Industrial policy in the EU
In this paper, Fredrik Sjöholm argues that the EU’s emerging strategy of a more active industrial policy, whereby authorities select companies and industries for special support and protection from competition, is negative for growth and prosperity. What triggered the current “inward-looking” trend in the EU? Sjöholm states a few factors:
- China’s share of the world economy increased from around 2% to 17% from 1970 to 2021. In addition, China has pushed its global interests harder increasing the probability of geopolitical conflict. In reaction, the U.S. and EU sought to adopt a more cautious approach to globalization in many countries.
- The US protectionism introduced under President Trump remains in place and there are no clear indications in 2023 that the situation is about to change.
The European Commission’s 2020 industrial policy strategy targets certain companies and industries. The strategic industries that the EU wants to focus on, include: important raw materials, batteries, hydrogen, processors and semiconductors, industrial data, cloud and services, and circular plastics. This strategy though, and most importantly, will lead to increased protectionism within the EU, which in turn can damage the very foundations of the Union.
The Return of Borders in the World Economy: An EU-Perspective
Author: Fredrik Sjöholm
From: Research Institute of Industrial Economics
Industrial policy and job creation
In this commentary, Veronique de Rugy elaborates on the main argument of current industrial policy critics: such policies should be implemented only to improve a country’s resilience, protect national security, and support the transition to a net-zero economy, and not create jobs. Some of her arguments:
- Even if industrial policies generate a manufacturing boom, most of the actual production work in the U.S. is automated because labor costs are very high while there is abundant capital and technology.
- Recent research finds that industrial policy is highly correlated with an industry’s comparative advantage. This implies that governments incentivize companies to do things they would have done anyway. As a result, governments reallocate resources and hence lowering production while using more resources.
Industrial Policy Isn’t About Jobs
By: Veronique de Rugy – Mercatus Center, George Mason University
