Noah Smith
· Noahpinion
· April 20, 2026 at 05:07
· ⏱ 16 min read
| Read on Substack ↗
Summary
The article argues that the term 'industrial policy' has become too broad and must be broken into specific strategies (FDI promotion, technology policy, temporary export subsidies) because success depends on context. For markets, this implies that country-level development strategies — not specific equity picks — are the focus, with China's debt-laden subsidy approach posing risks to its banking system and long-term growth, while FDI-driven models (Poland, Malaysia) offer a replicable template.
•IMF paper (Cherif & Hasanov, 2019) defines 'True Industrial Policy' as export-oriented, competitive, and temporary — contrasting with failed import substitution of the 1960s–1970s.
•World Bank's new report (Fernandes & Reed) supports industrial parks and market-access assistance but casts doubt on subsidies and tariffs.
•Poland and Malaysia have succeeded via FDI promotion without building domestic national champions; Poland is about to surpass Japan's living standards.
•China's massive industrial subsidies have created price wars, margin compression, and deflation, with most subsidies delivered as cheap bank loans.
•China's bank debt from subsidy-driven failures could lead to zombie lending and a Japan-style lost decade, as banks evergreen loans to troubled firms.
•For developed countries like the U.S., technology policy (AI, internet) is effectively industrial policy — picking winners like AI through regulation and R&D support.
•The standard industrial-policy playbook (Studwell, IMF) requires withdrawing subsidies after export competition selects winners, but China's bank-led financing makes this exit painful.
•FDI promotion forces institutional reform (property rights, EU alignment) and reduces government risk by letting multinationals discover comparative advantage.