Security First: How Industrial Policy Changed in 2025

Industrial policy is entering a more geopolitical and coercive phase. Since 2020, governments—particularly in the United States and other Western economies—have begun to shift away from subsidy-led interventions toward more restrictive policy instruments. At the same time, stated policy objectives are moving from climate and competitiveness toward national security and security-of-supply concerns, reshaping the global industrial policy landscape.

Rising geopolitical tensions in 2025 are reinforcing this shift. Early-2025 data from the New Industrial Policy Observatory (NIPO) indicate not only continued growth in industrial policy activity, but also changes in its orientation, instruments, and stated motives. Three developments are particularly salient.

Figure 1 shows that between 2009 and 2019, the number of industrial policy interventions affecting trade remained broadly stable. This period of continuity ended in 2020, when the COVID-19 pandemic triggered a sharp increase in interventions, largely through emergency subsidies, liquidity support, and state aid.

After a brief slowdown, a second and more structural expansion began in 2022. This phase was driven by large-scale industrial policy frameworks, most notably in the United States, where the Inflation Reduction Act and the CHIPS and Science Act embedded industrial policy into longer-term fiscal and strategic planning. Other advanced economies followed with more fragmented initiatives.

Adjusted for reporting lags (measures reported from January to December every natural year), Figure 1 suggests that 2025 will mark another peak. Unlike earlier surges, however, recent growth is less associated with crisis response or climate policy, and more closely linked to geopolitical competition and economic coercion. Industrial policy is increasingly used as a strategic instrument.

Figure 1. Industrial Policy Activity has Surged since 2020, Driven by Successive Shocks

Figure 2 documents a change in the composition of industrial policy instruments since 2024. In the United States and other Western economies, the percentage of interventions relying on trade restrictions and other coercive measures has increased, while the relative role of domestic financial support has declined.

This shift has intensified in 2025. In the United States, industrial policy has moved away from subsidy-heavy approaches toward measures that directly restrict trade, including higher tariffs, stricter local-content requirements, and expanded use of trade defence instruments justified on national security grounds.

Other Western economies exhibit similar patterns. While the European Union continues to rely heavily on subsidies and state aid, it has expanded its use of trade-restrictive tools, including anti-subsidy investigations and cases under the Foreign Subsidies Regulation. Industrial policy is therefore becoming more externally oriented, aimed not only at supporting domestic production but also at altering competitive conditions vis-à-vis foreign firms.

Outside the West, the use of restrictive instruments has also increased, but domestic support measures remain more prominent. This points to partial convergence in policy tools alongside persistent differences in fiscal capacity, institutional constraints, and strategic priorities.

Figure 2. Early 2025 Evidence Points to a Turn Toward More Coercive Industrial Policy

Figure 3 shows a change in the stated rationales for industrial policy. Between 2009 and 2021, interventions in the United States and other Western economies were primarily justified by climate objectives and competitiveness concerns.

From 2022 onward, national security and geopolitical rationales rose sharply, particularly in the United States. By 2024–2025, more than half of U.S. industrial policy measures explicitly cite national security or geopolitical considerations. Combined with security-of-supply justifications, these motives account for roughly half of all Western interventions.

This shift has occurred largely at the expense of climate-related rationales, especially in the United States. In the rest of the world, industrial policy continues to be driven mainly by competitiveness and domestic development objectives, which still account for about half of all measures in 2024–2025. Nonetheless, security-related motives are also increasing, suggesting that security-driven industrial policy is no longer confined to Western economies.

Figure 3. The Motives Behind IP Shifted From Competitiveness and Climate Toward Security Concerns

Overall, early-2025 evidence points to a structural transformation in industrial policy. Governments are not only expanding the use of industrial policy, but also changing how it is deployed. Interventions are becoming more coercive, more externally focused, and more explicitly tied to security objectives.

If current trends continue, industrial policy in 2026 is likely to become further embedded in geopolitical competition. Measures will increasingly serve dual purposes: supporting domestic production while constraining foreign competitors. This raises the risk of policy spillovers, retaliation, and greater fragmentation in global trade and investment.

The growing reliance on security-based justifications may also make industrial policy harder to reverse. Once framed in national security terms, interventions tend to gain political durability and become less responsive to efficiency considerations. The shift observed in 2025 may therefore represent not a temporary adjustment, but the consolidation of a security-centred industrial policy regime.