The Great Rebuild: Industrial Policy and the Return of the Strategic State

The Post-Neoliberal Turn

After decades of market-first orthodoxy, a fundamental shift is underway in how nations manage their economies. A series of shocks — a global pandemic, geopolitical conflicts, and rapid technological upheavals — have broken the old globalization consensus. Recent years saw supply chains repeatedly disrupted by COVID-19, trade wars, and regional conflicts, forcing countries to rethink their dependence on distant marketspolicycircle.org. Even traditionally free-market institutions now emphasize resilience: the IMF and World Bank talk about fostering “resilient supply chains” and bolstering “strategic” industries in ways unthinkable a decade agodocuments1.worldbank.orgimf.org. In policy circles, terms like “industrial policy” and “strategic sectors” are no longer taboo but mainstream, referring to critical domains like semiconductors, medical gear, rare minerals, and clean energy techimf.org.

None of this means a total return to top-down planning; markets still matter, but states are once again guiding the ship. Governments across ideologies are asserting more control to secure national economic destinies. The old laissez-faire mantra has given way to a pragmatic interventionism: public investments and subsidies are marshalled to fix supply bottlenecks, diversify import sources, and spur innovation in key fields. As a World Bank analysis notes, the resurgence of industrial policy is driven by a need for “resilient supply chains, the quest for good jobs, the imperative of green transition, and escalating geopolitical tensions”documents1.worldbank.org. In short, the strategic state is back. The IMF observes that countries see industrial policy as a tool to enhance competitiveness in strategic sectors and build global value chain resilience, especially after the pandemic exposed vulnerabilitiesimf.org. Even so, policymakers acknowledge trade-offs: onshoring production can mean higher consumer prices and hefty fiscal costs, so success hinges on precise targeting and strong institutionsatlanticcouncil.org. The era of government inaction has ended; a new age of economic statecraft has begun.

America’s Industrial Revival

In the United States, this turn is most visible in an ambitious bid to reindustrialize the economy. Through landmark legislation – the CHIPS and Science Act, the Inflation Reduction Act (IRA), and a trillion-dollar infrastructure law – Washington is pouring unprecedented sums into domestic manufacturing and technology. Together these initiatives mobilize “the most expansive portfolio of federal investments in the U.S. economy in more than half a century,” directing trillions in public funds to high-tech industriesbrookings.edu. Over the next decade, these industrial policies are expected to catalyze at least an additional $1 trillion in private investmentbrookings.edu. Not since the Cold War and Space Race has the U.S. government placed such “big bets” on strategic technologies in tandem with the private sectorbrookings.edu. The rationale is explicitly geoeconomic: to advance national security and competitiveness in critical supply chains.

Washington’s new industrial strategy has already triggered a factory boom. Semiconductor giants like Intel, TSMC, and Micron have announced new U.S. fabs buoyed by CHIPS Act subsidies. Electric vehicle and battery makers are racing to build plants to take advantage of the IRA’s generous tax credits. As one analysis notes, companies from General Motors to Micron are investing billions in new domestic facilities “motivated by public incentives, geopolitical risks, and more U.S.-centered trade policies”brookings.edu. What’s emerging is a public-private partnership to “reshore” production of things America deems essential: computer chips, EV batteries, clean energy components, and more. This “new industrial policy” explicitly links economic renewal with national defense and technological primacybrookings.edu. In fact, U.S. officials now lump semiconductors and green tech alongside missiles and steel as vital to security. As evidence, the CHIPS Act carved out billions for the Department of Defense to secure the semiconductor supply chaincsis.org, and the Pentagon is supporting domestic battery industries in the name of energy securityfuture-bridge.us. In the words of a CSIS study, the United States sees the EV battery sector as “a core pillar of economic competitiveness, decarbonization, and national security,” and is deploying a mix of demand-pull incentives and supply-side subsidies to lead in that fieldcsis.orgcsis.org.

Early signs indicate this activist stance is yielding results. Manufacturing construction is surging, focused heavily on electronics, batteries, and electrical equipment in line with the priorities of the new lawsatlanticcouncil.orgatlanticcouncil.org. One Brookings study even finds that public and private investment in these “strategic sectors” – like next-generation batteries and chips – is flowing disproportionately into America’s long-neglected industrial towns, spreading opportunity beyond the usual tech hubsbrookings.edu. Still, skeptics warn of pitfalls. The IMF cautions that poorly targeted subsidies could waste resources “without delivering meaningful returns”bloomberg.com. And there’s the risk of subsidy races or protectionist backlash as other nations respond. For now, however, the U.S. has unabashedly embraced industrial policy, betting that a hand-on approach will rejuvenate its economy and fortify its supply chains in an unstable world.

China’s Long Game: Planning with Purpose

China, for its part, never truly left the era of the strategic state – it has practiced industrial planning all along. From the “Made in China 2025” blueprint to the current 14th Five-Year Plan, Beijing has pursued a deliberate agenda to achieve technological self-reliance and ascend the value chainrhg.comreuters.com. Now, with rivalry against the U.S. intensifying, China is doubling down on what one Reuters analysis calls an “all about production” playbookreuters.com. President Xi Jinping’s directives are unambiguous: he warns that global changes “not seen in a century” demand China secure the “strategic high ground” in the tech racereuters.com. In practice, that means channeling massive state resources into high-tech manufacturing, from semiconductors and AI to electric vehicles and aerospace. The upcoming 15th Five-Year Plan (2026–2030) is expected to “re-emphasize support for high-tech research and industrial development,” reaffirming that “manufacturing is still a top priority” for China’s power and securityreuters.com.

This purposeful planning has yielded notable successes. China already leads the world in industries like electric vehicles, solar panels, and 5G equipment, and it dominates critical inputs such as rare earth mineralsreuters.com. Aside from a few extreme high-end areas (cutting-edge chips, commercial aircraft), China has localized much of its supply chain — a fact not lost on Western countries now scrambling to “re-industrialize” in responsereuters.com. Crucially, China integrates its industrial strategy with parallel efforts in education, labor force development, and energy policy. For example, the state heavily funds STEM education and vocational training to staff its factories and labs. It links industrial and energy goals by investing in nuclear and renewables to power its industrial growth and reduce import dependencies. Beijing’s model is a centralized resilience: state-owned enterprises and local governments, guided by five-year targets, coordinate to build entire ecosystems (like the EV battery supply chain) from raw materials to finished products. One result of this “whole-of-nation” approach is that China now supplies over 50% of the world’s refined nickel – a key battery metal – after banning raw ore exports to force domestic processingbricstoday.com. Policies like these, though controversial (the EU challenged China’s export ban at the WTO), have leveraged China’s market size to boost domestic industry up the value chainbricstoday.com.

Yet China’s strategic overdrive comes with risks and contradictions. The single-minded focus on production and heavy industry has led to problems of overcapacity, mounting local debt, and even deflationary pressure at homereuters.com. As Beijing pours subsidies into factories and infrastructure, household consumption and private sector dynamism have lagged, creating “deep, historical supply-demand imbalances” in the economyreuters.comreuters.com. Youth unemployment hit record highs in part because graduates trained for service jobs found an economy centered on smokestack industriesreuters.comreuters.com. Some Chinese economists openly warn that if high-end industries are not developed in balance with consumer welfare, China could face long-term stagnationreuters.comreuters.com. In response, officials talk about boosting domestic demand and social welfare, but Xi’s government has so far avoided any major shift away from the investment-led model. As one analyst quipped, in today’s China “it’s all about production” – pledges to strengthen consumption have often proven “empty promises” as the state remains fixated on industrial mightreuters.comreuters.com. Nonetheless, China’s commitment to planning with purpose remains unshaken. Facing external tech blockades and security threats, Beijing appears determined to press its advantage in manufacturing, even if it means walking the tightrope between centralized resilience and overextension.

Europe: Late to Arm, Quick to Regulate

Across the Atlantic, Europe has been jolted into its own industrial awakening – albeit in a distinctly European style. Long content as a “regulatory superpower” setting global standards, the EU finds itself scrambling to rebuild industrial musclemoderndiplomacy.eumoderndiplomacy.eu. The twin crises of recent years were a wake-up call: a war on its border exposed Europe’s military and energy dependencies, and the U.S.’s big subsidy push (the IRA) suddenly made EU officials fear a green-tech exodus. In response, Europe is gingerly embracing strategic state intervention, a notable shift for a bloc historically wary of state aid and protective policies.

On the defense front, Europe is late to arm but now moving fast. After Russia’s invasion of Ukraine, EU member states have boosted defense budgets at an unprecedented pace – collective EU military spending jumped over 30% from 2021 to 2024consilium.europa.euconsilium.europa.eu. Germany’s landmark “Zeitenwende” commitment of €100 billion to modernize its military and France’s reinvestment in its defense industry indicate a recognition that security can’t be outsourced. Crucially, this defense revival extends to industrial capacity: Europeans are funding domestic production of tanks, munitions, and advanced systems to ensure they are not wholly reliant on U.S. suppliers. Likewise in energy, the war-driven gas crisis prodded countries like Germany to diversify away from Russian fuel and prompted France to double down on nuclear power (reversing earlier plans to scale it back)nucnet.org. Paris is subsidizing EDF to build new reactorsworld-nuclear-news.org, framing nuclear energy as a strategic sector for both climate and sovereignty.

Meanwhile, Europe’s civilian industrial strategy is being recast under the banner of twin transitions – green and digital – but with a new realist edge. Brussels unveiled a Green Deal Industrial Plan in 2023 to counter the U.S. IRA, aiming to speed up permits and loosen purse strings for clean-tech manufacturingeur-lex.europa.eurhg.com. The EU also launched its own €43 billion Chips Act, seeking to double Europe’s share of global semiconductor production to 20% by 2030commission.europa.euflexciton.com. Member states, led by France and Germany, have rolled out incentives to attract chip fabs – for example, Intel’s planned mega-fab in Germany comes with hefty subsidies and energy cost offsets. Similarly, Europe wants to build out battery gigafactories, advanced pharmaceuticals, and other strategic supply chains on the continent. These efforts mark a departure from the EU’s recent past when industrial policy was almost a dirty word and competition policy blocked many state-led initiatives. Today there is a palpable sense in Europe that it must “catch up” or risk permanent industrial decline.

Yet Europe’s greatest strength – its regulatory power – also reflects its vulnerability. For years the EU prided itself on exporting rules (on data privacy, environment, product standards) even as it fell behind in tech innovation and high-end manufacturingmoderndiplomacy.eu. As one observer put it, Europe has embraced being a “regulatory superpower” largely because it “struggles to compete in…advanced manufacturing”, relying on rules rather than breakthroughsmoderndiplomacy.eumoderndiplomacy.eu. The risk now is that the EU becomes a standards superpower but a manufacturing junior partner – setting climate or AI regulations that others follow, while most batteries, chips or AI systems are built by America or Asia. European leaders recognize this peril. They speak of “strategic autonomy” and are tentatively relaxing strict state-aid rules to allow subsidies in sectors like hydrogen, EV batteries, and semiconductorseur-lex.europa.eurhg.com. But internal divisions and bureaucracy slow them down. Unlike the U.S. or China, Europe must coordinate 27 nations with differing priorities. Fragmentation is a challenge: for instance, while France champions nuclear and wants it counted as green investment, Germany only recently shut its reactors and prioritizes other renewables, requiring delicate compromisecleanenergywire.org. Moreover, Europe’s habit of heavy regulation can at times stifle the very innovation it wants to spur – critics warn that overly complex rules (the EU’s latest sustainability reporting standards run 1,000+ pages) burden firms and may “mask internal weakness” rather than solve itmoderndiplomacy.eumoderndiplomacy.eu.

In short, Europe is trying to pivot from an era of laissez-faire and laissez-regulate to one of strategic investment – but it is late to the race. The EU’s challenge will be to translate its considerable market size and regulatory clout into actual industrial capacity. If it succeeds, it could help Europe remain a player in the new era of clean tech and secure supply chains. If it fails, Europe could find itself with the rules but without the factories, watching the 21st-century industrial renaissance play out elsewhere.

Global South and the Strategic Realignment

The revival of the strategic state is not confined to the great powers; it’s also reshaping strategies across the Global South. Emerging economies in Asia, Latin America, and Africa are leveraging the new geo-economic landscape to launch their own industrial pushes, often with an eye to avoid choosing sides in the U.S.–China rivalry. In effect, a new non-aligned movement in production is taking shape – one where countries seek to maximize opportunities from all partners while asserting their economic sovereignty.

India exemplifies this trend. Long seen as a service-sector economy, India is now aggressively courting manufacturing as global companies adopt a “China+1” strategy to diversify supply chainspolicycircle.org. The Indian government has rolled out Production-Linked Incentive (PLI) schemes that offer hefty subsidies to firms building products domestically, from smartphones to solar panels. These incentives have already attracted giants like Apple, Foxconn, and Samsung to expand production in Indiapolicycircle.org. New Delhi is also signing a slate of trade agreements (with partners including the EU, Australia, and the U.S.) and joining frameworks like the Indo-Pacific Economic Framework to embed itself in **trusted supply chains】policycircle.orgpolicycircle.org. At the same time, India jealously guards its strategic autonomy. It practices “friendshoring” with Western allies for critical tech and defense cooperation, yet avoids overreliance on any one blocpolicycircle.orgpolicycircle.org. For instance, India engages in the Quad’s tech initiatives and welcomes U.S. investment in semiconductors, even as it maintains ties with Russia for energy and refuses to fully align against China. This balancing act is deliberate: Indian policymakers know that too much dependence on a few partners could “compromise India’s cherished strategic autonomy”policycircle.org. Thus, India aims to benefit from the West’s desire for an alternative manufacturing hub, without being drawn into all of the West’s conflicts. Domestically, India is investing in infrastructure (new freight corridors, industrial zones) and skilling programs to ensure it can deliver on the promise of becoming a global production hubpolicycircle.orgpolicycircle.org. The moment is ripe – as one analysis put it, India has a “narrow window” to position itself as the reliable alternative to China, provided it can overcome internal hurdles like poor logistics and complex bureaucracypolicycircle.orgpolicycircle.org.

Brazil under President Luiz Inácio Lula da Silva is similarly embarking on a path of “neo-industrialization.” In early 2024, Lula’s government launched a New Industry Brazil (Nova Indústria Brasil) plan that earmarks BRL 300 billion (roughly $60 billion) through 2026 to reinvigorate domestic industrygov.br. The plan focuses on sustainable and high-tech sectors, putting innovation and green transformation at the center of Brazil’s development strategygov.brgov.br. Its goals are sweeping: reverse years of premature deindustrialization, boost productivity, create better jobs, and increase Brazil’s presence in global value chainsgov.brgov.br. To get there, Brazil is deploying a host of state tools – special credit lines, public procurement with local content rules, R&D support, and even a regulated carbon market and green taxonomy to drive climate-friendly manufacturinggov.br. In effect, Brazil is trying to marry industrial policy with environmental sustainability, aiming to become a supplier of green goods (like biofuels, sustainable agri-tech, perhaps electric buses drawing on its strong automotive base) as well as traditional industrial products. This revival comes after decades where Brazil relied heavily on commodities and saw manufacturing stagnate. By realigning its policies now, Brazil seeks not just to grow faster but to do so on its own terms – reducing reliance on raw exports and moving up the value chain. As Brazil’s vice-president Geraldo Alckmin put it, the new policy is a “declaration of confidence” in Brazil’s ability to “compete and lead in strategic areas globally”gov.br.

In Southeast Asia, Indonesia offers a striking case of strategic realignment through resource-driven industrial policy. Blessed with the world’s largest nickel reserves (a critical metal for lithium batteries), Indonesia has wielded resource nationalism as a development tool. In 2020 it banned exports of raw nickel ore, compelling foreign firms to refine nickel in Indonesia if they want access to its resourcesbricstoday.com. This bold move – though challenged by the EU as protectionist – paid off: Indonesia’s nickel exports, after domestic processing, skyrocketed from $2 billion in 2019 to $30 billion by 2022bricstoday.combricstoday.com. The country leaped to supplying over half of the world’s refined nickelbricstoday.com, attracting investment from Chinese, Korean, and Western companies in new smelters and factories. Now Jakarta is climbing further up the value chain into EV batteries and electric vehicle production. It has secured multi-billion dollar investments from LG and CATL to build battery cell plants, is pushing for full nickel-to-battery supply chains onshore, and is offering incentives for automakers like Hyundai (which already assembles EVs in Indonesia) and Tesla to set up local plantsbricstoday.combricstoday.com. By leveraging its resource base and huge domestic market, Indonesia envisions itself as a key node in the global EV revolution – not just a raw material supplier, but a manufacturer of batteries and possibly cars. The strategy is showing results (the first locally made EV batteries are expected by 2025bricstoday.com), though it also faces headwinds. Implementing such plans has highlighted challenges, from environmental impacts of intensive mining to the need for skilled workers and the navigation of trade tensions (the U.S. IRA currently disqualifies Indonesian nickel from certain EV credits, pressuring Indonesia to seek trade pacts)bricstoday.combricstoday.com. Still, Indonesia’s ability to use industrial policy as both a development and diplomatic tool (e.g. bargaining access to its minerals for investment) is being watched by many other resource-rich nationsbricstoday.combricstoday.com.

Beyond these big three, a broader trend is evident. South Africa, Saudi Arabia, and the UAE are investing oil revenues into diversification industries (from hydrogen to defense manufacturing). Southeast Asian countries like Vietnam and Malaysia, and Mexico in North America, are benefiting from multinationals’ supply-chain shifts, and their governments are offering incentives to capture higher-value activities. Even smaller economies are articulating industrial strategies around niches – e.g. Rwanda targeting tech and bio-manufacturing, or Chile focusing on lithium processing for batteries. A “strategic non-alignment” underpins many of these efforts: rather than falling squarely into either Washington’s or Beijing’s camp, countries are hedging, taking investments from both, and prioritizing their own developmental goals. As one commentary noted, emerging powers are formulating innovative strategies to rewire trade routes and supply chains, often through South-South cooperation (for instance, the BRICS nations planning new trade corridors and financial instruments to reduce dependence on Western systems)bricstoday.combricstoday.com. The India–Middle East–Europe Economic Corridor announced in 2023, or discussions of BRICS joint projects, signal a desire to create alternative frameworks for strategic production that are not dominated solely by the traditional powerspolicycircle.org.

In sum, the Global South is not remaining passive in this new era. These countries see the return of industrial policy in the North not just as a challenge (e.g. IRA pulling green investment away) but as an opportunity to assert their own strategic agency. By developing homegrown industries and leveraging geopolitical competition to their advantage, they aim to climb the development ladder on their own terms. Whether through Make in India, Nova Indústria Brasil, or Making Indonesia 4.0, the message is clear: governments outside the G7 are also re-tooling the state to guide economic outcomes.

Conclusion: The State’s Strategic Comeback

From Washington to Beijing, Brussels to New Delhi, the consensus is unmistakable – the era of unfettered globalization and hands-off government is over. In its place, a new paradigm has emerged in which the state is a producer, investor, and protector in the economic realm. This great rebuild of industrial policy is about more than creating jobs or gaining an edge in trade; it is about securing the fundamentals of national life: chips and energy grids, vaccines and rare minerals, supply lines and, ultimately, sovereignty. Each region has its own flavor of this shift – America’s incentivized renaissance, China’s disciplined planning, Europe’s regulatory-industrial pivot, the Global South’s assertive development drives – yet all reflect a common realization. In a world of pandemics, war, climate urgency, and technological arms races, strategic laissez-faire is a luxury no one believes in anymore.

The return of the strategic state does carry risks. There is the specter of wasteful spending if industrial policies are misdesigned, or beggar-thy-neighbor distortions if nations simply engage in subsidy races without coordination. The IMF’s research on the new wave of industrial policy strikes a cautiously optimistic note: done right, such interventions can boost growth and resilience, but success requires “nuanced and contextual understanding” and good governancenber.org. Indeed, recent empirical studies show industrial policy can deliver gains – for example, raising local employment and innovation – especially when targeting clear market failuresbrookings.edunber.org. But the line between strategic support and cronyism is one that governments will have to mind carefully. Strong institutions and transparency will be essential to ensure that this activist turn serves the public interest and not just well-connected insiders.

On balance, the reassertion of the state in economic strategy appears to be a fitting response to our fraught times. The world has entered an age of geoeconomics, where economic capabilities and security are two sides of the same coin. Infrastructure, technology, energy, and manufacturing prowess are now seen as fundamental to national power – as vital as armies or diplomacy. It is telling that even as they warn of pitfalls, institutions like the World Bank have stopped preaching pure free trade and instead acknowledge the need to build “inclusive, green, and resilient” economies with active public guidancedocuments1.worldbank.org. In a sense, this is a return to an older idea: that the state can be an architect of prosperity, not just a night watchman. History shows that earlier waves of industrial policy (from postwar Japan and Germany to the Asian Tigers) helped produce long booms, though later excesses also taught hard lessons. Now, armed with those lessons and facing new imperatives, the strategic state is staging a comeback.

The implications will unfold over years. We may see a more multipolar production landscape, as nations diversify supply chains among allies and prioritize self-sufficiency in critical areas (so-called “friend-shoring” and “decoupling” where necessary). Global trade won’t disappear, but it could increasingly be shaped by blocs and strategic considerations rather than pure cost efficiency. Innovation might accelerate in some sectors due to government push (e.g. batteries, AI, space tech), even as the risk of overlapping subsidies looms. Developing countries could find new pathways to industrialize if they can skillfully navigate the great-power competition to their benefit. Ultimately, a rebalance is underway between market and state. The challenge for this new era will be to harness the strategic state’s strengths — its ability to mobilize resources and set long-term visions — while avoiding the old pitfalls of protectionism and inefficiency. If that balance is struck, the great rebuild of industrial policy could indeed usher in a more secure and equitable global economy, proving that when markets falter or global winds shift, enlightened statecraft can help steer the ship to safer shores.

Sources: International Monetary Fund (World Economic Outlook, Oct 2025); World Bank research and reports; Brookings Institution analyses; Center for Strategic and International Studies (CSIS) commentaries; Reuters and Bloomberg news reports; government policy documents (U.S. CHIPS/IRA laws, EU industrial strategy, India/Brazil industrial plans). All citations for quoted and factual material are provided in the text above.imf.orgbrookings.edureuters.commoderndiplomacy.eu

This publication was prepared by Sterling Asset Group for informational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The views expressed are those of the author(s) and do not necessarily reflect the views of Sterling Asset Group or its affiliates. Information contained herein is based on sources believed to be reliable as of the date of publication, but no warranty is made as to its accuracy or completeness. All investments carry risk, and past performance is not indicative of future results.