Industrial policy is back on the agenda of the great economic powers. What are the priority areas?

The global economic context, tense by geopolitical uncertainties, but also the exponential development of advanced digital technologies, which can contribute to the efficiency of activity in all sectors of activity, causes the main economies of the world to return to the practice of industrial policies in order to achieve their objectives. If in the past such policies aimed, with priority, at economic growth and job creation, recent ones are focused on securing supply chains and developing high-performance technologies in key areas, also taking into account climate objectives. Through initiatives of this type, governments can offer various facilities or direct financing to encourage investment, but, at the same time, they can also generate tensions in the relationship with commercial partners or potential investors.

Recent industrial policies include the US Inflation Reduction Act (“IRA”), the European Battery Alliance or Japan’s strategic supply chain initiatives. There are also numerous initiatives aimed at research and innovation in critical areas, such as green energy and the digital transition (Horizon Europe), or sectoral alliances, such as those that support the development of cutting-edge technologies in the field of semiconductors.

Policies of this kind have shown their benefits over time and still have the potential to help overcome the challenges facing economies and, implicitly, companies around the world. On the other hand, however, there is also the risk of increasing protectionist measures, due to the states’ desire to provide local companies with attractive incentives, but also to attract as many foreign investments as possible. But these cannot be taken to the extreme (such as the relocation of some production units in the country, from more efficient locations) because, in the long term, it would generate production costs that are difficult to sustain. In addition, it would attract similar initiatives from trading partners, so that, in the end, bilateral, regional or even global agreements in certain areas are preferable.

Friendshoring – between advantages and overzealousness

At the same time, current industrial policies give increasing importance to the concept of “friendshoring” (which favors economic relations with political allies) when analyzing the structure of supply chains for key areas of economies, but also financial flows.

An example in this sense can be the European policy on foreign direct investments (established by a regulation in force from 2020), which stipulates that each member state has the task of examining foreign direct investments made on its territory from

the perspective of safety and public order. The regulation considers investments from outside the European Union (non-EU), but the European authorities have left it up to the member states how to implement, so many of them, including Romania, have imposed much stricter conditions for the authorization of investments, as a measure of protection for sectors considered strategic.

But, in Romania at least, the strategic sectors are very vaguely defined, so that, at present, almost any investment, whether it is non-EU, EU or even from Romania, must be notified to the commission for the examination of foreign direct investments, specially created in this purpose, to avoid the risk of non-compliance. Thus, an initiative designed to protect European economies from potentially hostile investments risks turning into a barrier to all investments, in certain states at least.

In conclusion, the idea of ​​reindustrialization is beneficial for economies around the world, if related policies stimulate the development of local investments, because a strong entrepreneurial environment has the potential to increase the economy’s resilience to possible external shocks, but it also encourages foreign ones, without which no economy can perform at its true potential. In addition, to be effective, these policies should be targeted, on areas considered strategic, for which to develop coherent packages of measures applicable in the long term.