinrich Foundation and get to learn more about these topics, which have been proven very educational for me to say nothing of the foreign correspondent community. So thank you for being here with me today.
Jia Hui Tee: Thank you, Alan. It’s my pleasure to be here.
AH: Thank you again. So of course today our topic of conversation, the main topic is industrial policies and their impact on sustainable trade around the globe. You are of course an expert on all of this. And just for my edification and for anybody who's listening to us today, could you tell me a bit more about industrial policies? What are the key drivers behind this growing adoption of industrial policies across major trading nations and are these policies generally beneficial or detrimental to sustainable trade practices?
JHT: Industrial policies, these are government initiatives or tools aimed at promoting specific sectors or industries within the economy, but there's no standard definition of what exactly these tools are. They can take various forms including subsidies, tax incentives, direct government investments, and even regulations that make it harder for foreign businesses to sell to [their] market, like tariffs. So these are just a few examples. The goal of these industrial policies, which sectors they actually target, how they apply, and the impact could all differ.
AH: Are there specific sectors then where these policies are having the most significant impact on trade and sustainability?
JHT: So governments are targeting sectors which they think are strategic, which means [those] that concern their national interests and that could be in sectors that are most technologically intensive as well as in areas which they think could generate future growth and technological progress. This includes sectors like semiconductors, EVs, and AI, which could have dual-use capabilities and this sort of extends their relevance in the defense and security space. The green tech and clean energy sectors are also receiving a lot of attention because countries are striving to meet climate goals and [transitioning] towards sustainable energy sources so as to power their increased energy demand in addition to the economy. These are just a few sectors which governments are prioritizing and are willing to invest a lot of resources in. So that's why we can see that these are the kinds of sectors which are likely to have a lot of impact because of the large or substantial amount of investments that governments are willing to put in.
AH: How can countries ensure that their industrial policies, keeping in mind what you've told me, how can these countries ensure that their industrial policies align with the principles of sustainable trade as outlined in the Hinrich Foundation’s Sustainable Trade Index?
JHT: So at the Hinrich Foundation, we believe that equitable and sustained economic growth can only be achieved through sustainable trade practices that can generate economic growth without compromising on the quality of life of its people and the environment. So we encourage countries to adopt a holistic approach that balances economic growth with that of societal wellbeing and environmental protection. And this includes ensuring that you're adopting fair trade practices like respecting WTO trade rules, you adhere to commitments made in trade agreements, you support social equity to ensure that the benefits of industrial policies are equitably distributed across society. You are providing support not just to the large businesses, but also to the small and medium sized enterprises, SMEs. And you also ensure that your workers have access to fair wages, safe working conditions. It is also important to recognize environmental issues. So you can do that by investing in renewable energy sources and green technology to reduce carbon footprints, enhance your energy efficiency. So these are just a few areas.
AH: Yes, yes. I’m a little curious. Can you tell me just what was the most intriguing finding or most surprising finding within the Sustainable Trade Index this year?
JHT: So this year we highlighted the rise of industrial policies. If you were to look at the list of indicators we have under the economic pillar, there is an indicator on tariff and non tariff barriers. And this shows a significant increase between last year 2023 and the first half of this year, 2024 in the 30 economies that we track in the STI. The cumulative number of tariff barriers in force jumped from approximately 19,000 last year to about 21,500 this year. So that's a 10-plus increase, 10-plus percentage increase. But the increase for non-monetary barriers was even more significant. There was around 23 percent. So we reached about 483,000 across the 30 countries that we tracked. And in the list of countries we can see that countries like the US, India, China, they top the list with the highest number of tariffs, non-tariff barriers. But it is not so surprising given that they are the largest economies in the world.
AH: That makes sense. That makes sense. Can governments then, how can they design these industrial policies to minimize negative impacts on trade partners or global market dynamics? There's been of course a lot of rumbling around industrial policies just in the last few weeks, certainly since President-elect Donald Trump in the United States. His election has sent shockwaves through, well through Southeast Asia, through everywhere. Nobody knows what's going to happen from day to day, but how can governments address this issue? I'm just curious. We are of course experiencing a lot of flux, so it'd be interesting to gain, not that we can predict the future, but just I guess some sort of an understanding of the path forward that governments might have available to them.
JHT: Because industrial policies are about targeting specific sectors that governments think are really important, it is also at the same time important to ensure that you are effectively using your resources. So there are a lot of questions [about] whether governments are able to select the right sectors or the types of businesses to target. Governments really have that golden touch. And if the businesses that governments are targeting [are not] doing well, governments will avoid wasting public resources. It is also important to recognize that being resilient, applying industrial policies to be resilient, and having diversified supply chains all comes at cost. So all these issues revolve around how you are going to effectively manage the use of your public resources. Also, there are issues that no one can guarantee the success of industrial policies, even with the massive amount of financial resources that can be invested in these areas, especially if everyone is now doing the same thing as you are.
And there's intensive competition in strategic sectors. So my strategic sectors and your strategic sectors are the same. And we can see that through the case of what happened recently with how the Swedish EV battery maker ended up in bankruptcy. So [there] certainly are risk[s] involved. And there is also the issue of whether industrial policies can be applied fairly and justifiably so there needs to be some sort of a legal basis under the rules of the WTO. So there are criticisms that industrial policies have come under the guise of climate, public health and security issues in order to legitimize their use. But because most countries are WTO members, they have to be bound by WTO rules and if countries were to flag these rules, it can create a lot of tension and even retaliation. So we do have, like China has raised a dispute at the WTO on the applications of the US Inflation Reduction Act tax credits. So industrial policies can create tensions between countries if they're applied in a discriminatory manner.
I think it is important that we are mindful of all the costs and we do need to have some checks and balances. Countries, governments will need to evaluate all these policy options. If you have industrial policies, you do need some sort of a clear measurable set of goals and objectives that you are to evaluate against. Otherwise, a lot of things could go unchecked and it could give governments the free will to over invest or over allocate resources to certain industries. And we should also recognize that there are trade-offs or opportunity costs in every decision made. So once you allocate more resources to one sector, you are giving less to others. So it could come across as you're having less to spend on other areas that are important like healthcare or education or we could see some adverse effect on other sectors that you are not supporting, like labor being shifted from a sector that's not supported by government policies to sectors that are provided with subsidies and grants, and this results in the draining talent and workforce in these sectors. So oftentimes such trade-offs are often not accounted for when you're evaluating the impact of a policy.
AH: On the subject of these checks and balances. I think that that's a very fascinating point and it's very interesting to me to hear how all of these things are interconnected. There's this domino effect essentially once, well, once governments agree or disagree on how to move forward with their respective policy objectives. So I just want to know then, what role should international organizations play here in this space? You of course mentioned the WTO a little earlier. What role should these organizations play in regulating or harmonizing industrial policies to avoid trade distortions?
JHT: So I think we only have the WTO, which is the global trade institution that regulates trade and makes trade rules in order to achieve trade liberalization. So what can organizations like the WTO do? They assess trade rules such that countries do not impose trade policies that are highly trade distortionary. And this means industrial policies like export subsidies, which are tied to export performance. It could mean quotas, import quotas, which limits the amount of imports, and as well as local content rules which governments can provide benefits only if there are some criteria to getting those benefits such that the companies must use a certain percentage of local content in their production. And this sort of discriminates against other countries.
So the WTO enforces these rules such that it avoids discrimination and it can help to level the playing field across WTO members. Now there are 166 of them, and as WTO members, you're boun by WTO trade rules and principles. So you are not allowed to discriminate between foreign producers, your trading partners who are WTO members. So country A and country B, they must be treated the same way. And as well you cannot discriminate between your own producers versus foreign producers, whatever they produce; whatever incentives or trade policies, they must be applied equally. If you're giving out subsidies you must also give out subsidies to your foreign producers. So this ensures that the industrial policies that you're applying, they're not discriminatory. So this is the important role of the WTO, which ensures that trade policies are not made or applied in a discriminatory manner. And this is important so that we do not end up with a lot of unhappiness around industrial policies, especially if they are very targeted or very discriminatory.
AH: Your point here leads perfectly, actually, into my next question. You're talking about discriminatory policies. There's of course so much friction on the international stage. What are the potential risks of industrial policies leading to trade fragmentation or protectionism? And how can policymakers address these unintended consequences of industrial policies such as resource misallocation or market inefficiencies, which you've touched on a little bit before, but I'm curious to know a bit more about that.
JHT: So the reasons for applying industrial policies are now very different from what's happening in the past. So in the past it [was] more simple, [it was] more about economic reasons. Industrial policies are applied to enhance the competitiveness and growth of businesses and to correct simple market failure. So these policies are generally temporary and they should be removed eventually when these industries have grown and can survive on their own. So there are a lot of more issues that are being factored into trade policymaking now, which makes manufacturing become more important, such as the issue of supply chain resilience, especially with our encounter during the COVID-19 pandemic with all these supply chain disruptions, countries not able to get the medical supplies or food supplies that they needed. So this kind of got governments thinking about how to diversify the supply chains away or bring production back home. And this will mean more industrial policies, more frictions.
There are also national security concerns, and this has grown more fragmented war by raising geopolitical tensions, something that we highlighted in our Sustainable Trade Index last year where governments may shift their production of critical goods back home or to countries they think will be more friendly to them. And this sort of reduced exposure of their critical supply chains that may come under control of foreign governments, which we think might be less friendly. And with greater geo-economy rivalry, countries are also prioritizing technological advancements. They want to make sure that their local businesses have that competitive edge over foreign competitors. Plus they are also mindful of climate protection and this is reflected in how they're supporting all the green tech and clean energy sectors. So now there is a lot more to consider by governments and industrial policies can become the tool to use to safeguard your interest and priorities.
AH: Yes, no, they certainly can. It’s of course a very complicated topic, obviously, but it's funny to me a little after so much time learning about this topic through our partnership with the Hinrich Foundation, again, just how heated these negotiations can be. At the end of the day, we're dealing with human beings with competing priorities and it's astonishing just how much things can fluctuate from day to day, from week to week, from month to month. So I just want to thank you just right here, right off the bat for just giving me more insight into this. It’s certainly made me a better person to have a conversation with outside of work on these topics.
I would like to know then, what steps can smaller or less developed economies take to remain competitive in a world that is increasingly shaped by these industrial policies.
JHT: As smaller or less developed economies, they usually do not have the same level of resources that large economies do. They don't have large budgets. So I mean, if they want to implement some sort of policies of their own, it is important for them to be innovative and adopt measures that rely less on handing out cash or subsidies. But they can do more to encourage R&D, they can help workers, match workers to the right industries. And furthermore, it is also important for them to safeguard their rights and continue to be active. Or if they're not already participating in multilateral rulemaking forums like the WTO, please join them. Please join the WTO and they should not isolate themselves and be left out. That's my key point here.
AH: So then this leads me then to my final question, and you have made so many excellent points, so again, thank you. How can industrial policies be designed to support global development goals such as reducing poverty, addressing climate change, and promoting equitable access to other trade opportunities?
JHT: In order to do that, we do need to revisit the Sustainable Development Goals, the UN Sustainable Development Goals. We can look at what the Hinrich Foundation has under our Sustainable Trade Index. So these are some considerations that governments have to put in place in the design of the industrial policies because on practical grounds, when they are designing industrial policies, it is meant for their own nation's interests. So this is a very challenging consideration here. There's some dilemma over there. Are you prioritizing your nation's interest or do you also want to take into account the important goals that we have to support the development needs of other nations to reduce poverty and all that. So this is a very complex consideration here.
AH: Absolutely, absolutely. Again, complex. And even right now, we're sort of chuckling over it because again, everything can just change so quickly and I can only imagine how much work you and your great team at the Hinrich Foundation put together, do, from year to year, just in analyzing and putting together the Sustainable Trade Index. As someone who has for the last few years worked with the Foundation, it's always a pleasure to learn a bit more about this very complex environment. So I thank you, thank you, Jia Hui, for being here with me today and for sharing your expertise, and I appreciate you making an appearance today on our Foreign Press Podcast.
JHT: Lovely to share my points. Thank you!
