The global economy’s increased uncertainty (disruptions, geopolitical tensions, technological change) has revived interest in industrial policy, shifting the debate from whether governments should intervene to what kind of industrial policy is needed in a volatile world.

The article introduces “Trade System Plasticity” as a complementary concept to traditional industrial policy: the capacity of trade systems (institutions, networks, logistics, regulations) to continuously adapt and reorganize while maintaining the circulation of productive activity.

Effective strategy requires both building productive capabilities (traditional industrial policy) and ensuring adaptive trade systems (plasticity) so that specialization remains resilient, allowing economies to respond intelligently to shocks without sacrificing long-term competitiveness.

For much of the last four decades, industrial policy was treated with considerable scepticism. The dominant economic orthodoxy viewed state intervention in productive transformation as inherently problematic. Governments, it was argued, lacked the information required to identify future winners, protect industries efficiently, or direct resources toward their most productive uses. Attempts to do so often produced distorted incentives, rent-seeking behaviour, and inefficient industries sheltered from competition. That intellectual consensus has changed.

The disruptions of recent years (from the COVID-19 pandemic and geopolitical tensions to supply chain fragmentation, trade conflicts, technological rivalry, and climate-related shocks) have revealed the vulnerabilities of economic systems designed primarily around efficiency and optimization. Production networks that had been celebrated for their sophistication and global integration were also exposed as highly dependent on stable conditions. In response, governments across both developed and developing economies have returned to industrial policy, not necessarily as a rejection of markets, but as a recognition that strategic productive capabilities cannot always emerge through market forces alone.

The central question has therefore changed. It is no longer whether governments should pursue industrial policy. The more fundamental question is: what kind of industrial policy is appropriate for an era in which uncertainty is no longer an exception, but a permanent feature of the global economy?

For decades, industrial policy has focused on a key objective: building productive capabilities. Governments sought to identify strategic sectors where to channel investment, promote technological upgrading, and support infant industries to move toward higher-value activities. These objectives remain essential. No economy has achieved sustained transformation without increasing productivity, developing specialized capabilities, and building competitive industries.

Yet these approaches were largely developed during a period when the external environment was more predictable. Firms could specialize, supply chains could deepen, and industrial strategies could be designed around relatively stable assumptions about markets, technologies, and geopolitical conditions. 

That environment has fundamentally changed.

Today’s global economy is characterized by recurring disruptions, strategic competition, technological acceleration, and rapidly shifting patterns of trade and production. Under these conditions, industrial success cannot be measured........

© Eurasia Review