Economic Security is a team sport

Development cooperation is being defunded. Multilateral institutions are under pressure. Across Europe and North America, governments are reducing aid budgets, questioning traditional forms of international engagement, and increasingly prioritizing domestic economic and security concerns.

At first sight, this appears to signal a retreat from international cooperation.

I believe the opposite is happening.

A new form of international cooperation is emerging. It is not yet fully recognized because governments, economists, and policymakers are still trying to understand the implications of a rapidly changing global economy. Much of the traditional development and international cooperation sector has not yet taken notice. Yet beneath the headlines about aid cuts and geopolitical competition, a new logic is taking shape.

My thesis is simple: the explicit management of geoeconomic competition will only work if industrial policy—the increasingly dominant instrument of economic policy—is itself thought of internationally and implemented through international partnerships.

For decades, economic policy was largely guided by the belief that governments should focus on creating stable framework conditions while markets allocated resources efficiently. Today, that paradigm is giving way to a renewed focus on industrial capabilities, technological leadership, supply chain resilience, strategic sectors, and economic security. Governments are once again trying to shape markets rather than merely regulate them.

Yet there is a contradiction at the heart of this new thinking.

Industrial policy is often conceived as a national project, while the industries it seeks to shape operate through deeply international production networks, innovation ecosystems, data flows, talent pools, and supply chains. Governments increasingly pursue national industrial strategies, but the economic systems they are trying to influence remain profoundly globalized.

In this article, I want to unpack this shift from ordoliberal and market-centered economic thinking toward a renewed era of industrial policy. What exactly is industrial policy? How does it differ from the economic paradigm that dominated the past three decades? Why has it returned so forcefully? And why might its success ultimately depend on a new generation of international partnerships?

If industrial policy is becoming the defining economic policy framework of next decade, then international cooperation must evolve as well—toward industrial, technological, data, talent, and innovation partnerships.

The Return of Industrial Policy

For several decades, economic policy in many Western countries was shaped by a relatively simple idea: governments should create the right framework conditions, while markets allocate resources efficiently.

Industrial policy was often viewed with skepticism. Governments were assumed to be poor at selecting winning industries, while protectionism and subsidies were seen as distortions of market competition.

Today, this consensus has largely disappeared.

The United States has adopted the CHIPS Act and Inflation Reduction Act. Europe is implementing the Net-Zero Industry Act, the Critical Raw Materials Act, and a range of strategic investment instruments. China continues to pursue large-scale industrial policies across sectors ranging from electric vehicles to semiconductors and biotechnology.

Industrial policy is back.

At its core, industrial policy seeks to shape economic structures rather than merely regulate markets. Governments intervene deliberately to accelerate innovation, build industrial capabilities, support strategic sectors, or reduce external dependencies.

The instruments are diverse:

• Research and development subsidies

• Tax incentives

• Public procurement

• Export promotion

• Investment incentives

• Infrastructure investments

• Local content requirements

• Technology transfer mechanisms

• Export controls

• Foreign investment screening

• Strategic stockpiles

• Industrial standards

All these instruments share one assumption: The state can shape economic outcomes in a positive way.

The Problem with National Industrial Policy

Industrial policy is often discussed as a national undertaking. In reality, modern industries are deeply international.

A semiconductor produced in Europe may rely on American design software, Dutch lithography machines, Japanese chemicals and Taiwanese fabrication. Electric vehicle supply chains span dozens of countries. Pharmaceutical innovation depends on global research networks, clinical trials, manufacturing facilities, and regulatory cooperation.

Therefore, national industrial policy has effects across borders – often unintended ones.

Consider Germany's early solar subsidies. The policy successfully created demand for solar technology. Yet much of the resulting manufacturing capacity emerged in China rather than Germany. The policy accelerated the global energy transition, but not necessarily German industrial leadership.

Similarly, many beneficiaries of the US Inflation Reduction Act are not American firms but suppliers and manufacturers located in other countries.

The Risks of an Uncoordinated Industrial Policy Era

The return of industrial policy also carries risks. Countries may enter subsidy races, each attempting to outspend competitors. Trade barriers may proliferate as governments seek to protect domestic industries. Export controls and investment restrictions may fragment global markets. Competing standards may create technological blocs.

In the worst case, industrial policy becomes a negative-sum competition in which governments spend increasing amounts of public money while reducing the efficiency of global production systems.

Many of today's tensions between the United States, Europe, and China reflect precisely this dynamic.

Industrial Policy Is Already International

The idea of coordinating industrial policy is not entirely new. The European Union itself can be understood as a large-scale experiment in coordinated industrial development.

Airbus is perhaps the most famous example. Rather than each country attempting to build a national aerospace champion, European governments created a shared industrial ecosystem. Research, manufacturing, assembly, and supply chains were distributed across multiple countries, creating both political support and industrial scale.

Instead of coordinating only trade, countries could increasingly coordinate industrial capabilities.

Towards Partnership-Based Industrial Policy

The next evolution of industrial policy may therefore be partnership-based industrial policy.

Rather than asking how one country can build an industry alone, governments would ask how partners can jointly build capabilities that none could easily create independently.

Several models are conceivable.

1. Supply Chain Partnerships

Industrial policy could begin with mapping existing value chains and identifying strategic partners. Rather than subsidizing domestic production in isolation, governments could co-invest in critical segments of shared supply chains. Battery ecosystems, pharmaceutical production, critical minerals, and semiconductor value chains are obvious candidates.

2. Production Partnerships

The Airbus model demonstrates that industrial capabilities can be intentionally distributed across countries. Future industrial partnerships could allocate research, manufacturing, testing, and assembly functions across participating economies. Rather than creating national champions, countries could create partnership champions.

3. Demand Partnerships

Many emerging industries struggle because markets remain too small. Governments could coordinate public procurement, standards, and market creation across multiple countries. Joint procurement initiatives could accelerate adoption of technologies ranging from green hydrogen to digital health infrastructure.

4. Innovation Partnerships

Innovation increasingly depends on networks rather than individual institutions. Countries could establish shared innovation ecosystems, including joint research programs, regulatory sandboxes, venture capital platforms, and living laboratories.

5. Data Partnerships

In the age of artificial intelligence, data is becoming a strategic resource. Many countries possess valuable datasets but lack the scale required for advanced AI development. Partnership-based industrial policy could support trusted data spaces, common governance frameworks, and shared digital infrastructure.

6. Talent Partnerships

Human capital has become one of the most important industrial bottlenecks. Instead of competing for scarce talent, countries could jointly invest in education, training, research exchanges, and talent mobility systems.

7. Standards and Regulatory Partnerships

Standards increasingly shape markets. Countries with shared interests could coordinate regulatory frameworks in areas such as carbon pricing, AI governance, digital health, cybersecurity, and sustainability reporting.

8. Resilience Partnerships

Economic security does not necessarily require economic isolation. Countries may achieve greater resilience through coordinated stockpiles, joint investment screening, shared export control regimes, and collective monitoring of critical supply chains.

Building the Institutions of the Geoeconomic Age

For this vision to become reality, however, there is still a long way to go.

The European Union has been experimenting with strategic partnerships for years. Yet these partnerships were rarely conceived as part of a coherent economic or foreign policy framework centered on industrial capabilities, technological competitiveness, or economic security.

Consider Global Gateway. In the European Economic Security Strategy, it is explicitly identified as the EU's flagship partnership instrument. Yet when looking at many of the projects being implemented under the Global Gateway umbrella, one cannot help but wonder how many of the actors involved see themselves as contributing to economic security or industrial policy. In many cases, the language, objectives, incentives, and institutional cultures remain rooted in traditional development cooperation. The strategic ambition articulated in Brussels has not yet fully translated into implementation on the ground.

This points to a broader challenge.

If industrial policy is returning as the dominant paradigm of economic policy, while international partnerships become increasingly important for its success, then three major transitions need to take place simultaneously.

First, economists and economic policymakers need to adapt to a world in which industrial policy has returned. This requires new thinking, new research agendas, and new analytical frameworks.

Second, the international cooperation community needs to understand the geoeconomization of international relations. Development practitioners, cooperation agencies, and international organizations must become familiar with concepts such as economic security, industrial ecosystems and technology. New skills, new institutions, and new types of partnerships will be required.

Third, political leaders must help citizens understand what economic security actually means. Protecting economic security cannot become a justification for protecting inefficient industries, preserving outdated economic structures, or retreating into economic nationalism. Structural transformation is inevitable. Technologies will change. Supply chains will evolve. New industries will emerge while others decline.

If industrial policy is becoming the defining economic policy framework of the next decade, then partnership-based industrial policy may become one of the defining forms of international cooperation.