I was recently invited onto Carlos Carnicero Urabayen’s Future is Blue podcast, alongside Miguel Ángel González, to talk about whether Europe can turn industrial policy and trade into real competitive capability. Here’s a short recap of what I was asked:

Is Europe acting on its own strategy, or just reacting to the US and China?

On security, the US started linking trade and industrial policy to national-security goals back in 2017 (with roots in the shift on multilateralism during Obama’s second term), while the EU only moved this way after COVID. On green policy, the EU was actually an early mover, though China pushed in parallel for its own reasons (energy security rather than climate). Timing aside, the real gap is diagnosis: the EU has rarely asked what its own domestic capabilities are, or built a strategy around them. The IRA and CHIPS Act were matched by similar EU measures shortly after, yet FDI in 2024 rose 23% in the US and fell 58% in the EU, per UNCTAD.

Why does spending fail to become capability?

Because subsidies only work if there’s already a business case: a subsidy improves a return, it doesn’t invent one. The EU can match US budgets euro for euro, so money isn’t the constraint. ArcelorMittal handed back €1.3bn for green steel after a year, citing energy costs and policy uncertainty. Compare that to Costa Rica winning Intel’s HQ over Mexico in 1996, not with bigger subsidies, but by fixing the fundamentals: trade agreements, standards, human capital. You win industries by clearing bottlenecks, not just writing checks.

Should trade agreements be about market access or economic security?

I’d push back on the framing that these are in tension. Open markets are resilience — food-price crises in 2007–08 and 2022 were worsened by export bans, not by dependence itself. Open markets also build durable capability: skills, institutions, and supplier ecosystems are forged through competition, not shielded from it. Security is a legitimate consideration, but it shouldn’t be the guiding principle of EU trade policy.

One thing to watch by 2030?

No need to reinvent the wheel, just track the Draghi fundamentals, especially the single-market ones: an integrated energy market, a real Capital Markets Union, and a shift from unanimity to qualified-majority voting in the Council. Fix those low-hanging bottlenecks, and the rest follows.

This only scratches the surface. The full conversation goes deeper into each of these points, and Miguel Ángel González brought his own sharp insights throughout. If you’re trying to understand how Europe can actually build competitive capability through industrial policy beyond the conventional playbook of subsidies and headline spending, this episode offers a genuinely useful take on the debate!

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A few cents at the pond. Roughly thirty times that on a shelf in Brooklyn, London, or Tokyo.

The salt is the same salt. It is scraped by hand from shallow ponds on an Andean hillside, dried by the sun, bagged, and shipped. Nothing is added. Nothing is refined. The mineral that sells for under a sol per kilo beside the pond and for ten to fifteen dollars a pound in a foreign gourmet store is, chemically, the identical product. It barely changed. It barely moved.

So where did the value come from?

That question is the whole story of Maras, and the answer has very little to do with the salt. It has everything to do with who could finally see it, and the structure that made them able to.

A spring older than the Inca

High in Peru’s Sacred Valley, at around 3,380 metres, a warm spring emerges from the mountainside carrying water roughly three times saltier than the sea. From that single source, a gravity-fed web of tiny channels feeds an estimated four to five thousand shallow ponds terraced down the slope. Workers flood each one a few centimetres deep and let the fierce mountain sun do the rest. After three or four weeks the crystallised salt is scraped out by hand, exactly as it has been for at least five centuries.

The system is pre-Inca. The Inca Empire formalised it and folded salt into their trade economy; Spanish chroniclers found it already ancient. For most of the time since, Maras salt was a humble local good, sold rough in Cusco markets for cooking and for livestock licks, fetching pennies.

Then, over about two decades, the pennies became dollars. The product did not improve. The market arrived. When you cannot compete on scale, you compete on story, and Maras had five hundred years of story sitting in plain sight.

What the cooperative actually unlocked

Here is the part that is easy to miss, because it is structural rather than scenic. A single family at Maras might work two or three ponds, or a couple of dozen. That family, on its own, can sell salt to a tourist or a Cusco trader. What it cannot do is sell to a Tokyo importer.

It cannot pass a foreign food-safety audit. It cannot guarantee a consistent grade across a container load. It cannot fund a certification, design export packaging, or hold a conversation with a buyer eight time zones away who needs ten tonnes to a fixed specification by a fixed date. Five ponds give you salt. They do not give you a counterparty.

The cooperative is what closes that gap. Maras has one: formalised during Peru’s agrarian reforms around 1970, on top of a communal tradition far older. Some three to four hundred families hold hereditary rights to their own ponds while the cooperative manages the shared spring, the canal network, and, decisively, the collective face the community shows to the outside world. It aggregates thousands of tiny harvests into a saleable volume. It standardises quality. It pursues the certifications that border control demands. It turns a scatter of family plots into a single supplier a foreign buyer can actually transact with.

That is the quiet engine of the whole transformation: the cooperative manufactured access to markets that otherwise did not exist for these producers at all. A premium price is worthless if you have no lawful, reliable way to reach the shelf that pays it. The cooperative built the road.

Where the value is actually created

It is tempting to credit the price jump to the salt’s qualities such as the trace minerals, the pink hue, the hand-harvest. Those matter for the marketing, but what moved the price was reaching buyers who value a story and will pay for provenance. The same gram of salt is worth a few cents to a Cusco cook and ten dollars to a New York food enthusiast, and the difference is not in the gram. It is in the distance it can now travel and the narrative it can now carry: the pre-Inca spring, the indigenous families, the unbroken centuries.

Trade is the mechanism that converts an unchanged commodity into a premium good, because trade is what connects a product to the people who assign it the higher value.

This is the deep lesson of small-producer globalisation, and it generalises far beyond salt. It is the same engine behind single-origin coffee, terroir wine, Moroccan argan oil. None of those products got physically better on the way to commanding a premium. They got reachable by the buyers who would pay one. The salt did not change. The buyer did.

There is a structural footnote worth stating plainly, because honesty about value chains is not the same as moralising about them. A markup of roughly thirty times does not land in the harvester’s pocket. Most of it is built downstream (in certification, branding, logistics, retail) and accrues to whoever performs those steps. The very small souvenir-sized packages sold to tourists reach far higher figures still. This is not a Maras peculiarity, it is the standard shape of a value chain stretching from a poor producing region to a rich consuming one. The cooperative’s achievement is real and it is large: it captured far more of the chain than an isolated family ever could. How much more it could capture is the open question.

A mirror in the Basque Country

Six thousand kilometres away, on a hillside in Spain’s Basque Country, sits what may be the closest structural twin to Maras: the Valle Salado de Añana. The parallels are uncanny. A hypersaline spring. Brine running by gravity into thousands of shallow terraced ponds. Families who historically held hereditary rights to individual platforms. The site is even older than Maras, with salt-making dated back some seven thousand years.

Same geology. Same ancient communal logic. Two completely different answers to the question of what global markets demand.

By the mid-twentieth century, Añana was dying. Industrial salt made artisanal evaporation uneconomic in Spain long before it did in the Andes. Families abandoned their platforms; the wooden structures rotted; by the early 2000s the site was nearly derelict. A public-private foundation took over, backed by provincial budgets and European Union funds, restored the site, won a top European heritage prize, and built a tightly controlled premium brand with protected origin labelling and a designed tourism operation.

The rescue worked. But it changed what the place is. At Añana the families are participants in a professionally managed heritage enterprise; the brand and the decisions sit with the foundation. At Maras, the families still are the enterprise: they own their ponds, they elect their leaders, they argue in assembly, and the operation remains a living communal economy rather than a curated monument.

Añana professionalised in order to survive, and traded communal control for a protected brand. Maras stayed communal and still lives, but never built the brand control that Añana has.

Same spring, same terraces, same five-millennia logic and two opposite settlements of the trade-off that going global forces on every ancient producer.

The instrument still on the table

That trade-off is usually presented as a binary: stay communal and stay poor, or professionalise and stop being yourself. Añana looks like proof but it is not, quite.

The single thing Añana has that Maras lacks is not a foundation or a board. It is a protected origin with legal control over the name, so the value of the story is captured at the source rather than dispersed among whoever prints a label. And that particular instrument does not actually require dismantling the cooperative. Peru already grants denominations of origin. Pisco and Café de Villa Rica have them. The mechanism exists and it is cheap relative to what it protects, it is compatible with global trade rules, and it would let the community lock in the premium its own cooperative created.

Whether Maras can hold both the community and the value, and exactly how the protected-origin route would work in its case, is the longer analysis. But the principle is already visible in the salt itself. Nothing about the product changed on its way from a few cents to thirty times the price. What changed was the reach, and the structure that made the reach possible. For a small producer anywhere, that is the whole game: value is rarely created by improving the good. It is created by building the road to the buyer who already values it.

Me (oxygen-deprived, somewhere above 3,000 metres) striking a pose under the strict supervision of my guide.

Note: This article was edited with the assistance of AI tools to improve language and clarity. All analysis and interpretations are the author’s own.

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You would expect a glut. A price collapse. A surplus with nowhere to go. Instead, total U.S. exports barely moved.

A record California crop (about 712,000 tonnes, the largest in history and up 43% on the year before) did not pile up in warehouses. It was redirected. The volume China stopped taking simply went somewhere else. A market closed, the supply did not.

Figure 1. A young dependency snaps

Monthly US pistachio exports to China and Hong Kong, 2002–2026 (thousand tonnes). Near zero before 2009; explosive after 2019; a record front-loading spike in October–November 2024; then collapse from January 2025.

Source: Trade Data Monitor monthly customs data, HS 0802.51/52. Hong Kong functions largely as a re-routing channel. Data through March 2026.

That single chart is the whole episode in miniature, and it is stranger than it looks. The loss of a market that had recently grown to take nearly a third of all U.S. exports should have been a catastrophe. It registered as a rounding error in the annual totals. Understanding how — where the nuts went, what they did to prices, and who got hurt — is a story about how industries are built, weaponised, and exposed. And it carries an uncomfortable lesson for Europe’s young pistachio producers.

Built behind a wall

Here is the irony most people miss: the American pistachio industry (today’s dominant exporter) was itself built behind a wall. And the wall was only the last and most visible layer of what is, on close inspection, a textbook case of industrial policy — most of it accidental, some of it deliberate, none of it the free-market success story the industry now tells about itself.

Start with the science, because it came first and it came from the state. In 1929 the USDA sent a botanist, William Whitehouse, on a plant-hunting mission to Persia. He came back with about twenty pounds of hand-selected seed. From the test plantings that followed at a federal research station in Chico, California, one selection proved superior — a tree grown from a nut picked off a drying pile in an orchard near Rafsanjan, in Iran’s Kerman province. The USDA named it Kerman, released it for trial in 1957, and it remains the genetic backbone of California production to this day. The American industry is, quite literally, an Iranian orchard transplanted by the U.S. government and improved with public money over decades. No private breeder built that foundation.

Then came the tax code and the water. Commercial plantings took off in the late 1960s and early 1970s, helped along by a quirk of the Tax Reform Act of 1969, which closed shelters for almond and citrus orchards but simply failed to mention pistachios — leaving the nut as one of the few tree crops still attractive to investors. On top of that sat cheap water: San Joaquin Valley growers received federal and state irrigation supplies at well below market rates, lowering the effective cost of building orchards at scale. A small but real industry existed — the first commercial crop came in 1976 — before any trade barrier went up. Public science, a tax accident, and subsidised water had already done the groundwork.

The wall came third, and it came by accident. After the 1979 hostage crisis, the United States froze Iranian assets and, in 1980, banned essentially all imports from Iran — sweeping in pistachios, of which Iran then supplied nearly 100% of U.S. imports. The intent was to coerce Tehran, not to nurture California orchards. The effect was to hand U.S. growers 93% of their home market in a single year. The embargo’s design was punitive; its consequence was a protected nursery for an infant industry. That is the first half of the verdict on this industry: the protection was incidental in origin.

The second half is where intent enters. The embargo lifted in 1981, and cheap Iranian nuts flooded back — Iranian penetration of U.S. consumption climbed back above 40% by the mid-1980s, prices fell to among the lowest on record, and processing plants sat half-idle. This time the response was deliberate. The California Pistachio Commission petitioned for trade relief and, in 1986, won an antidumping order on Iranian pistachios with a margin of 241%, plus countervailing duties — and, when Iranian exporters tried to dodge the duties by shipping roasted nuts instead of raw, a further countervailing duty of around 318% on the roasted product. The combined burden was prohibitive. Deliberate in entrenchment.

It is worth dwelling on how that wall was actually built, because it matters for what Europe can and cannot copy today. The 241% margin was not a precise measurement of unfair pricing. It was calculated from “best information available” after Iranian exporters declined to participate in the case, and its size hinged on a technical choice about which Iranian exchange rate to use — a decision that swung the result by an order of magnitude. The wall, in other words, was built high partly by methodology. Trade-remedy margins are constructed, not measured. And the order never really came down: successive sanctions and embargoes kept Iran out regardless, and the duties have been renewed in review after review for forty years.

Figure 2. Built behind a wall

US and Iranian pistachio exports to the world, 1988–2025 (thousand tonnes). The 1986 antidumping order predates the series; shaded bands mark the later sanctions episodes. Iran shown self-reported and as importer-mirror — the gap is itself evidence of re-routing.

Source: UN Comtrade, HS 0802.50/51/52, product weight. Iran shown self-reported and as importer-mirror; the divergence is itself evidence of re-routing and under-reporting. Shaded bands mark the sanctions episodes; the 1986 US antidumping order (241%) predates the series.

Now look at the timing, because it is the most misread fact in the whole story. The decisive duties landed in 1986. Yet U.S. exports were still negligible in 2000 — fourteen years later — and did not overtake Iran until around 2008. A fuse of two decades.

Protection did not create competitiveness. It bought time for the other layers — the Kerman orchards, the cheap water, the maturing trees, and an aggressive private marketing machine — to compound. The “Get Crackin’” campaigns built a billion-dollar retail brand on top of a foundation the public had already paid to lay.

That is the defensible version of infant-industry logic, and it is worth stating plainly: a shelter is only worth building if the firms inside it use the interval to climb the cost curve. Where protection substitutes for that climb, you get firms that collapse the moment the wall comes down. Where it accompanies the climb, it can be decisive. California climbed. The right question about this industry is therefore not “did trade policy build it?” — it plainly helped — but “did the protected sector raise its productivity while sheltered?” It did. And that is precisely the test Europe’s producers would have to pass, with none of the same tools available to them.

The reversal

In 1986, a dominant low-price exporter surged into the home market of an infant industry, and the infant industry got a wall. In 2025, the matured industry — its surplus locked out of China — surged into the open market where Europe’s infant industry is maturing. And no wall exists.

The symmetry is almost too neat. The roles have simply swapped. The United States supplies around 85% of Spain’s pistachio imports. The EU holds no embargo and no antidumping order. The industry that grew up protected is now redirecting its surplus toward producers who must grow up exposed.

There is a deeper irony folded inside this one. Europe was once Iran’s market — two decades ago, Iranian product dominated extra-EU supply, with the United States a minor presence. Today the United States supplies the overwhelming majority of Europe’s imported pistachios. Europe built the demand machine, America captured it from Iran. The forces that did the capturing were not only cost and marketing — sanctions-era finance constraints and, crucially, EU food-safety controls at the border did much of the work. Which means Europe already has a quieter, more durable instrument than tariffs sitting in plain sight.

Where the volume actually went

The simple version: “China closes, Europe floods”, is wrong, and the real map is far more interesting.

Figure 3. Who absorbed the redirected volume?

Change in US exports by destination: the twelve months after the tariffs versus the twelve before (thousand tonnes). Bars sum to the net change — total US exports grew, as the record crop more than offset the China loss.

Source: US-reported exports (Trade Data Monitor monthly), HS 0802.51/52, product weight. Vietnam and Hong Kong are re-routing channels toward China; Belgium and Germany are EU entrepôts, so direct figures for Spain, Italy and Greece understate EU absorption.

The biggest single gainers were not European markets at all. They were Vietnam and Hong Kong: re-routing channels that quietly carry U.S. nuts back toward Chinese consumers through the side door. Vietnam vaulted to become the second-largest U.S. destination almost overnight (a jump most analysts read as tariff-driven transshipment toward China.) A large share of the “redirected” American supply, in other words, still ends up where it always went. The collapse in direct trade dramatically overstates how much U.S.-origin product Chinese consumers actually stopped eating.

Europe absorbed the next tranche. EU intake hit a record, up nearly a third year on year, and Spain’s direct imports climbed every year — from a couple of thousand tonnes annually before 2017 to around 20,000 by 2025. But even this came with a twist: European absorption had begun before China closed, rising with the record 2024 crop. The China shock intensified a redirection that was already underway rather than starting it.

And inside China? Iran stepped straight into the gap, overtaking the United States as China’s leading direct supplier for the first time since 2020. The supplier the United States walled out of its own market for forty years was the one waiting, cheap and hungry for any open destination, when China’s door swung shut. Coercion does not delete a competitor. It relocates it.

The part everyone gets wrong

The intuitive narrative is that a surplus producer, shut out of its main market, dumps cheap product into Europe.

The border data say otherwise. In the twelve months after the tariffs, U.S. export prices into Europe rose — into every destination, worldwide and into Spain and Italy alike. A record crop pushed into a hot global market at higher prices is not what dumping looks like.

Figure 4. Prices rose, not fell

US in-shell export unit values and volumes into the producer countries (Spain, Italy, Greece, Türkiye), USD/kg and thousand tonnes. Read together: volumes rose and 2025 prices rose — the post-tariff pressure operated through quantity, not price-cutting. Border values, not farm-gate prices.

Source: UN Comtrade, US-reported exports, HS 0802.51 (in-shell only); unit value = total value / total weight. Border values, not farm-gate prices.

That does not mean European growers imagined the squeeze. It means the squeeze worked through a different channel. It operated through quantity (shelf space, contract competition, large distributors choosing cheaper imports over quality-differentiated domestic offers) at price levels that were rising for everyone. There was real downward pressure on the premium Spanish growers had enjoyed, but it had been building for years, as volumes climbed and the multi-year border price softened well before any tariff was announced.

This distinction is not academic hair-splitting. It is the hinge of the entire policy question. Why European producers are under pressure determines what they can lawfully and effectively do about it. And the honest answer points away from the instrument the sector instinctively reaches for.

The vulnerability

Spain’s planted pistachio area went from under 1,000 hectares in 2009 to nearly 90,000 in 2025 — now the world’s fourth-largest planted area, and one of the fastest crop conversions in recent European agriculture. Roughly three-quarters of it sits in a single region, Castilla-La Mancha.

Figure 5. One boom, two consequences

EU extra-EU pistachio imports (bars) against Spanish planted area (line), 2009–2025. Orchards bear roughly seven years after planting: the 2018–2024 Spanish planting wave reaches production exactly as the import surge peaks.

Sources: UN Comtrade (imports); ESYRCE/MAPA planted area, all ages.

But orchards take about seven years to bear. And that lag is the trap. The planting wave sown between 2018 and 2024 — when prices were high and the China surge was unimaginable — is reaching commercial production right now, colliding a domestic supply bulge with record import volumes in the very same campaign. A grower who planted on rational expectations in 2020 is harvesting into a market that inverted before the first nut matured.

The pressure was, in a sense, overdetermined. A version of it would exist even without China. The China shock simply arrived at the worst possible moment in a seven-year clock that no individual grower could reset.

Spain is the most exposed, but not the only one. Italy’s Bronte and Greece’s Aegina niches have some shelter from protected-origin status — and that is a clue. The same data also show Spain quietly becoming an exporter itself: small in scale, growing fast, commanding a premium, and flowing first to Italy, the market that values origin. The threat and the opportunity are written in the same numbers.

So what should Europe do?

This is where it gets interesting — and where the instinctive answer turns out to be the wrong one.

The producer lobby’s first instinct is trade defence: an antidumping case of Europe’s own, a wall to match the one California built. But recall two things from the story above. First, the border prices rose after the tariffs — an injury case built on price suppression would have to argue with its own evidence. Second, the wall California built rested on a contestable 241% margin and forty years of public investment behind it; the discretion that makes a trade remedy powerful when you are the petitioner makes it treacherous when the facts do not cooperate. On today’s data, the strongest legal theory is simply not obviously available.

So the wall is mostly foreclosed. But the rest of the American playbook is not. The layers Europe can actually replicate are not the tariff: they are the marketing machine, the public-science base, and the quiet, WTO-compatible standards regime that shaped who supplies Europe long before any tariff debate. There is a coherent strategy here for a small, late, high-cost producer facing a permanent cost disadvantage. It is not about matching California on price or volume (that is unwinnable.) It is about changing the axis of competition entirely.

What that strategy is, how the 1986 precedent both supports and undercuts it, and how the existing premium-origin templates inside Europe point the way.

If you’re in the sector and want the full analysis — the mechanism, the 1986 precedent, and the strategy that actually follows from the evidence rather than the rhetoric — get in touch.

Note: This article was edited with the assistance of AI tools to improve language and clarity. All analysis and interpretations are the author’s own.

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Durante décadas, la integración comercial global funcionó bajo un supuesto tácito: que la interdependencia productiva entre economías era mutuamente beneficiosa y convergente. Ese supuesto ya no organiza las decisiones de los actores principales del sistema internacional. Estados Unidos y China libran una rivalidad que abarca el control de minerales críticos para la transición energética, la supremacía tecnológica en semiconductores e inteligencia artificial, las redes de infraestructura física y digital y la capacidad de definir las reglas del orden económico del futuro.

Esta transición configura lo que la literatura denomina geoeconomic fragmentation (FMI, 2023): no un desorden accidental del comercio global, sino una reconfiguración deliberada impulsada por decisiones estratégicas de las principales potencias. Sus consecuencias son asimétricas para las economías en desarrollo. El World Economic Outlook de octubre de 2025 del FMI describe un entorno de creciente proteccionismo y fragmentación, con crecimiento global proyectado en 3,2% para 2025 y 3,1% para 2026, y con riesgos sesgados a la baja por tensiones comerciales persistentes, subsidios industriales cruzados y reconfiguración de cadenas de valor (FMI, 2025). El propio informe señala que la política comercial se ha convertido en un instrumento geopolítico con efectos directos sobre inversión, comercio y productividad global.

En paralelo, la CEPAL, en su edición 2025 de Perspectivas del Comercio Internacional de América Latina y el Caribe, caracteriza el momento actual como una “nueva era de interdependencia instrumentalizada”, marcada por el uso estratégico de aranceles, subsidios y regulaciones comerciales con fines geopolíticos (CEPAL, 2025). Si bien el comercio regional muestra dinamismo en 2025, las perspectivas para 2026 se deterioran ante la incertidumbre normativa y las tensiones entre grandes economías. La advertencia estructural ya había sido formulada por la CEPAL en 2023: América Latina corre el riesgo de quedar atrapada entre dos modelos de desarrollo industrial incompatibles sin haber completado la transición hacia ninguno (CEPAL, 2023a). Ese diagnóstico no ha perdido vigencia; el escenario actual lo vuelve más urgente.

El Perú está en el centro de esa tensión. Es el segundo productor mundial de cobre y zinc, el tercero de plata, y posee reservas de litio cuya evaluación podría posicionarlo como productor relevante en la próxima década (USGS, 2024; CEPAL, 2023b). Estos minerales son esenciales para la transición energética, la electrificación del transporte, la industria militar avanzada y la digitalización: exactamente los sectores donde ambas potencias concentran su competencia estratégica. Sin embargo, el Perú ha sido históricamente débil en su capacidad de capturar valor agregado: el 91% de sus exportaciones a China en 2023 correspondió a minerales y metales sin procesar (Sanborn, Pareja y Quispe, 2024). Esa brecha entre riqueza primaria y capacidad industrial es precisamente la que el nuevo contexto geopolítico vuelve más costosa de mantener.

Dos doctrinas, una región

El giro estratégico de las potencias hacia América Latina ya no es implícito: está formalizado en documentos oficiales que definen explícitamente sus objetivos para la región. Que Estados Unidos y China hayan institucionalizado simultáneamente su postura no es coincidencia: es la expresión de una competencia demasiado intensa para ser gestionada solo con declaraciones diplomáticas.

La National Defense Strategy 2026 de Estados Unidos, publicada el 23 de enero de 2026 por el Departamento de Guerra, establece cuatro líneas de esfuerzo: defender el territorio nacional, disuadir a China en el Indo-Pacífico, incrementar la distribución de cargas de defensa con aliados y revitalizar la base industrial de defensa (NDS, 2026). En el hemisferio occidental, la estrategia es explícita: garantizar acceso estadounidense a “terreno clave” (key terrain) como el Canal de Panamá y Groenlandia, reforzar la seguridad regional y asegurar que los socios hemisféricos asuman mayor responsabilidad en la defensa colectiva. El documento incorpora lo que denomina el “Trump Corollary to the Monroe Doctrine”: la restauración del dominio militar estadounidense en el hemisferio occidental, incluyendo la denegación de capacidades adversarias en la región (NDS, 2026, p. 17). En el plano comercial, esta doctrina se articula con la visión que Robert Lighthizer ha articulado públicamente: cadenas de suministro críticas domésticas o con aliados cercanos, y un comercio estadounidense que opera crecientemente dentro de su propio hemisferio (Lighthizer, en entrevista con McKinsey & Company, diciembre 2025).

China, por su parte, publicó en 2025 su Documento sobre la Política de China hacia América Latina y el Caribe. El documento enfatiza el respeto a la soberanía nacional y la no interferencia en asuntos internos, la cooperación en energías renovables y recursos naturales “a lo largo de toda la cadena industrial”, y marcos de cooperación en manufactura, cadenas de suministro, financiamiento e infraestructura (Documento sobre la Política de China hacia América Latina y el Caribe, 2025, Secciones 2.5, 2.6 y 2.7). La retórica es de asociación y beneficio mutuo; la arquitectura subyacente, sin embargo, tiende a la dependencia estructural si los países receptores no desarrollan capacidad de negociación y valor agregado propios. Como señala el propio documento en su sección sobre cooperación manufacturera, China busca “una asociación más estrecha China-ALC en cadenas industriales y de suministro” y promover “el desarrollo inteligente, digital y verde de las industrias” de ambas partes (Documento sobre la Política de China hacia América Latina y el Caribe, 2025, Sección 2.7).

La diferencia doctrinal es significativa: mientras Estados Unidos prioriza seguridad hemisférica, equilibrio comercial e industria propia, China prioriza integración productiva bajo su red global de comercio e infraestructura. Ambas potencias persiguen objetivos económicos convergentes: acceso a recursos, consolidación de influencia comercial, atracción de inversión, pero difieren en sus instrumentos y en el tipo de relación que proponen a los países latinoamericanos.

La geografía física de la rivalidad: el caso peruano

Ningún activo ilustra esta tensión con más claridad que la infraestructura portuaria peruana en el Pacífico. El Puerto de Chancay, donde COSCO Shipping (empresa estatal china) ha comprometido una inversión multimillonaria para construir el primer puerto de aguas profundas de capitales chinos en Sudamérica, reducirá los tiempos de tránsito al Asia-Pacífico en aproximadamente diez días respecto a las rutas actuales (Sanborn et al., 2024; Narrea, 2022). Simultáneamente, el Departamento de Estado de Estados Unidos aprobó el 15 de enero de 2026 una posible venta militar extranjera (Foreign Military Sale) para el diseño, construcción y modernización de la Base Naval del Callao, por un valor estimado de USD 1.500 millones, notificada al Congreso por la Defense Security Cooperation Agency (DSCA, 2026). El acuerdo contempla equipos, servicios de ingeniería, apoyo técnico y la presencia de hasta veinte representantes estadounidenses en el Perú durante un periodo de hasta diez años, con el objetivo de fortalecer las capacidades de seguridad marítima del país.

A menos de cien kilómetros de distancia, el Perú alberga la inversión portuaria más significativa de China en Sudamérica y la modernización naval más relevante financiada por Estados Unidos en el Pacífico Sur. Esto es una manifestación territorial de la rivalidad geopolítica.

Agencia, no alineación

La tentación analítica más frecuente es plantear la situación peruana como un dilema binario: ¿con qué potencia se alinea el país? La pregunta es incorrecta. El Perú no necesita elegir un bloque: necesita maximizar opciones. Y la capacidad de hacerlo depende de su fortaleza productiva, su cohesión institucional y su visión estratégica.

El caso del arándano peruano lo ilustra con precisión. El Perú es el mayor exportador mundial de arándanos, con destinos que incluyen simultáneamente Estados Unidos y China gracias a tratados de libre comercio vigentes con ambos. La empresa peruana que exporta a Shanghái y a Nueva York al mismo tiempo no está eligiendo un bando: está ejerciendo agencia económica porque tiene un producto de valor, una cadena logística funcional y acceso negociado a ambos mercados. Instrumentos como el CPTPP refuerzan esa capacidad al ofrecer acceso preferencial a mercados de alto valor como Japón, Canadá y Australia, y un marco regulatorio que puede servir como ancla institucional para atraer inversión diversificada.

Pero esa agencia tiene límites estructurales que no deben ignorarse. Los éxitos de la agroexportación representan menos del 5% del valor total exportado a China (Sanborn et al., 2024). El verdadero riesgo para el Perú no es elegir el bando equivocado: es permanecer como proveedor pasivo de recursos en un sistema donde quienes capturan valor son los que fabrican, procesan, innovan y distribuyen.

En un tablero donde ambas potencias compiten por los mismos activos estratégicos del país, el Perú tiene más poder de negociación del que históricamente ha ejercido. Pero ese poder solo se activa con capacidad productiva propia. Y la capacidad productiva propia no la construyen Washington ni Beijing: la construyen las empresas peruanas.

Referencias

CEPAL (2023a). Perspectivas del Comercio Internacional de América Latina y el Caribe, 2023. Santiago de Chile: Comisión Económica para América Latina y el Caribe.

CEPAL (2023b). Extracción e industrialización del litio: oportunidades y desafíos para América Latina y el Caribe. Santiago de Chile: Comisión Económica para América Latina y el Caribe.

CEPAL (2025). Perspectivas del Comercio Internacional de América Latina y el Caribe, 2025. Santiago de Chile: Comisión Económica para América Latina y el Caribe.

Defense Security Cooperation Agency (DSCA) (2026, 15 de enero). Peru — Callao Naval Base Design, Construction, and Modernization. https://www.dsca.mil/Press-Media/Major-Arms-Sales/Article-Display/Article/4380611/peru-design-and-construction-at-callao-naval-base

Departamento de Guerra de los Estados Unidos (2026, 23 de enero). 2026 National Defense Strategy: Restoring Peace Through Strength for a New Golden Age of America. Washington, D.C. https://media.defense.gov/2026/Jan/23/2003864773/-1/-1/0/2026-NATIONAL-DEFENSE-STRATEGY.PDF

Fondo Monetario Internacional (FMI) (2025, octubre). World Economic Outlook. Washington, D.C.

Lighthizer, R. (2025, diciembre). “Robert Lighthizer on the future of global trade.” Entrevista con Ziad Haider. McKinsey & Company, Geopolitics Practice. https://www.mckinsey.com/capabilities/geopolitics/our-insights/robert-lighthizer-on-the-future-of-global-trade

Narrea, O. (2022). “Sharing Chinese and Peruvian visions about the future Chancay port.” Cechap–Universidad del Pacífico, Working Paper 3.

República Popular China (2025). China’s Policy Paper on Latin America and the Caribbean [Documento de Política sobre América Latina y el Caribe, tercera edición]. Beijing: Gobierno de la República Popular China. https://english.www.gov.cn/news/202512/10/content_WS693962c3c6d00ca5f9a08069.html

Sanborn, C., Pareja, A. y Quispe, D. (2024). De Marcona a Chancay: la presencia económica y empresarial china en el Perú, 1992–2023. Lima: Universidad del Pacífico, Documento de Investigación 28. https://doi.org/10.21678/978-9972-57-546-4

United States Geological Survey (USGS) (2024). Mineral Commodity Summaries 2024. Reston, VA: U.S. Department of the Interior.

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On a February morning in 2006, Jimmy Welsh stood inside a gutted warehouse on the outskirts of Funchal, looking at a copper column still that had not produced a drop of spirit in twenty years. The still came from the Fábrica do Torreão, founded by his ancestor William Hinton in 1845. By several accounts, it had been the largest sugar cane processing plant in Europe. Welsh’s family closed the factory in the mid-1970s. The building was demolished a decade later. Only the chimney survived, still visible from the Santa Luzia gardens.

Welsh had a question that Madeiran farmers, merchants, and politicians have been asking in one form or another since the fifteenth century: what do you do with sugar cane on a small island when the rest of the world can grow it cheaper?

His great-great-grandfather answered with industrial scale. The generation before Welsh answered by quitting. Welsh had a different idea. He would restart the distillery. Not for sugar, but for premium aged rum, sold at prices that commodity producers could not touch.

Six hundred years of history had prepared him to make that bet, whether he knew it or not.

Figure 1. “Still reading pressure”

Original gauge from the Companhia Nova distillery in Funchal, marked in libras por polegadas. The brass face and riveted boiler date from the island’s industrial sugar era.

The island as a laboratory

Madeira is 741 square kilometres of volcanic rock, roughly 1,000 kilometres southwest of Lisbon. Nobody lived there when the Portuguese arrived in 1419. The name means “wood.” The island was forested from shoreline to summit. Flat land barely existed. Farming meant carving terraces by hand into basalt and cutting irrigation channels (levadas) through mountain rock.

Those physical facts are, in a sense, the entire story. Every industry Madeira built had to justify the high cost of farming steep volcanic slopes on a remote island. Every industry that failed, failed because it could no longer do that.

What makes Madeira worth studying is not that it produced sugar, or wine, or rum. Plenty of places have done one of those things. What makes it unusual is the sequence: three distinct commodity regimes, one after the other, each born under different institutional conditions, each killed by a different combination of ecological, competitive, and political forces, each leaving behind infrastructure, knowledge, and commercial networks that the next one partly recycled.

Schumpeter would have recognised the pattern. Each cycle was a round of creative destruction: destruction of the island’s own productive base, followed by reinvention using whatever survived. The entrepreneurs who exploited each transition did not invent new technologies. They reassembled existing assets (land, trade routes, equipment, reputation, know-how) around a different product.

This post walks through the three cycles and pulls out the business strategy, trade policy, and industrial policy ideas buried in each one.

Figure 2. “The coat of arms that tells the whole story”

Funchal’s old heraldic shield: five sugar loaves flanked by sugar cane (left) and grape vine (right), the two crops that defined the island’s economy.

Figure 3. “Sugar in the flag”

The city flag of Funchal. Purple refers to wine, golden refers to sugar cane.

White Gold: the first commodity frontier

Building a value chain from nothing

The first settlers planted wheat. Within thirty years, yields were dropping. Henry the Navigator ordered sugar cane imported from Sicily around 1425 and, with it, people who knew how to grow it. In 1452, he contracted with Diogo de Teive to build the island’s first water-driven sugar mill. The terms were specific: Teive got a monopoly on cane grinding. Anyone using his mill paid one-third of the sugar to the Crown.

That three-way deal (the Crown extracts rent, foreign capital puts up the money, settlers manage production) became the institutional blueprint for Atlantic commodity agriculture. Portugal later copied it in São Tomé, the Canary Islands, and Brazil.

The money behind the sugar boom was overwhelmingly Italian. Genoese bankers — the Lomellini brothers are the best documented — financed plantation establishment, married into the Portuguese nobility, and got production monopolies in return. Flemish merchants handled refining and distribution across Northern Europe. By 1480, some seventy ships ran the Madeira–Antwerp sugar trade.

The boom

Production scaled fast. By 1500, Madeira had overtaken Cyprus as Europe’s largest sugar producer. Between 1505 and 1509, exports averaged 2,000 tonnes a year. At peak, the island had roughly thirty-three small mills running.

Sugar was still a luxury spice at this point, not the mass commodity it later became. Prices supported the high costs of terraced agriculture on a remote island. Madeira had first-mover advantage in the full sense: it had defined the production standards, built the port infrastructure, established the trade routes, and created the institutional architecture. Anyone wanting to compete had to replicate all of that, or find somewhere cheaper to do it.

The collapse

The standard explanation is Brazilian competition. The real story is more complicated and (I think) more interesting.

1. The first cause was ecological. Sugar cane consumed extraordinary quantities of fuelwood, roughly 50 to 60 kilograms of wood per kilogram of sugar produced. Forest clearance rose from 67 hectares in the 1440s to roughly 13,600 hectares by 1509. As the remaining forest receded up increasingly steep and remote slopes, hauling costs rose and labour productivity dropped about fourfold in twenty years. By 1525, output had fallen around 80 percent from its peak.

2. The second was soil exhaustion. Deforested slopes lost fertility. Overproduction on shrinking yields produced too much low-grade sugar, which depressed European prices.

3. Competitive displacement arrived later than most people assume. São Tomé exported only about 80 tonnes of sugar in 1529. Brazil did not match even that until the 1560s. Madeira’s collapse preceded the rise of New World sugar and partly caused it: the Portuguese Crown redirected its investment, captaincy grants, and slave-trade routes to Brazil from the 1530s onward because Madeira was already failing.

The product life cycle theory (Vernon, 1966) says that production of a maturing, increasingly standardised product migrates from the place that invented it to places with cheaper factors. Sugar production was born in Madeira, matured there, and then moved to São Tomé and Brazil as the product became standardised and cost competition became the dominant logic. The innovating location ended up importing the product it had pioneered. By the seventeenth century, Madeira was buying sugar from its own former colonies.

The environmental historian Jason Moore calls this the “commodity frontier”: a regime that organises nature, labour, and capital around one cash crop, exhausts the ecology it depends on, and relocates. Madeira was the prototype. The same pattern later repeated in São Tomé, Bahia, Jamaica, Cuba, and Java. Each time at larger scale. Each time with the same basic logic.

First-mover advantages erode when the factor conditions that underpinned them change. Madeira’s position rested on cheap wood, fertile soil, and a captive European market. When the first two disappeared and the third found alternatives, the advantage was gone. The Genoese money, the Flemish distributors, and the Portuguese Crown all moved on. What remained on the island was the terraced hillsides, the irrigation network, and the port of Funchal.

Figure 4. “Harvest by hand”

Museum display at the old Hinton distillery: historical photographs of manual sugar cane harvesting on Madeira’s terraced slopes. Sugar samples in the glass cases below.

Figure 5. “From field to factory”

Ox-drawn cane transport (left) and the interior of a Madeiran sugar factory (right), early twentieth century.

II. Madeira Wine: an industry built by trade policy

Three instruments that created a market

Wine did not replace sugar so much as outlast it. Vines had been planted alongside cane from the very beginning. Henry the Navigator imported Malvasia grapes from Crete at the same time as the Sicilian sugar cane. As sugar plantations were abandoned, vine cultivation expanded into the freed land. But the jump from secondary crop to primary export required political catalysts. Three of them, specifically.

1. The Staple Act of 1663. The English Parliament required that all European goods shipped to English colonies first pass through English ports — with one exception: wine from Madeira and the Azores was exempted. One clause in one Act of Parliament gave Madeira wine direct, duty-free access to British North America and the British West Indies. No other European wine region had anything like it.

2. The Methuen Treaty of 1703. Portuguese wines entering England were taxed at one-third less than French wines. In exchange, English woollens entered Portugal tariff-free. Port was the main beneficiary, but Madeira gained from the structural preference too.

3. The geography. Atlantic wind patterns made Funchal a natural stopping point for ships heading from Britain to the Americas. The merchant houses that organised the provisioning trade — overwhelmingly British — settled in Funchal and built a commercial infrastructure from scratch: a chamber of commerce, a church, a hospital, shipping facilities, and the wine lodges where blending and aging happened.

Here is the trade policy lesson that I find most striking. The Staple Act exemption created a protected market position through regulatory architecture, not through any characteristic of the product itself. Madeira wine was not initially better than other wines. It was simply the only European wine with legal, tariff-advantaged, direct access to the colonial market. The policy created the demand, the demand attracted investment, and the investment eventually produced a genuinely distinctive product.

That sequence — policy creates market, market drives investment, investment creates quality — runs counter to the usual story, where quality is supposed to come first and market access follows. On Madeira it went the other way around. The Staple Act exemption was, in effect, an industrial policy instrument: it gave Madeira’s wine producers a protected space in which to experiment, invest, and learn, before they had a product capable of competing on quality alone.

The exemption did not fall from the sky. The Anglo-Portuguese alliance (cemented by the 1662 marriage of Catherine of Bragança to Charles II) was the political infrastructure behind it. Favourable trade policy was the product of political bargaining. The durability of the commercial advantage depended on the durability of the political alliance. When the alliance held, the wine industry boomed. When it weakened, the industry was exposed.

How an accident became differentiation

The product that eventually emerged was genuinely distinctive, but the distinctiveness was partly an accident. Early Madeira was unfortified and spoiled during long sea voyages. Producers started adding locally distilled cane spirit (aguardente) to stabilise it. This created a symbiotic link between the cane and wine industries that lasted two centuries.

Then shippers noticed something unexpected: wine carried as ballast on round-trip voyages to the East and West Indies came back dramatically improved by the tropical heat and motion. These vinho da roda (round-trip wines) became a premium category. Customers paid more for a “London Particular” or “India Circuit Wine” label.

To replicate the effect without the shipping cost, producers developed on-island heating methods. The estufa (heated warehouse) was introduced in 1794. The canteiro method (slower, gentler, using sun exposure in attic spaces) was used for higher-quality wines.

A logistical liability was converted into a differentiation advantage. The process innovation was hard to copy because it required the specific combination of volcanic terroir, estufa infrastructure, and decades of accumulated blending knowledge. Nobody else had all three. Cost advantage was never available to Madeira. But this accidental process innovation gave them a form of differentiation that competitors found very difficult to replicate.

When differentiation is rooted in a firm’s history, in complex processes that evolved organically, and in the interaction of multiple value chain activities, it becomes resistant to imitation. Not because of patents or trade secrets, but because of causal ambiguity. A competitor looking at Madeira wine in 1800 would have been unable to determine exactly which combination of climate, grape variety, fortification, heating method, and blending technique produced the final product. That ambiguity was itself the isolating mechanism.

The buyer-driven chain

By 1780, more than seventy British shippers operated on the island. The most enduring — Cossart Gordon (founded 1745), Blandy’s (1811) — became the backbone of the trade. The Blandy family is still running their house today, in its seventh generation.

The industry structure was lopsided. Vineyards were small, terraced, owned by Portuguese smallholders. The British merchant houses owned the lodges, controlled blending and fortification, financed the trade, and managed exports. The farmers grew the grapes. The British houses captured the margin.

Total exports peaked at about 20,400 pipes (each roughly 423 litres) in 1805. Madeira wine was used to toast the Declaration of Independence and George Washington’s inauguration. For a while, it was one of the most expensive beverages in the Atlantic world.

III. Double crisis and the island monopolist

When the vines died

In 1851, oidium — powdery mildew — reached Madeira. Within a year, roughly 80 percent of vines were dead. Of the seventy or so British wine merchants on the island, fifty-five packed up and left for Spain by 1855. Those who stayed bought old wine stocks at distress prices, consolidating their position for the eventual recovery.

Then came phylloxera in 1872. The vine louse spread island-wide over the following decade. Vine acreage fell to about 1,000 hectares. Replanting meant grafting noble grape varieties onto resistant American rootstocks. Many growers took the cheap route and planted inferior hybrid grapes instead. Meanwhile, the American Civil War had closed the Southern U.S. market, the Suez Canal had diverted shipping away from Madeira’s Atlantic route, and U.S. Prohibition would later shut yet another outlet.

The wine industry was devastated. The island needed something else.

William Hinton and the industrial answer

As vineyards died, farmers returned to cane. But this time the high-value product was not sugar but cane spirit, used to fortify Madeira wine and sold directly as aguardente.

William Hinton, an Englishman who arrived in 1838, saw what was possible. He founded a sugar distillery in 1845 and built a steam-powered mill in 1856. His son Harry turned it into a full industrial complex. When a competitor appeared in 1879 using new French technology, the Hintons copied the equipment, got sued, and settled in 1887.

Then Harry Hinton did something more effective than innovation. Through close ties to the Portuguese Crown — and later to the Salazar regime — he secured regulations that gave his factory monopsony power. From 1895, legislation required every cane grower on the island to sell to Hinton at government-set prices, and required Hinton to buy all cane offered. Competition became, in effect, illegal.

The Fábrica do Torreão reached its peak in 1920: 608 tonnes of cane processed in a single 24-hour shift, 230 workers. Madeira became known as “the island of rum.”

Hinton’s competitive advantage did not come from better production methods or a better product. It came from using political relationships to create regulations that blocked entry and compressed suppliers’ margins. The monopsony regulation raised structural entry barriers (rivals could not access raw materials) and gave Hinton buyer power over an atomised upstream (growers had nowhere else to sell). Hinton captured the value. Growers bore the cost.

Instead of an industry lobbying for tariff protection against foreign competitors, Hinton lobbied for a domestic regulatory structure that protected his position against local competitors. The “price” of the protection was political allegiance. The policy was durable as long as the political coalition that supported it was durable. When the 1910 Republican revolution shook the system, the Hinton monopoly became a public scandal. The monopoly survived, but the episode showed how fragile politically-constructed advantages can be.

No sunset clause. No performance benchmarks. No accountability mechanism. No feedback loop between results and policy adjustment. The policy transferred rents to a single firm for decades, did not incentivise innovation or quality improvement, and was ultimately reversed only when the political regime that supported it collapsed.

IV. The current bet: premiumization, terroir, and legal architecture

The survivors

When Welsh restarted the distillery in 2006 under the name Engenho Novo da Madeira, he found the restored centennial column still and a small but stubborn network of cane growers. He began producing agricultural rum — distilled from fresh sugar cane juice, not molasses — and aging it in French oak casks before finishing in Port, Madeira, Whisky, and Cognac barrels. His top-end offerings blended six-year-old new rum with twenty-five-year-old stock from the original distillery, from before the closure. A product that literally bridged two industrial eras.

The “excess resources” left behind by the dead sugar industry — the still, the cane fields, the ageing warehouse, the family’s knowledge and commercial relationships, even the old stock — were redeployed into a new activity. Growth came from recombining existing assets rather than acquiring new ones. The binding constraint was not capital or market access but organisational capability: Welsh had to learn how to produce and market premium rum, not just sugar-era aguardente.

Meanwhile, Engenhos do Norte — the 1927 facility in Porto da Cruz — changed hands in 2013 when J. Faria & Filhos bought it. The new owners invested in quality and international marketing while keeping the traditional methods: steam-powered machinery, three French Barbet copper columns with fourteen trays each, manual cane-feeding. Since 2015, their products — branded as 970, Branca, Zarco — have picked up more than thirty-one medals at international spirits competitions.

Figure 6. “Cane at the door”

Freshly harvested sugar cane bundles outside the Engenhos do Norte distillery in Porto da Cruz. The banner at right advertises a Gold Medal win for the 970 rum brand.

Figure 7. “Steam power, still running”

The steam-powered cane crusher at Engenhos do Norte, branded Rum 970 Reserva. Industrial Revolution machinery in daily use during harvest season.

Figure 8. “The full line”

The crushing and conveyor system inside Engenhos do Norte. Three Barbet copper distillation columns, all powered by the same steam system since 1927.

The Geographic Indication as competitive strategy

The central instrument in the rum revival was not investment in equipment or marketing. It was the construction of a legal regime. In 2011, the regional government established the Protected Geographical Indication (PGI) for “Rum da Madeira” and “Rum Agrícola da Madeira.” EU-recognised legislation codified the rules in 2021.

The rules were restrictive by design. Cane had to be grown in Madeira and harvested by hand; mechanisation was explicitly prohibited. The rum had to come from fresh cane juice, not molasses, qualifying it as agricultural rum (rhum agricole), a category otherwise dominated by Martinique and Guadeloupe. Age categories ran in three-year increments up to twenty-five-plus years.

The PGI does several things at once. It prevents outside producers from using the Madeira name — an entry barrier enforced by EU law, not by market dynamics. It mandates a production process that costs more but is more differentiated than industrial rum — where the narrow segment (agricultural rum from a specific terroir) is served to the exclusion of the broader market. It creates a quality hierarchy through age statements, which enables the kind of premiumization that moves the product away from commodity pricing. And it ties the rum to the same institutional and quality-control framework that governs Madeira wine (supervised by IVBAM, the same regulatory body), allowing cross-selling of the island’s heritage brand.

Porter’s Diamond framework maps onto the current Madeiran rum industry in an interesting way. The factor conditions are highly specialised (volcanic terroir, hand-harvested cane, traditional distillation equipment) and man-made rather than endowed (industry-specific factors that are hardest to replicate). The demand conditions include a sophisticated local market (poncha culture, visiting tourists who have already been introduced to Madeira wine). The related industry is Madeira wine itself, which provides surplus barrels, ageing infrastructure, export relationships, and brand recognition. What is largely missing is the fourth element: local rivalry. With only a handful of surviving producers, the competitive pressure that drives innovation is weaker than it could be.

The cross-pollination between wine and rum has become deliberate strategy rather than historical accident. William Hinton finishes single-cask releases in Madeira wine casks. Engenhos do Norte ages its 970 Reserva in Madeira-wine barrels. The rum industry gets the wine industry’s surplus barrels and established brand recognition. The wine industry gets the tourism traffic that poncha bars and distillery visits generate. Both industries benefit from the accumulated infrastructure (the levadas, the lodges, the port, the regulatory institutions) that six centuries of commodity cycling built up.

Figure 9. “Where rum becomes Reserva”

The aging cellar at Engenhos do Norte: 225-litre oak casks marked CEN AGV, a 970 Reserva barrel, and a copper condensing coil. The rum ages in former Madeira wine barrels — two industries sharing infrastructure across centuries.

Poncha — the traditional cocktail of cane spirit, bee honey, and citrus juice — has itself been granted PGI status, requiring Rum da Madeira as its base spirit. That created a guaranteed domestic demand channel. When total cane supply on the island is under 8,000 tonnes a year, even modest local consumption of poncha and mel de cana absorbs a meaningful share of production.

Figure 10. “The alambique and the citrus”

A traditional Portuguese copper pot still displayed alongside oranges and lemons — the raw materials of poncha, Madeira’s PGI-protected cocktail.

What the case teaches

I want to avoid wrapping this up with a tidy set of “key takeaways” (the history is too messy for that, and the messiness is part of the point). But there are some patterns that keep recurring across six centuries and three commodity cycles, and they connect to concepts in business strategy, trade policy, and industrial policy that I think are worth drawing out explicitly.

• First-mover advantage is real but it decays, and the decay follows a pattern. Madeira’s sugar industry had first-mover advantages in almost every dimension Porter identifies: standards definition, institutional barriers (Crown captaincy grants), early profits from scarcity pricing, and favourable access to scarce inputs (virgin forest, fertile volcanic soil). All of those eroded as the ecological base deteriorated and competitors with cheaper factors appeared. Vernon’s product life cycle describes the same arc from the demand side: the product matured, production standardised, and manufacturing migrated to lower-cost locations. The general point is that first-mover advantage is a wasting asset unless the firm (or the region) continually reinvests in new sources of differentiation. Madeira did not do that with sugar. It did, accidentally, with wine.

• Trade policy creates industries, not only protects them. The Staple Act exemption did not protect an existing Madeiran wine industry from foreign competition. It created the conditions for one to exist. Without preferential access to the colonial market, there is no obvious reason why Madeira wine (as opposed to wine from any number of European regions) would have become a major Atlantic commodity. The institutional architecture preceded and enabled the commercial success. This matters for how we think about trade and industrial policy. The standard critique of protectionism assumes that the government is shielding an existing industry from competitive pressure. In the Madeira case, the government (really, the Anglo-Portuguese political alliance) was constructing a market from scratch.

• Regulatory capture is a constant risk, and it looks different at each stage of development. The Hinton monopsony is the most extreme case: a single firm literally buying regulations that block competition and compress suppliers’ margins. But subtler versions of the same dynamic appear in every cycle. The Genoese bankers who received Crown-granted production monopolies in the fifteenth century were engaging in a milder form of the same thing. The British wine merchants who concentrated downstream power while leaving upstream growers atomised were exploiting a different kind of structural asymmetry. Every policy instrument, no matter how well-intentioned, needs accountability mechanisms, sunset clauses, and the political autonomy to withdraw support when it stops working. The current PGI regime has been designed more carefully than the Hinton monopsony since it restricts entry to protect quality rather than to protect a single firm.

• Each dying industry left behind resources that the next one recycled. The terraces and levadas built for sugar supported vineyards. The cane spirit industry supplied the fortification alcohol that the wine industry needed. The wine industry’s surplus barrels now age the rum. Commercial networks, port infrastructure, regulatory institutions, and international reputation carried forward across cycles. Madeira did not start from scratch each time. It recombined what the previous regime left behind. That accumulated infrastructure reduced the entry cost of each successive industry and created linkages between them that no single entrepreneur could have planned.

• When you cannot compete on cost, you have to compete on something that cost competition cannot erode. This is the thread that runs through all six centuries. Madeira never produced sugar as cheaply as Brazil, wine as voluminously as France, or rum as efficiently as the Caribbean. What it found, in each case, was a combination of terroir, process, and institutional backing that made the product hard to replicate at a specific quality level. The PGI is the latest version of that move: shrink the volume, raise the price, protect the name, sell the story.

• Whether it will work this time depends on the same variables that mattered in every previous cycle. Can the factor base — land, growers, cane varieties — be preserved against bananas, tourism, and real estate? (Bananas yield two to three times the revenue per hectare. Tourism drives land prices beyond what agriculture can justify. Registered wine vintners fell from 1,900 in 2000 to 1,147 in 2023.) Will demand for premium spirits grow fast enough to absorb the rising costs of hand-harvested, terraced agriculture on a volcanic island? Will the institutional architecture — the PGI, IVBAM oversight, EU recognition — hold? And can the handful of surviving firms — Engenhos do Norte, William Hinton, O Reizinho, Calheta, Ribeiro Sêco — keep converting their scale disadvantage into a positioning advantage?

Jimmy Welsh’s restored column still in the outskirts of Funchal is, in that sense, less an industrial asset than a narrative device. So is the steam engine at Engenhos do Norte, and the carved wooden stick behind every poncha bar. The question for Madeira’s surviving producers is whether narrative, backed by regulation and terroir, is enough. Six centuries of evidence says it can be — but not forever, and not without the willingness to reinvent again when the current arrangement runs out.

Note: This article was edited with the assistance of AI tools to improve language and clarity. All analysis and interpretations are the author’s own.

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The data come from the extended NIPO panel (New Industrial Policy Observatory), built on Global Trade Alert. All figures track concrete state actions (subsidies, import restrictions, export controls) that plausibly alter competitive conditions between domestic and foreign firms.

Let me walk you through the four findings.

Subsidy Competition Is Sequential and Escalatory

When one major economy subsidises a product, the others tend to follow. The chart below shows the share of subsidy actions adopted by a “follower” jurisdiction within 12 months of a prior subsidy by another major economy targeting the same HS-6 product.

Figure 1. Share of subsidy actions adopted within 12 months of a foreign subsidy, by jurisdiction

Even in 2009–2016, roughly one-third to two-thirds of subsidy actions already followed a foreign subsidy in the same product space. After 2020, following rates frequently exceed 60–80%. Governments treat major subsidy announcements by peers as signals requiring rapid countervailing action. The result is a competitive logic where perceived first-mover advantages raise the expected cost of inaction and shorten response horizons.

And here is the uncomfortable part: this escalation happens against a backdrop of rising public debt in all three jurisdictions.

Figure 2. Subsidy actions and general government debt (% of GDP), 2009–2024

Fiscal discipline does not appear to operate as an immediate brake on subsidy competition. Strategic and security considerations are dominating conventional cost-benefit calculus.

Foreign Subsidies Trigger Import Barriers, Especially in Large Markets

Subsidies do not stay on one side of the border. When a government subsidises, other governments often respond not with counter-subsidies but with import restrictions particularly if they have a large domestic market to protect.

Figure 3. Import restrictions adopted within 12 months of a foreign subsidy, HS-6 level

By 2023–2024, in several leader-follower pairs, more than half of import barriers are preceded by a foreign subsidy in the same product space within the prior 12 months. The pattern is strongest when China or the US acts as the initial subsidiser but it is also visible when the EU leads.

Large markets give governments both the incentive to subsidise and the leverage to restrict access. Both instruments tend to arrive together.

Figure 4. Import restrictions in force and domestic market size, 2009–2024

The accumulation of import barriers is systematically associated with market size. Sizeable internal demand can support domestic production once shielded from foreign competition, making protection economically viable and politically sustainable.

For exporters, this means the largest markets (precisely the ones you most want to access) are the ones where subsidy-driven import barriers are most likely to appear.

Defensive Trade Policy Becomes Increasingly Rival-Directed

Import barriers and trade-defence measures are not applied diffusely across trading partners. They are increasingly aimed at specific rivals.

Figure 5. Directional targeting of defensive trade actions, 2009–2024

Three patterns stand out:

1. Even in 2009–2016, roughly half to two-thirds of defensive trade actions by each of the Big Three already targeted other major economies. This was never a diffuse phenomenon.

2. After 2016 (and sharply after 2020) directional concentration intensifies. The EU shows a pronounced increase in defensive actions targeting China in 2023–2024. The US follows a similar trajectory from 2017 onward. China’s defensive measures remain consistently focused on the US and EU throughout.

3. This shift operates through reallocation, not generalised expansion. The rising share of rival-directed actions is mirrored by a contraction in “rest-of-world” targeting. Focus sharpens rather than broadens.

The China–EU–US triangle now dominates. The evolution of the global trading system is being shaped disproportionately by intensified frictions among these three actors with implications for everyone else.

Export Restrictions Become Structural. Import Barriers Remain Contingent.

Not all trade restrictions behave the same way once imposed. This is perhaps the most underappreciated finding.

Figure 6. Twelve-month retention rates of trade-restricting industrial actions, by instrument and jurisdiction

Export restrictions have become markedly more durable since 2020. In the 2009–2016 cohort, roughly half of export restrictions remained in force after 12 months. By 2023–2024, retention rates exceed 80–90% in China and the US, and approach full persistence in the EU. Once export controls are imposed, they stay.

Import restrictions tell a different story. Their retention rates do not increase in parallel. In the EU, retention actually declines from around three-quarters before 2020 to roughly two-thirds after.

The implication is structural. Export controls reshape investment decisions, sourcing strategies, and technology trajectories. As firms adapt supply chains and compliance systems around these constraints, reversal becomes costly for both governments and industry. Export restrictions increasingly behave as regime characteristics (permanent features of the competitive landscape) while import barriers, though consequential, remain more episodic and adjustable.

For firms, this means export-control risk requires long-term strategic adaptation not short-term workarounds.

What ties these four facts together?

A single thread runs through these facts: industrial policy is not a collection of independent national decisions. It is an interactive, sequential, and self-reinforcing system. Subsidies trigger counter-subsidies. Subsidies trigger import barriers. Import barriers become rival-directed. And export controls, once imposed, become permanent.

The competitive dynamics are clear. What is less clear is where the off-ramp is.

This post draws on: Martín, F. (2026), “Industrial Policy as Market-Shaping Competition: Evidence from China, the European Union, and the United States (2009–2024).” Data: New Industrial Policy Observatory / Global Trade Alert.

Note: This article was edited with the assistance of AI tools to improve language and clarity. All analysis and interpretations are the author’s own.

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Industrial Policy Is Everywhere Now

Developed and developing countries have been using industrial policies since the Global Financial Crisis. But the current wave is different. It started during COVID-19, mostly in the form of subsidies and financial assistance. It escalated after the US flagship programmes (the Inflation Reduction Act and the CHIPS and Science Act) and it is now shifting toward a more coercive approach. Industrial policy is being used as a crisis response mechanism.

Figure 1. Number of industrial actions by developed and developing countries, 2009–2025

The numbers speak for themselves. Between 2009 and 2019, industrial interventions averaged around 1,100 per year globally. Since 2020, that average has jumped to roughly 1,800. The escalation is particularly sharp in developed economies, but developing countries are not far behind.

Closing Markets to Build Industries: A Strategy That Undercuts Itself

Industrial policy is not exclusively subsidies or financial support. Import barriers are actively being used to shape markets, with countries leveraging domestic market size as strategic leverage.

Countries with less fiscal space tend to rely more on import restrictions. But developed countries are also closing their markets. By doing so, they reduce the size of addressable markets for everyone else.

Figure 2. Composition of industrial policy interventions by type, developed vs. developing countries

Look at the shift. In developed countries, the share of inward restrictions climbed from 23% in 2009–2016 to 27% in 2023–2025, while financial support fell from 75% to 62%. In developing countries, inward restrictions now account for 33% of interventions. Outward restrictions and other instruments are growing too.

This fundamentally challenges the efficiency logic of globalisation, the logic that made export-led growth work and that attracted frontier FDI.

Here is the paradox: the tools most available to developing countries are the ones most likely to reduce the returns on the investment they are trying to attract. Import restrictions protect existing production, but they do not attract new investment or generate the learning and upgrading dynamics that make industries competitive. They are a defensive instrument. They distort competition and protect incumbents.

Developing Countries Cannot Win a Subsidy Race. And Should Not Try.

Developed countries deployed nearly $800 billion in subsidies to individual firms between 2015 and 2024. Developing countries collectively? Under $300 billion. Small domestic markets and tight fiscal space make billion-dollar industrial schemes structurally unaffordable. These are conservatives estimates from the New Industrial Policy Observatory since this dataset refers to concrete state actions that plausibly distort competition between domestic and foreign firms, that is, interventions that change market conditions.

Figure 3. Scatter plot: log(GNI) vs. log(Government tax revenue, % of GDP)

The chart makes the point visually. Developing countries cluster in the lower-left — lower income, lower tax revenue as a share of GDP. The fiscal capacity to sustain large-scale subsidies is simply not there. Competing on subsidy size against economies that sit in the upper-right quadrant of this chart is not a viable path.

Meanwhile, strategic-sector FDI — AI, semiconductors, clean energy — is concentrating in a handful of large, high-income economies. Playing the same game as the US or EU is not a strategy. It is a resource drain.

FDI Is Concentrating, Not Dispersing

Global FDI rose 14% in 2025. Sounds good on paper. But developed economies gained 43%, developing economies fell 2%, and three quarters of least developed countries saw stagnant or declining inflows (UNCTAD Trends Monitor, January 2026).

Figure 4. Inward FDI flows index (2019 = 100), 2010–2024

By 2024, China’s inward FDI index stood at 206 (2019 = 100). The US reached 174. The EU? 118. Developing countries as a group: 116. The divergence since 2020 is hard to miss.

The US IRA had an effect on FDI. The EU’s comparable programmes did not produce the same response. That alone should give us pause about the assumption that subsidies automatically attract investment.

Two things to keep in mind. First, FDI is not infinitely elastic to incentives. Subsidies mostly move projects between locations. They do not create new ones. Second, industrial policy headwinds (high cost of capital, energy prices, policy uncertainty, regulatory drag) depress private returns independently. Subsidies cannot fully offset structural problems.

So What Should Developing Countries Actually Do?

Go to the root. Address the headwinds that depress private returns: energy prices, cost of capital, regulatory drag, permitting speed, policy uncertainty.

Before reaching for subsidies, give a chance to the affordable toolkit: investment facilitation, product market regulation reform, trade facilitation, phytosanitary credibility, targeted guarantees. None of these require large fiscal outlays.

And do not confuse correlation with causation. The cases that worked were not primarily subsidy stories:

• Costa Rica / semiconductors: an investment facilitation agency and a strong technical university system attracted Intel, not subsidies.

• Peru / blueberries: irrigation infrastructure and phytosanitary market access opened a $1bn+ export sector.

• Chile / salmon: regulatory credibility and logistics investment, with minimal direct subsidy.

The key question is not “how big is our subsidy?” It is “what is the binding constraint that prevents a competitive firm from investing here?”

Regional integration to expand total addressable market remains the most powerful non-fiscal lever available to smaller economies.

The Basketball Analogy

Think of a team of world-class basketball players forced to play football. They are the best at basketball but they will always lose against a mediocre football team on a football pitch.

Developing countries should not try to beat advanced economies at the subsidy game. They should compete on what they can actually win: market access, permitting speed, clean energy costs, skills, and rule of law.

Believe it or not, this may be a good moment for developing countries to go against the global current. When everyone is subsidising, subsidies can send the wrong signal to firms. In that context, a differentiated strategy anchored in fundamentals rather than fiscal firepower can stand out. Sometimes going against the tide is the smartest play.

Based on a presentation at the UNCTAD Multi-year Expert Meeting on International Investment, Geneva, 4 May 2026. Data: New Industrial Policy Observatory (May 2026), Global Trade Alert (2026), UNCTAD FDI statistics, World Bank (2025), Global Macro Database (2025).

Note: This article was edited with the assistance of AI tools to improve language and clarity. All analysis and interpretations are the author’s own.

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The evidence is clear: China, the European Union, and the United States now direct most of their industrial subsidies toward the same narrow band of dual-use and advanced technology sectors. But they arrived through very different paths and at very different speeds.

The instruments matter. The scale matters. But the sequencing matters too, since how long an ecosystem has been building determines whether new money can actually close the gap.

Figure 1. Sectoral composition of subsidy-based industrial actions: strategic versus non-strategic sectors.

2009–2016: China Is Already There

In the early period, China already directed 85% of its subsidy activity toward strategic technologies. The Strategic Emerging Industries programme (2010) designated seven priority sectors; Made in China 2025 (2015) set explicit domestic-content targets for core components. The National IC Industry Investment Fund (”Big Fund”) committed ¥138.7 billion in Phase I (2014), ¥204.1 billion in Phase II (2019), and ¥344 billion in Phase III (2024), with cumulative direct capital of approximately ¥687 billion (~$98 billion) for semiconductors alone.

By contrast, the EU stood at 50% and the United States at just 33%. Strategic industrial targeting was, in this period, primarily a Chinese story.

2017–2019: The American Pivot Begins

Between 2017 and 2019, the US undergoes its sharpest shift. Strategic-sector targeting jumps from 33% to 57%, coinciding with Section 301 tariffs, Entity List designations (Huawei, May 2019), and the first wave of semiconductor export controls.

• US: 33% → 57%.

• EU: Remains near 50%.

• China: Already above 90%.

We start seeing in this period an American industrial turn, not a global one.

2020–2024: The EU Catches Up

The pandemic, the semiconductor shortage, Russia’s invasion of Ukraine, and—most catalytically: the US Inflation Reduction Act, forced the EU into action. The response came fast:

• European Chips Act (September 2023, targeting €43 billion in mobilised investment).

• Critical Raw Materials Act (May 2024).

• Net-Zero Industry Act (June 2024).

• Multiple IPCEIs channelling over €37 billion in approved state aid into microelectronics, batteries, and hydrogen.

The strategic share surged to 75% in 2023–24 before settling at 70% in 2025–26. The EU also expanded its defensive toolkit with the Foreign Subsidies Regulation and the Anti-Coercion Instrument.

2025–2026: Convergence

By now, all three blocs have converged on targeting the same chokepoints: semiconductors, critical minerals, batteries, advanced electronics.

• China: 98%.

• US: 76%.

• EU: 70%.

The convergence is clear. But it masks a fundamental asymmetry.

Why Convergence in Spending ≠ Convergence in Capability

China’s subsidies were embedded within a broader ecosystem of state-directed credit, procurement preferences, and a large domestic market. But financial support alone does not explain the outcome. Research on China’s clean-energy industries shows that rapid cost reduction was driven less by the subsidies themselves than by the speed of manufacturing scale-up, supply chain localisation, and intense competition among hundreds of domestic firms that forced continuous process innovation (Nahm & Steinfeld, 2014; Nahm, 2021). Where these complementary conditions were absent (as in semiconductors) massive state funding has produced far more modest results (Goldberg et al., 2024; Mazzocco & Featherston, 2024).

The distinction matters: China’s strategic industrial policy succeeded because financial support was layered onto domestic competition, integrated value chains, and a large internal market that together created self-reinforcing dynamics.

The Evidence from Flagship Projects

Recent experience in the West confirms the structural mismatch. Intel officially cancelled its €30 billion Magdeburg megafab in July 2025, a project for which the German government had pledged nearly €10 billion in state aid. A €4.6 billion assembly facility near Wrocław, Poland, was cancelled alongside it. In the United States, Intel’s Ohio fabs (originally slated for 2025 production) have been pushed to 2030–31, despite $7.86 billion in CHIPS Act grants.

These were flagship projects at the centre of each jurisdiction’s semiconductor strategy. Their delays and cancellations are symptoms.

From Announcements to Ecosystems

Subsidies can attract announcements. But building a competitive fabrication ecosystem requires aligned demand, a deep supplier base, workforce pipelines, and sustained political commitment over business cycles. These are conditions that China’s decade-long approach more closely approximates.

Multi-year legislative commitments (CHIPS Act, IRA, Big Fund III, European Chips Act) lock in subsidy flows. But turning financial support into durable competitive advantage will require far more than the cheques themselves.

The question now is whether the EU and the US can subsidise their way into industrial ecosystems capable of generating sustained competitive advantage or whether late entry into a race that China started over a decade ago carries structural limits that money alone cannot overcome.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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From Expansion to Execution Under Constraint

The 14th Five-Year Plan was formulated in a moment of relative confidence. China had emerged early from the COVID-19 shock, and the document reflected an optimistic tone centered on structural transformation. It introduced the “dual circulation” framework, launched the “common prosperity” agenda, and began articulating the goal of technological self-reliance in response to initial US–China tensions.

By contrast, the 15th Five-Year Plan is a document shaped by constraint. Its tone is markedly more sober and security-oriented. The external environment is described in significantly sharper terms, with references to rising unilateralism and protectionism, intensifying great-power competition, and mounting challenges to the global trade order.

The shift reflects a transition from strategy formulation to policy execution under sustained external pressure.

Operationalising Dual Circulation

One of the clearest differences lies in how the concept of “dual circulation” is treated.

In the 14th Plan, dual circulation was introduced as a broad strategic framework: strengthening domestic demand while maintaining openness to international markets.

In the 15th Plan, the concept becomes operational. It is translated into concrete mechanisms, including:

• construction of a unified national market,

• policies to boost household consumption,

• efforts to secure supply chain autonomy, and

• development of strategic inland regions as economic buffers

This suggests a move from conceptual framing toward institutional implementation.

From Growth Targets to Growth Composition

Another notable shift concerns growth priorities.

The 14th Plan retained a clear GDP growth orientation. By contrast, the 15th Plan avoids fixed targets, stating instead that growth should remain within a “reasonable range,” with annual targets adjusted to circumstances.

This change signals greater flexibility but also a shift in emphasis. The Plan places more weight on: total factor productivity, the share of household consumption, and the contribution of innovation to growth.

These indicators suggest a gradual reorientation away from purely investment-driven expansion toward growth quality (though the pace and depth of this transition remain uncertain).

Technology Policy: From Aspiration to Urgency

The evolution of technology policy is particularly striking.

The 14th Plan framed “scientific and technological self-reliance” as a strategic objective. The 15th Plan reframes this goal with greater urgency and specificity, emphasising “self-reliance and self-strengthening.”

This is accompanied by concrete policy instruments:

• targets for annual R&D expenditure growth above 7%,

• expanded tax incentives for R&D,

• development of venture capital ecosystems, and

• new financing channels such as a dedicated “Technology Board” in bond markets

The shift reflects the tightening of US export controls since 2022 and the increasing constraints on China’s access to advanced technologies.

From Optimism to Strategic Caution

These changes point to a broader shift in strategic posture.

The 14th Plan was forward-looking and expansionary. The 15th Plan is more defensive, focused on resilience, risk management, and internal consolidation.

This does not imply retrenchment. Rather, it suggests that China’s leadership now expects sustained external pressure and is adapting its economic model accordingly.

What the Plan Implies About China’s View of the World

The 15th Five-Year Plan also provides insight into how Chinese policymakers interpret the global environment.

Several assumptions appear to underpin the document:

• Technology restrictions and trade barriers, particularly from the United States, are likely to persist or intensify.

• The global trading system will become more fragmented, with multilateral rules increasingly contested.

• The Global South will grow in importance as both a market and a geopolitical arena.

• Climate change is treated as an economic constraint requiring large-scale infrastructure adaptation.

• Demographic decline is recognised as a structural limitation, increasing the importance of automation and productivity growth.

• The international system is evolving toward multipolarity, requiring the development of alternative institutional frameworks alongside existing Western-led ones.

Conclusion

The transition from the 14th to the 15th Five-Year Plan marks a shift from strategic articulation to implementation under pressure.

Where the 14th Plan defined new policy frameworks, the 15th Plan focuses on making them work in a more constrained and uncertain environment.

The result is a more cautious, security-oriented, and operationally detailed economic strategy: one that reflects both the external pressures China faces and the internal adjustments required to sustain its growth model in the coming decade.

Yet while the 15th Plan signals a clear shift from strategy to execution, it remains far less explicit on how these ambitions will be implemented in practice.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis and interpretations are the author’s own.

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China’s industrial policy is often discussed primarily in terms of subsidies or sector targeting. However, many analysts argue that one of the key drivers of China’s industrial development has been the combination of vertical integration across supply chains and the creation of dense industrial clusters, which can generate powerful competitive advantages in certain sectors (Porter, 1998). In many industries, Chinese firms and industrial regions increasingly control multiple stages of production from upstream inputs and raw materials to intermediate components and final products (Breznitz, Dan & Michael Murphree, 2011; Gereffi, 2018)

The 15th Five-Year Plan suggests that Beijing is seeking to deepen this model. The plan places growing emphasis on constructing integrated industrial ecosystems: dense networks of firms, infrastructure, research institutions and specialised suppliers designed to support entire technological systems rather than individual industries.

From Industrial Clusters to Industrial Ecosystems

Chapter 4 of the FYP calls for the development of advanced manufacturing clusters and the creation of new demonstration zones for industrialisation. Compared with the previous planning cycle, however, the emphasis appears to be shifting. While the 14th Five-Year Plan focused heavily on expanding the number of clusters, the 15th places greater emphasis on quality, specialisation and global competitiveness.

The plan also introduces new cluster categories. One example is the development of internationally competitive digital industry clusters integrating artificial intelligence, cloud computing and digital services into regional manufacturing bases. Another is the continued expansion of strategic emerging industry clusters, which the plan describes as needing to be “locally adapted, distinctive, and mutually complementary.”

This language appears to reflect lessons drawn from the previous planning cycle. During the 14th Five-Year Plan period, many provinces attempted to build clusters in the same sectors (particularly semiconductors, electric vehicles and photovoltaics) leading to duplication and intense interregional competition. The new emphasis on complementary specialisation suggests that Beijing is attempting to steer regional industrial development more deliberately.

The Shift Toward Ecosystem Thinking

The deeper shift in the 15th Five-Year Plan is conceptual. Rather than treating industries as isolated sectors, the plan increasingly frames industrial development in terms of interdependent technological systems.

One of the clearest examples appears in the plan’s framework for strengthening China’s industrial foundation capabilities. This framework identifies six mutually dependent layers that underpin advanced manufacturing: high-end new materials, precision components, machine tools, high-end instruments, basic and industrial software, and major technical equipment.

Advanced equipment cannot be produced without precision components. Precision components require advanced materials. Those materials must be measured and tested with high-end instruments. Each layer reinforces the others.

Although this ecosystem perspective was already present in the 14th Five-Year Plan, the 15th articulates these relationships more explicitly and with greater granularity.

This framework suggests that Chinese industrial policy is increasingly aimed at closing entire technological loops rather than simply promoting individual sectors.

Infrastructure as an Ecosystem Enabler

Another notable feature of the plan is the way infrastructure policy is linked to industrial ecosystems. Several major infrastructure programmes are explicitly designed to support industrial clusters.

The “East Data, West Computing” project described in Chapter 7, for example, aims to build a nationally integrated computing network that distributes data-processing capacity across regions. By locating large data centers in western provinces (where energy costs are lower) the system is intended to reduce computing costs for digital industries nationwide.

Energy infrastructure plays a similar role. The plan outlines a system designed to supply large volumes of low-cost, low-carbon electricity to industrial clusters, particularly those involved in data processing and advanced manufacturing.

Transportation infrastructure is also framed in ecosystem terms. Railways, ports and logistics corridors are intended to connect clusters to one another and to export gateways, creating integrated industrial networks.

Building the Infrastructure of Future Industries

The 15th FYP also introduces several ecosystem-building initiatives that did not appear in the previous planning cycle.

One example is the development of low-altitude infrastructure including air routes, landing facilities, and communication systems, to support drones and other low-altitude aviation technologies. This infrastructure establishes the physical foundation for what policymakers describe as the “low-altitude economy.”

Another is the creation of data infrastructure, including data annotation bases, data circulation platforms, and high-speed transmission networks. These facilities are designed to support artificial intelligence development by improving the availability and processing of training data.

The plan also proposes the creation of national research institutes and concept-verification centers focused on future industries. These institutions aim to bridge a persistent gap in innovation systems: the transition from laboratory research to commercial production.

The Role of Specialised Firms

Industrial ecosystems depend not only on large firms but also on networks of specialised suppliers. The plan therefore reinforces a policy known as the “tiered cultivation system” for enterprises.

This framework promotes the development of specialised, refined, differentiated and innovative small and medium-sized enterprises. These firms occupy niche positions within industrial supply chains, providing specialised components, technologies, or services that support larger manufacturers.

From Beijing’s perspective, strengthening these supplier networks is intended to deepen the technological capabilities and resilience of Chinese manufacturing ecosystems.

What the Ecosystem Strategy Suggests

The 15th FYP’s industrial ecosystem strategy highlights three broader shifts in Chinese industrial policy:

1. Beijing appears to be moving beyond sector promotion toward system-level industrial development, focusing on the technological foundations that support entire industries.

2. Infrastructure policy is increasingly aligned with its industrial strategy, particularly in areas such as computing capacity, energy systems and logistics networks.

3. Policymakers appear increasingly aware of the risks posed by duplicative local industrial policies, and are attempting to steer regional specialisation more deliberately.

If this approach succeeds, China’s next phase of industrial development may be less about expanding individual sectors and more about building deeply integrated technological ecosystems. Whether Beijing will be able to effectively coordinate these complex industrial systems across provinces and levels of government, however, remains an open question.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis and interpretations are the author’s own.

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The evolution of the BRI provides insight into how Beijing now portrays its approach to global integration: not simply through infrastructure connectivity but through technological systems, institutional frameworks and standards coordination.

From Corridors to Systems

The Belt and Road Initiative remains a central pillar of China’s external economic strategy in the 15th Five-Year Plan, but its conceptual framing has shifted. During the initiative’s first decade, BRI projects were primarily associated with large-scale physical infrastructure: railways, ports, power plants, pipelines and logistics corridors. Projects such as the China–Laos Railway, the Jakarta–Bandung High-Speed Railway and the development of Piraeus Port in Greece exemplified this early model.

The 15th Five-Year Plan retains this “hard connectivity” but embeds it within a broader framework that Chinese policy discourse now organises across four dimensions: physical infrastructure, standards and regulatory coordination, digital connectivity and people-to-people exchanges.

Chinese policy documents present this evolution as evidence of a “maturing” initiative that incorporates lessons from the first decade of implementation. As physical networks expand, Beijing appears increasingly focused on embedding governance frameworks, technological ecosystems, and institutional linkages across partner economies.

The Digital and Technological Silk Road

The most visible expression of this shift is the Digital Silk Road (Greene & Triolo, 2020; Shen, 2018). This umbrella now includes projects such as fibre-optic networks, data centres, satellite systems, cross-border e-commerce platforms, 5G telecommunications infrastructure, smart-city technologies or cloud-computing services.

The 15th Five-Year Plan reinforces this orientation by highlighting cooperation in artificial intelligence, digital trade and scientific research networks.

China has also promoted related initiatives such as the Space Silk Road, integrating partner countries into satellite navigation and communications systems.

These initiatives are intended to transform the BRI from a financing platform for infrastructure into a broader framework for technological ecosystem building.

Risk Management and “High-Quality BRI”

The first decade of the BRI generated significant criticism over debt sustainability. Large infrastructure loans contributed to fiscal pressures in several partner countries, including Sri Lanka, Zambia, and Pakistan. These experiences triggered international debate over Chinese lending practices and the governance of overseas projects (Hurley , Morris & Portelance, 2018).

In response, Chinese policymakers have sought to reframe the initiative around the concept of “high-quality Belt and Road cooperation.”

The 15th Five-Year Plan codifies this approach, emphasising diversified financing structures, stronger risk management in overseas investments, transparency and anti-corruption mechanisms and environmental sustainability.

The language of “risk-controllable investment and financing” and a “clean Silk Road” reflects lessons absorbed from the initiative’s expansion phase.

From Mega-Projects to “Small but Beautiful”

A second adjustment concerns project scale. During its early years, BRI cooperation was dominated by large, capital-intensive projects. In recent years, Chinese policymakers have promoted the concept of “small but beautiful” projects. These are smaller initiatives that Chinese policymakers present as delivering visible local benefits while reducing financial risk. These projects tend to be less debt-intensive, faster to implement and more closely tied to local development priorities.

This shift, promoted since around 2021 and reaffirmed at the Third Belt and Road Forum in 2023, is now embedded in the 15th Five-Year Plan.

The new approach combines flagship infrastructure with smaller development projects suggesting a more diversified implementation strategy.

Strategic Implications: Standards and Institutional Lock-In

The most consequential dimension of the BRI’s evolution may not be physical infrastructure but standards diffusion. Through digital infrastructure projects, technical cooperation platforms, and research networks, China is increasingly promoting Chinese technical standards across partner economies. These include standards related to telecommunications, digital platforms, logistics systems, infrastructure engineering or energy technologies. Beijing has already signed dozens of standardisation cooperation agreements spanning sectors from logistics and energy to electric vehicles and infrastructure construction (Seaman, 2020).

In practice, adoption of Chinese technical standards may create long-term institutional and technological dependencies. Analysts often describe this dynamic as “standards lock-in.” Over time, these institutional linkages could bind participating economies more closely to China’s industrial ecosystem (Breznitz & Murphree, 2011; Hillman, 2022).

From Beijing’s perspective, standards diffusion is a way of shaping the rules of emerging technological systems. For partner countries, however, it may also create long-term technological dependence.

What the Second Phase of the BRI Suggests

Three trends characterise the BRI’s evolution under the 15th Five-Year Plan:

• Diversification beyond infrastructure. The initiative is expanding into digital, technological, and institutional connectivity, with the Digital Silk Road becoming increasingly central.

• Stronger emphasis on sustainability and risk management. Following the debt controversies of the first decade, Beijing is emphasising diversified financing structures, smaller projects, and improved governance.

• A shift from building corridors to building systems. The next phase of the BRI appears focused on embedding technological ecosystems and governance frameworks across partner economies.

If the first decade of the initiative focused primarily on physical connectivity, Beijing now appears to be pursuing a second phase centred on institutional and technological integration. Whether Beijing can execute this transition will determine whether the BRI evolves into a lasting pillar of the global economic architecture.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis and interpretations are the author’s own.

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The 15th Five-Year Plan suggests that Chinese policymakers increasingly view the dynamics often described internationally as “overcapacity” as a governance problem within China’s own political economy rather than simply a market cycle.

“Involutionary Competition”

The Plan itself avoids the term “overcapacity”, which is commonly used by foreign governments when justifying tariffs or countervailing measures against Chinese exports. Beijing has consistently rejected that characterisation in diplomatic settings. Instead, the Plan adopts a different formulation: “involutionary competition” (内卷式竞争).

The term entered official discourse following the July 2024 Politburo meeting and is used to describe destructive competition among firms and local governments that generates excessive capacity and declining returns.

Through this formulation, the Plan reframes the issue on Beijing’s own terms: excess capacity is acknowledged, but it is presented primarily as the result of governance failures, particularly misaligned local-government incentives, rather than as a structural feature of China’s industrial model.

The Plan proposes several governance tools to address this dynamic:

• production-capacity monitoring systems,

• early-warning mechanisms for investment surges,

• regulatory guidance on investment planning, and

• industry coordination mechanisms

The intention, at least in the Plan’s framing, is to identify capacity expansion before it becomes systemic rather than responding only after imbalances emerge.

The Political Economy Behind Capacity Expansion

Many analysts trace the roots of this problem to China’s local political economy. For decades, local officials have been evaluated partly on indicators such as GDP growth, employment creation, and investment attraction. These incentives have encouraged provinces and municipalities to promote industrial investment through land discounts, subsidies, and tax concessions.

The result has been repeated investment surges in sectors such as steel, solar photovoltaics, and electric vehicles.

Competition among provinces to scale production can lead to simultaneous capacity expansion across multiple regions, amplifying supply shocks in global markets.

Historically, Beijing’s responses have often been reactive in the form of closing outdated plants or imposing environmental restrictions once excess capacity had already emerged. The 15th Five-Year Plan appears to signal an attempt to move toward a different model: earlier governance of industrial expansion before large imbalances materialise.

A Shift Toward Industrial Policy Governance

Compared with the previous planning cycle, the 15th Plan introduces several institutional mechanisms that suggest an attempt to strengthen central oversight of industrial policy.

1. First, the Plan proposes more centralised monitoring of industrial capacity expansion, combined with formal policy evaluation and adjustment mechanisms.

2. Second, it introduces policy exit mechanisms. Earlier industrial policy frameworks emphasized launching and scaling initiatives but rarely specified how policies should be withdrawn once market conditions changed.

3. Third, the Plan reinforces efforts to build a “unified national market” by addressing local protectionism and standardising regulatory frameworks across provinces.

These reforms suggest that Beijing is seeking to shift Chinese industrial policy from highly decentralised promotion toward stronger central coordination.

However, the effectiveness of this approach remains uncertain. Monitoring capacity expansion requires reliable information flows from local governments to the center; historically one of the weaker links in China’s administrative system (Mei & Pearson, 2014).

Fiscal Reform and Local Government Incentives

One of the most consequential reforms proposed in the Plan concerns intergovernmental fiscal relations. China’s fiscal system is largely shaped by the 1994 tax-sharing reform. It centralised revenue collection while leaving local governments responsible for a large share of public expenditure (Wong, 2013, pp. 273–308).

This mismatch has long pushed local governments to rely heavily on land sales, infrastructure investment, and industrial expansion to generate revenue.

The 15th Five-Year Plan proposes shifting consumption-tax collection downstream and gradually transferring part of that revenue to local governments. In theory, if local revenue depends more on consumption and less on production activity, the incentive to attract manufacturing capacity at any cost could weaken.

Whether these reforms will materially change local investment behavior, however, will depend on how the fiscal adjustments are implemented in practice.

The Demand Constraint

Capacity governance reforms are closely tied to another theme of the Plan: the imbalance between supply and domestic demand.

The document states explicitly that:

“Effective demand is insufficient and the contradiction between strong supply and weak demand is salient.”

This unusually direct language suggests that Beijing now recognises the demand imbalance as a structural challenge.

The Plan outlines several initiatives intended to expand domestic consumption, including stabilising incomes and employment, expanding the middle-income population, increasing labor’s share of national income, encouraging service consumption (tourism, healthcare, sports, cultural industries), and upgrading goods consumption through EVs, smart homes, and green appliances.

In principle, these policies are intended to align consumption growth more closely with China’s industrial upgrading strategy.

The Core Tension

Despite the emphasis on expanding domestic demand, the Plan simultaneously reaffirms the strategic importance of maintaining a “reasonable proportion of manufacturing” in the economy.

This reflects a fundamental tension in China’s economic strategy. Beijing appears to be trying to reduce the risks associated with excess capacity, expand domestic consumption, and maintain large-scale industrial capabilities at the same time.

Whether Beijing is prepared to pursue a meaningful rebalancing toward consumption remains an open question. While Chinese leadership documents increasingly emphasise domestic demand, in practice many policy initiatives labelled as “demand-side” support focus primarily on strengthening domestic industrial ecosystems rather than substantially expanding household consumption.

This reflects a deeper political economy constraint. A shift toward a consumption-driven growth model would likely require stronger income redistribution, higher social spending, and a more expansive welfare system (reforms that Chinese leaders have historically approached cautiously) (Wong, 2013; Naughton, 2021).

As a result, China’s growth model continues to rely heavily on industrial production and investment relative to household consumption compared with other large economies.

Balancing the demand expansion while preserving large-scale manufacturing capacity will likely remain one of the defining challenges of China’s economic policy during the 2026–2030 period.

What the Plan Suggests About China’s Growth Model

Three conclusions emerge from the Plan’s treatment of industrial governance and demand.

1. Industrial governance is becoming a systemic priority. The explicit recognition of “involutionary competition” and the introduction of monitoring and early-warning mechanisms suggest that Beijing is attempting to exercise tighter control over industrial expansion.

2. Fiscal reform could alter local incentives. If consumption-tax revenues are gradually redirected toward local governments, the incentive structure that has historically encouraged capacity expansion may weaken (though the magnitude of this effect remains uncertain).

3. Consumption is receiving stronger emphasis than in recent planning cycles. At the same time, Beijing remains committed to maintaining large-scale manufacturing capacity, suggesting that the relationship between supply and demand will remain a central tension in China’s economic strategy.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis and interpretations are the author’s own.

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Subsequent posts will address the topics that have generated the most discussion in international forums and policy conversations: overcapacity and the growth model, Belt and Road, and industrial ecosystem strategy. The final post will be an overall strategic direction compared to the 14th FYP.

China’s Five-Year Plans reveals about how Beijing reads the global economy, where it perceives vulnerability, where it sees opportunity, and where it expects the next round of industrial competition to be most intense.

This post compares the technology priorities of the 14th Five-Year Plan (2021–2025) with those of the 15th (2026–2030). For those working in trade and industrial policy, shifts between plans can signal where competitive pressure may intensify, where new trade frictions are more likely to emerge and where the current global industrial order is most susceptible to disruption.

What Changed

The 14th FYP identified seven broad strategic emerging industries (next-generation information technology, biotechnology, new energy, new materials, high-end equipment, new energy vehicles, and green technologies) directing attention and resources without specifying detailed technology roadmaps.

The 15th FYP retains all seven but adds significant granularity within existing categories and names several priorities that were either absent or only gestured at previously. The table below classifies each technology as new (not a named priority in the 14th FYP), escalated (present but substantially elevated in specificity, urgency, or resource commitment), or continued (broadly similar priority level).

Five Observations for Trade and Industrial Policy

1. Several escalated sectors track directly onto areas of technology denial.

   The priorities where language became most urgent and specific between plans (integrated circuits, computing infrastructure, basic software, aero engines) correspond to sectors where the United States and allied countries have imposed or tightened export controls since 2022. This pattern is consistent with export controls accelerating domestic substitution efforts, rather than deterring them. It does not settle the question of whether those efforts will succeed but it suggests that controls are more likely to buy time than permanent advantage.

2. Demographic pressures appear to be shaping technology choices.

   The 15th FYP introduces embodied intelligence and humanoid robots as a standalone priority, with explicit language linking deployment to “labour-shortage and high-danger positions.” Read alongside the plan’s demographic section (which includes near-zero out-of-pocket delivery costs, childcare subsidies, and assisted reproductive technology coverage) this suggests Beijing is planning to complement a shrinking workforce with automation.

   This resembles, in broad terms, the path Japan followed from the 1990s onward, where demographic aging drove sustained robotics investment and Japan became the world’s largest industrial robot exporter. The parallel has limits but the underlying logic (that labour scarcity can be a driver of automation investment rather than simply a constraint) has some historical support (Acemoglu & Restrepo 2017; Chen & Liu 2025; IFR 2023; Asao et al. 2025).

   The competitive implications for other manufacturing economies are worth watching. A more automated Chinese manufacturing base would reduce labour cost as a variable in competitiveness, potentially extending China’s industrial position even as its working-age population contracts.

3. New industrial categories are worth monitoring as potential sources of future trade friction

   The plan creates several industrial categories that did not exist as policy objects in the previous plan: the low-altitude economy (eVTOL, large UAVs, low-altitude infrastructure), commercial aerospace (reusable launch vehicles, commercial launch services) and national blockchain infrastructure.

   China already holds a dominant position in commercial drone production. The 15th FYP extends this into passenger-carrying eVTOL, cargo drones, and a supporting infrastructure layer (air routes, take-off and landing facilities, communication and navigation systems). If this infrastructure materialises, it creates not just a domestic market but a platform for export and ability to set up low-altitude standards.

   These sectors has, in past cases, preceded significant capacity build. Solar PV, batteries, and electric vehicles each went through a phase of plan-level designation followed by domestic infrastructure investment, followed by production at scale and at costs that disrupted incumbent producers.

4. The energy transition is framed partly as an energy security strategy.

   The 14th FYP presented clean energy primarily through a climate and modernisation lens. The 15th retains that framing but adds language that suggests security motivations are operating alongside it. The combination of the “ten-year doubling action” for non-fossil energy, nuclear expansion to 110 GW, coal-to-liquids strategic bases in interior provinces, and west-to-east power transmission buildout exceeding 420 GW describes a country that appears to be reducing dependence on seaborne energy imports as an independent objective, not only as a climate co-benefit (see Jin, The New China Playbook: Beyond Socialism and Capitalism, 2023). If that reading is correct, China’s clean energy buildout has a logic that is largely independent of the trajectory of global climate diplomacy. That is relevant for assessing its durability as a political commitment.

5. The plan also reveals where China considers itself most behind

   Some of the most assertively worded priorities correspond to areas where China’s domestic industrial base remains thin relative to global leaders. Machine tools: no Chinese firm competes globally in 5-axis precision machining. Lithography: SMEE remains multiple generations behind ASML. Aero engines: the CJ-1000A is unproven in commercial service against the CFM LEAP-1C. High-end instruments: no Chinese peer to Keysight or Zeiss at the frontier. EDA software: Empyrean Technology is at an early stage compared to Synopsys and Cadence. For trade policy, they represent areas of continued Chinese demand for foreign technology, equipment, and components.

What the Technology List Suggests

The 15th FYP’s technology priorities are consistent with preparation for a specific version of the future: one where physical labour is increasingly scarce and therefore automated, energy is predominantly domestic and non-fossil, digital and physical systems are deeply integrated through AI and satellite networks, and access to foreign technology is less reliable than in previous decades.

That does not mean the plan will be executed as written but the pattern of priorities, and the shifts from the previous plan, provide a reasonably clear signal of where Beijing perceives the most consequential vulnerabilities and opportunities.

Next in this series: Overcapacity and the Economic Growth Model: How the 15th FYP addresses “involutionary competition” and the domestic consumption challenge.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis and interpretations are the author’s own.

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Using fifteen years of data from the New Industrial Policy Observatory (NIPO) (plus the March 2026 NIPO deliverable used for this post) the paper tracks not just how much industrial policy has expanded, but how governments justify it.

As a reminder, the evidence refers to concrete state actions that plausibly distort competition between domestic and foreign firms. It tracks interventions that change market conditions.

One stylised fact stands out even more clearly with the updated 2025 data: Industrial policy in the United States, the European Union and China has been systematically reframed around national security, resilience and geopolitical risk.

The instruments matter. The scale matters. But the language matters too, since stated motives shape how policies are designed, defended and sustained.

Figure 1. Evolution of stated motives for industrial actions, 2009–2025.

2009–2016: Competitiveness Dominates Everywhere

In the early period, industrial policy is overwhelmingly framed in terms of strategic competitiveness and climate change mitigation. Security concerns are present but secondary. Industrial policy during this phase looks like upgrading strategy and industrial modernisation.

2017–2019: Divergence Begins

Between 2017 and 2019, the three blocs start to diverge.

• China: Competitiveness peaks at 75%.

• EU: Climate and Competitiveness remain dominant (90%).

• US: A dramatic rise in national security framing with 38% of motive-tagged actions.

Security language becomes institutionalised in the US during the escalation of US–China trade tensions. But in Europe, climate and competitiveness still anchors the narrative. We start seeing in this period an American security turn, not a global one.

2020–2022: The Break

The pandemic, energy disruptions and technological rivalry shift slowly the composition of motives in the European Union with expansion of national security and geopolitical concern and security of supply. Competitiveness declines in relative importance across all three.

2023–2024: Security Consolidates

The updated data show consolidation of this shift.

• National security & geopolitical concern: China 39%, the EU 12% and the US 26%.

• Security of supply: EU rises to 22%. US remains high at 21%.

China increases geopolitical language without abandoning competitiveness entirely.

2025: A Structural Reordering

The most striking numbers appear in 2025. In the United States, 63% of motive-tagged actions cite national security or geopolitical concern. Competitiveness collapses to just 5%. Security now dominates the narrative architecture of US industrial policy.

!! [Take with caution the fall of China to zero in the motive-tagged sample since most of the Chinese subsidies need to be tracked down yet.] !!

Same Shocks, Different Interpretations

All three economies experienced the same global shocks, yet their rhetorical responses diverged:

• The United States now overwhelmingly frames industrial policy as national security.

• China blends geopolitical self-reliance with long-standing upgrading objectives.

• The European Union emphasises resilience and competitiveness, with less explicit geopolitical language.

Why the Language Matters

Security-based justifications behave differently from climate or competitiveness rationales. They tend to be:

• Less time-bound.

• Less easily reversible.

• More resistant to international coordination.

• More difficult to challenge under trade rules.

Once industrial policy is justified as national survival rather than economic optimisation, the political threshold for rollback rises.

From Market Failure to Exposure Management

Before 2020, industrial policy could plausibly be framed as correcting market failures or accelerating innovation.

By 2025, it is framed primarily as managing geopolitical exposure.

This is a reordering of how governments legitimise intervention. As language shifts, so does durability. Security-driven industrial policy is more likely to persist, accumulate, and escalate than climate- or competitiveness-driven policy.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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One of the clearest patterns in the data concerns not how much governments subsidise—but how.

Across all three jurisdictions, financial support instruments dominate. That much is straightforward. In China and the European Union, subsidies and export incentives consistently account for between roughly 85 and 97 percent of all recorded industrial actions throughout the entire sample period. In the United States, the toolkit looks meaningfully different.

Figure 1. Composition of industrial actions by instrument and jurisdiction, 2009–2024.

Figure 2. Types of mechanisms of financial support in industrial actions, 2009–2024.

The divergence runs deeper than the headline numbers suggest.

China: industrial policy through the banking system

In China, financial support is overwhelmingly delivered through direct grants and in-kind assistance. This reflects an institutional model in which industrial policy is tightly integrated with state-controlled banking and investment systems. The line between an explicit subsidy and policy-directed credit allocation is deliberately blurred. Capital flows toward priority sectors not primarily through transparent budget lines, but through financial intermediaries whose mandates are set by the state.

From a trade-governance perspective, this structure matters enormously. It makes the scale and incidence of support difficult to observe from the outside, which complicates both monitoring and challenge. Industrial policy operates persistently through financial channels, without necessarily leaving a clear trail in official subsidy notifications.

Europe: activist policy within legal constraints

The European Union displays a different configuration. Financial support remains overwhelmingly dominant throughout the sample, but the delivery mechanism is more mediated—credit guarantees, concessional loans, and state-aid-compatible grants rather than direct fiscal transfers. EU competition rules constrain what member states can do unilaterally, which historically limited the scale and discretion of support.

That changed after 2020. Successive crisis frameworks—pandemic-era state-aid relaxations, followed by the energy-price shock triggered by Russia’s invasion of Ukraine—temporarily expanded permissible support while preserving formal adherence to EU rules. The result is an activist but legally mediated industrial policy regime: subsidies scale up without a commensurate rise in overt border instruments. The EU instruments column in Figure 1 shows a gradual increase in non-subsidy measures after 2017, and a visible but limited rise in other instruments during 2022–2024. But subsidies still dominate, and they are channelled through institutional structures designed to maintain the appearance, and often the reality, of market compatibility.

The United States: subsidies bundled with trade weapons

The United States stands apart. Even in the late 2010s—before the sharp post-2020 acceleration—US industrial policy was already more diversified in its instrument mix than either China or the EU. Import restrictions, trade defence measures, and regulatory conditionalities account for a substantially larger and more persistent share of US industrial actions across the entire sample.

This is not accidental. It reflects a long-standing American tradition in which industrial policy is embedded within a broader toolkit that includes trade remedies, procurement rules, and eligibility conditions rather than being delivered primarily through fiscal transfers. The landmark programmes of recent years—the CHIPS and Science Act and the Inflation Reduction Act—exemplify the approach. Both combine large-scale financial support with domestic-content requirements, localisation incentives, and eligibility rules that systematically disadvantage foreign producers. Subsidies and border measures are deployed together, as a package.

The consequence is that US industrial policy simultaneously promotes domestic capacity and restricts foreign access. It shapes competitive conditions at both ends.

Same instrument, three different machines

Two structural observations emerge from this pattern:

1. First, the global resurgence of industrial policy is not producing a uniform subsidy race. It is producing a set of interacting regimes whose design differences are large and consequential. China’s model is opaque and finance-mediated. Europe’s is activist but legally constrained. America’s is explicit, heterogeneous, and trade-exposed. These are not minor stylistic differences—they shape how firms access support, what conditions are attached to it, and how the policy interacts with trade rules and competition law.

2. Second, those design differences translate directly into competitive consequences. Firms operating across jurisdictions face heterogeneous compliance costs, localisation incentives, and exposure to policy risk depending on where they sit. A battery manufacturer deciding where to invest is not simply evaluating subsidy levels—it is evaluating the entire institutional architecture attached to that support, including domestic-content rules, financing conditions, and the probability of import barriers being raised against its competitors.

The headline finding—that subsidies dominate everywhere—obscures what matters most. The delivery mechanisms, governance structures, and instrument combinations diverge sharply. Understanding those divergences is essential for any firm or government trying to navigate the industrial policy environment that has taken shape since 2020.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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The ruling does not end tariff diplomacy. But it does something more consequential than merely slow it down. It redraws the constitutional boundary of executive trade coercion.

Why IEEPA mattered

IEEPA was attractive because it concentrated decision-making in the West Wing, enabling action on political rather than administrative time. Unlike Section 301—which typically requires investigation, consultation, hearings, and an administrative record—IEEPA allowed rapid escalation under an emergency or national-security framing.

Strategically, that framing mattered. It recast tariffs as a security response rather than a trade remedy, reinforcing narratives of resolve at home and abroad. More importantly, it allowed sudden, wide-ranging economic shocks.

The Court has now foreclosed that pathway. In its view, tariffs are “very clear[ly] . . . a branch of the taxing power” reserved to Congress, and IEEPA’s authorisation to “regulate . . . importation” does not include the power to tax. The President’s claim, the Court held, required “clear congressional authorization” for such an “extraordinary assertion” of power—and that clarity was absent (Learning Resources, Inc. v. Trump, 2026).

This is not merely procedural friction. It is structural constraint. The executive cannot use emergency declarations to unlock unbounded tariff authority.

Trump’s negotiation logic in trade

Trump’s tariff diplomacy aligns with well-known bargaining concepts. It relies on extreme anchoring (maximal opening demands), escalation dominance (threatening outsized costs early), and deadline compression (“tariffs start Monday”) to force rapid engagement. Uncertainty itself becomes leverage: shifting signals keep counterparts off-balance and make even the risk of tariffs costly. Public negotiation raises audience costs and narrows partners’ ability to delay or quietly resist (Shell, 2025; Moritz, 2025; Bade, 2025).

In this playbook, tariffs operate as a bargaining instrument as much as a policy tool. The point is not necessarily permanent protection; it is to shape the bargaining environment before formal talks begin (Shell, 2025; Moritz, 2025).

IEEPA functioned as the fastest instrument in that toolkit. It enabled immediate, wide-spectrum escalation without administrative delay. That speed amplified credibility.

The Court’s ruling therefore affects not just legal authority but bargaining tempo.

What changes after the ruling

The decision does not make tariffs illegal. It eliminates one pathway.

Other authorities remain—notably Sections 232 and 301. But the Court emphasised that when Congress delegates tariff authority, it does so explicitly and with “careful constraints” (Learning Resources, Inc. v. Trump, 2026). These statutes involve investigations, findings, reporting requirements, and procedural safeguards.

From a negotiation perspective, three consequences follow:

1. Reduced surprise: IEEPA enabled sudden, sweeping tariff announcements. Section 232 and 301 typically require investigation and process. That creates lead time. Lead time reduces shock value.

2. More veto points: Administrative processes introduce institutional actors—Commerce, USTR, hearings, judicial review. Each creates opportunities for domestic and foreign actors to mobilise opposition or delay.

3. Altered credibility: The Court explicitly rejected the idea that emergency or foreign-affairs context diminishes the need for clear authorisation (Learning Resources, Inc. v. Trump, 2026). That rejection matters strategically. Counterpart governments now know that emergency-based tariff threats face judicial scrutiny. The expectation of litigation weakens the immediacy of the threat.

The result is not paralysis but recalibration.

From procedural friction to constitutional constraint

The most significant aspect of the ruling is constitutional, not technical.

The Court grounded its reasoning in Article I’s allocation of the taxing power to Congress and invoked the major questions doctrine to require unmistakable delegation for powers of “economic and political significance” (Learning Resources, Inc. v. Trump, 2026). It also stressed that no President had previously used IEEPA to impose tariffs.

In effect, the Court signaled that emergency statutes cannot serve as backdoor transfers of core fiscal authority.

For trade diplomacy, this means that executive escalation capacity is now embedded in a more contested legal environment. Judicial review becomes part of the bargaining ecosystem.

Rebuilding leverage: the substitute coercion stack

If IEEPA tariffs were the “big red button,” the next move is likely a substitute coercion stack—a portfolio of tools that recreates pressure through other channels.

The most direct substitutes are: Section 232 (national-security tariffs), requiring investigation and findings and Section 301 (retaliatory tariffs following unfair-trade determinations).These are slower but durable.

More strategically significant may be quieter instruments such as anti-circumvention investigations, intensified customs enforcement, targeted export controls, or procurement and investment restrictions. Narrowly tailored import restrictions under existing statutory frameworks.

The effect may be a shift from episodic tariff shocks to more continuous and securitised economic pressure.

The key difference is tempo. Shock escalation becomes harder; steady friction becomes more central.

Managed trade returns — but under different bargaining conditions

President Trump’s tariff threats have often functioned as opening moves toward managed trade: bilateral bargains, quotas, exemptions, and rolling commitments negotiated under time pressure. Tariffs compressed time and forced decision.

With IEEPA unavailable, the United States does not lose tariff diplomacy. It loses its fastest escalation mechanism.

Future negotiations may become:

• Slower to ignite.

• More legally contestable.

• Less susceptible to instantaneous surprise.

But coercive trade diplomacy is unlikely to disappear. The likely outcome is not de-escalation but transformation: fewer sudden, emergency-framed tariff detonations; greater reliance on statutory tariffs, administrative enforcement, and securitised economic measures (Reuters, 2026a, 2026b; Congressional Research Service, 2025a; Congressional Research Service, 2025b; Office of the United States Trade Representative, 2025); and a bargaining environment shaped as much by courts as by markets.

The “big red button” is broken but the toolbox remains. The strategic question now is whether a negotiation style built on shock and immediacy can maintain its force when escalation must move at statutory speed rather than executive impulse.

References

Bade, G. (2025). Trump bets constantly shifting tariff strategy can remake global trade. The Wall Street Journal.

Brookings Institution. (2025). Tracking Trump’s tariffs and other trade actions. Brookings Institution.

Congressional Research Service. (2025a). Court decisions regarding tariffs imposed under the International Emergency Economic Powers Act (IEEPA).

Congressional Research Service. (2025b). Section 232 of the Trade Expansion Act of 1962.

Learning Resources, Inc. v. Trump, 607 U.S. ___ (2026).

Moritz, S. (2025). Shaping the game: Understanding Trump’s unconventional negotiation strategy. IMD.

Office of the United States Trade Representative. (2025). Public hearing regarding proposed actions in Section 301 investigation.

Reuters. (2026a, January 6). US tariffs that are at risk of court-ordered refunds exceed $133.5 billion.

Reuters. (2026b, January 8). Market risk mounts as Supreme Court weighs Trump’s emergency tariff powers.

Shell, G. R. (2025). Understanding Trump’s tariff tactics through the lens of negotiation. Knowledge at Wharton.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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After Fernando’s first week in Lima, he took off to the Sacred Valley, heartland of the Inca Empire — Tawantinsuyu. There, at 3,500 meters above sea level, lies Moray.

Moray is an astonishing display of ages-old ingenuity. In this natural agricultural laboratory, vast circular depressions descend into the earth. The largest is nearly 30 meters deep. Concentric stone terraces form rings that step toward the centre. Each level creates a distinct microclimate. Temperatures vary from top to bottom. Wind exposure shifts. Sun retention changes. Moisture behaves differently. Sophisticated drainage systems prevent erosion. Different soils were deliberately transported and layered.

As you descend, the environment becomes warmer and more sheltered. The upper terraces resemble high Andean plateau conditions, suitable for hardy crops such as potatoes and quinoa. Lower levels approximate milder valley climates, favourable for maize — a crop of political, nutritional and ritual importance. Structures like this allowed pre-Incaic and the Inca civilizations to test how crops from different ecological zones might adapt to new conditions.

Most scholars interpret Moray as an agricultural experimentation centre. Seeds were acclimatised. Varieties were compared. Yields were observed. Conditions were controlled. This was not ordinary farming. It was organised experimentation.

We look at Moray and cannot help but add a layer of industrial strategy thinking on top. Modern trade theory begins with comparative advantage. Since Ricardo, the logic has been clear: regions prosper by specialising in what they produce relatively more efficiently and trading for the rest. Specialisation increases aggregate welfare. But specialisation also creates exposure.

Industrial strategy debates today revolve around this tension. When essential goods are sourced externally, efficiency can conflict with resilience. Security-of-supply concerns emerge precisely because interdependence can bring vulnerability. The ancient Andean communities faced this structural constraint centuries ago.

The Andes are vertically fragmented. Tropical valleys, temperate slopes, and high plateaus coexist within short distances but radically different climates. Some strategic goods simply could not be cultivated at altitude.

Coca is the clearest example. It thrives in humid, lower-elevation regions. Yet archaeological evidence shows coca leaves were present in high-altitude sites such as Machu Picchu. Coca was not a luxury. It reduced fatigue, suppressed hunger, and sustained labour in extreme conditions. It was economically and politically strategic. But it could not be grown at 3,500 meters.

This meant dependence on lower-altitude territories. Where ecological limits could not be overcome, political control secured supply.

Moray is a prime example of industrial strategy focused on complementarity. Where nature allowed, the state, or in this case, the different communities that aggregated into empires, separated, and aggregated again –sharing technology and know-how over time– invested in experimentation to stretch ecological boundaries. It simulated diverse growing conditions in a single location. It sought greater control over production. It reduced vulnerability where possible. In a harsh geography, dependence was risk.

Moray reveals something timeless: the instinct to secure strategic goods is not new. Long before debates about supply chains, semiconductors, or dual-use technologies, and before all the fuss about “strategic autonomy” and other fancy-sounding concepts of today, political and socio-economic structures already invested in innovation to limit exposure and maximize the welfare of their people. Harnessing the power of nature and, above all, technology and ingenuity.

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Rerouting and the Asymmetry Between Producers and Importers

On 26 January, I read an insightful Financial Times article—“UK sofa retailer emerges as unlikely winner from Trump’s trade war”—which highlighted a less explored dimension of the re-routing debate. The key insight is that re-routing increases supply pressure in receiving markets, but its effects differ sharply across firms.

For import-competing domestic producers, re-routed Chinese supply is typically harmful. Lower-priced imports reduce achievable selling prices, compress margins, erode volumes and can raise shutdown risks—especially in sectors with high fixed costs or close product substitutability. By contrast, import-intensive firms, such as retailers sourcing from diverted Chinese supply, may benefit. Greater supply can improve sourcing conditions through discounts, rebates or more favourable payment terms.

Whether these cost reductions are passed on to consumers depends on competition and product characteristics. In highly commoditised, easy-to-ship goods, stronger competition tends to translate into lower retail prices. For bulky, high-value, or experiential goods—such as furniture—competition is less purely price-based, allowing retailers to retain a larger share of the cost savings as margins.

Measuring Absorption: Intermediate Inputs versus Final Consumption

This observation motivates the empirical exercise in this piece. I examine how imports from China have grown across major economies by distinguishing between intermediate and final consumption goods. Specifically, I analyse imports from China into the United States; Canada and Mexico; the EU-27; Japan and South Korea; selected ASEAN economies (Indonesia, Vietnam, the Philippines, Thailand, Malaysia, and Singapore); and selected Latin American economies (Argentina, Brazil, Chile and Peru) over the period 2019–2025.

The analysis uses Trade Data Monitor data on imports from China from January to November of each calendar year, ensuring comparability across countries given incomplete December data for 2025. Products are classified using OECD end-use definitions. Intermediate goods are inputs fully consumed in the production of other goods and services, while consumption goods are purchased for direct final use and not used in further production.

Upstream or Downstream? Evidence from Import Dynamics

Figure 1 indexes imports from China to 2019 = 100 within each region and end-use category. In the United States, the EU-27, Canada and Mexico, and Japan and South Korea, imports of consumption goods initially increased faster than intermediate imports in 2020–2021. From 2021 onward, however, intermediate imports generally grew more strongly. Most regions experienced their largest deviations from 2019 levels in 2022, with one notable exception: ASEAN economies. In ASEAN, intermediate imports from China in 2025 are 97% higher than in 2019, while consumption imports are 66% higher. The United States stands out as the only area where both intermediate and consumption imports from China are lower in 2025 than in 2019. Latin America shows large increases in both categories, particularly for consumption goods.

Figure 1. Imports from China by End Use, Indexed to 2019 = 100 (2019–2025).

Figure 1 provides a first indication of where post-2019 import growth from China has been concentrated. In most regions, growth has been stronger in intermediate inputs than in final consumption goods. This suggests that adjustment pressures associated with re-routing have tended to operate more through firms’ production chains than through retail markets.

Compressing the Evidence: A Diagnostic of Relative Growth

Figure 2 summarises this pattern using a single diagnostic indicator: the Sourcing versus Consumption Tilt, defined as the ratio of the intermediate import index to the consumption import index. A tilt above one indicates that, since 2019, intermediate imports from China have grown faster than consumption imports; a tilt below one indicates the opposite.

Figure 2. Sourcing versus Consumption Tilt of Imports from China (2019–2025).

In 2020, consumption imports retained their relative importance across most regions, with ASEAN as the exception, where intermediate imports rose sharply. From 2022 onward, several regions—including the EU-27, ASEAN, and Latin America—exhibit a clear upward shift in the tilt. Over most of the period, the tilt remains above one in all regions, indicating that post-2019 import growth from China has been relatively more input-intensive than consumption-intensive.

Recent Divergences in 2025

Developments in 2025 reveal notable regional differences. The U.S. tilt remains closer to unity or rises later, consistent with stronger trade barriers and slower growth in imports of Chinese consumption goods. Canada and Mexico, as well as ASEAN economies, show a renewed increase in the relative growth of intermediate imports.

By contrast, the EU-27 tilt moves closer to one, signalling a relative strengthening of consumption import growth. A similar—and even stronger—pattern is observed in Japan and South Korea and in Latin America. In these regions, post-2019 import growth increasingly shifts toward consumption goods. In theory, this rebalancing implies stronger potential retail price pressure relative to earlier years, though the extent of pass-through depends on competition and market structure.

Trade Wars Inside the Firm, Not Just at the Border

This end-use perspective highlights underexplored channels through which import re-routing can affect domestic economies. It reveals substantial cross-country differences in whether post-2019 import growth from China has been relatively more input- or consumption-intensive. As re-routing becomes a structural feature of geopolitical competition, understanding these transmission channels is increasingly important for assessing industrial viability and price dynamics.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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One of the clearest patterns in the data regarding green subsidies caught the attention of the The Wall Street Journal.

As shown in Figure 1, approximately 40 percent of Chinese subsidy-based industrial actions already targeted low-carbon technologies in the period 2009–2016. That share increased further in 2017–2019 and remained high thereafter, peaking around 2020–2022 before stabilising. Renewable energy manufacturing, electric vehicles, batteries, and associated upstream inputs were embedded in China’s industrial strategy well before climate policy became the dominant political narrative in the West. The evidence points to continuity rather than a late pivot: green technologies were part of a long-term upgrading strategy, not a reactive climate gesture.

By contrast, both the European Union and the United States put a much smaller share of industrial subsidies to low-carbon sectors during most of the 2010s—typically around one-fifth or less of subsidy-based industrial actions.

Figure 1. Percentage of subsidy-based industrial actions targeting low-carbon technologies, 2009–2024.

Then came the break.

After 2020, amid intensifying US-China rivalry, green subsidies surged in both jurisdictions. By 2023–2024, more than half of subsidy-based industrial actions in the EU and the US targeted low-carbon technologies. In the United States, President Biden’s Inflation Reduction Act (IRA) marked a decisive turning point. The IRA deployed large-scale, long-horizon tax credits and subsidies aimed explicitly at scaling domestic clean-technology manufacturing, from batteries to electric vehicles and renewable components. In parallel, the European Union launched the Green Deal Industrial Plan and related measures to strengthen domestic production capacity. By 2023–2025, around half of subsidy-based industrial actions in both the EU and the United States targeted low-carbon technologies.

Two structural shifts underpin this acceleration.

1. First, catching up became urgent. China had already built scale and cost advantages in key clean manufacturing segments.

2. Second, green sectors became strategic sectors. Many low-carbon technologies—batteries, power electronics, grid components, and critical mineral inputs—also fall within advanced or dual-use product categories. Supporting them serves not only climate objectives but also industrial competitiveness, supply-chain resilience and strategic autonomy. The boundary between climate policy and security-oriented industrial strategy increasingly blurred.

The result is partial convergence. Yet the sequencing matters. China shaped the early cost curves and industrial ecosystems. The West scaled up later, spurred in part by the IRA and related European initiatives.

Green industrial policy today is therefore not simply about emissions reduction. It is about who anchors the next generation of production ecosystems—and how far governments are prepared to intervene to shape them.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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The rapid expansion of AI-related data centres provides a revealing stress-test. It shows that power availability—not capital or subsidies—is becoming the binding constraint on industrial activity.

Electricity prices and grid constraints

Electricity prices for industrial consumers rose sharply across Europe after 2021. As shown in Figure 1, industrial electricity costs increased markedly across Member States in the early 2020s, exposing energy-intensive and electrifying industries to severe price shocks.

Figure 1. Electricity prices for EU industrial consumers rose sharply after 2021 and remain volatile.

At the same time, physical constraints in the electricity system have become increasingly visible. Grid congestion and connection delays are no longer abstract risks. In the Netherlands, access to the electricity network has been rationed, with more than 11,900 businesses reportedly waiting for grid connections, demonstrating how network saturation can directly constrain real-economy activity.

These constraints are now explicitly recognised at EU level. The European Commission’s European Grids Package identifies persistent bottlenecks caused by permitting delays, coordination failures and insufficient network investment. Industrial policy outcomes increasingly hinge not only on subsidies, but on whether projects can secure grid connections and firm power on commercially viable timelines, especially in already saturated regions.

Firm-level execution risk

Firm behaviour since the energy shock shows how electricity prices and system constraints translate into production and investment outcomes.

• Yara temporarily curtailed production at European plants, citing record-high natural gas prices, illustrating how energy costs force output reductions and increase reliance on imported intermediates.

• Primary aluminium production in Europe contracted sharply as smelters curtailed or shut down operations, with output falling by more than half since the onset of the energy crisis due to persistently high electricity prices.

AI as a stress-test of Europe’s power-constrained model

The rapid expansion of AI and data-centre investment adds a new, concentrated electricity load to systems already facing grid constraints. The International Energy Agency projects that data centres will account for a material share of electricity-demand growth in Europe through 2030 and stresses that overcoming energy constraints is critical for the region’s digital ambitions.

Financial Times reporting on AI infrastructure highlights the practical challenge of securing available grid power, noting the sharp increase in power density and the location-specific competition for connections. BloombergNEF similarly projects strong growth in electricity demand from hyperscale and colocation data centres across Europe, reinforcing that this is not a marginal effect.

Crucially, recent statements confirm that energy costs are becoming a decisive strategic variable in the AI race:

• Microsoft CEO Satya Nadella, speaking at the World Economic Forum and reported by CNBC, argued that energy costs will determine which countries win the AI race. He framed AI computation in terms of “tokens” as a new commodity, explicitly linking national growth prospects to the ability to produce low-cost tokens i.e. to supply large volumes of affordable, reliable electricity.

• Michael Kratsios, President Trump’s chief technology and science adviser, stated in Bloomberg reporting that the United States is well positioned to meet AI’s rising energy demand, highlighting infrastructure and resource advantages. The contrast with Europe is implicit: AI competitiveness is being framed as an energy-system challenge, not a financing one.

• Industry commentary reinforces this view. Analysis cited by Oilprice, drawing on JPMorgan estimates, suggests that U.S. data-centre capacity could exceed 130 gigawatts by 2030, requiring trillions of dollars in investment, but with power availability, not capital, identified as the gating factor.

Together, these sources support treating AI not merely as “more demand” but as a stress-test that exposes a deeper constraint: clustered, continuous electricity loads intensify local competition for grid access and firm power, revealing whether industrial strategies are backed by deliverable infrastructure.

Subsidies: supply over infrastructure

Energy-related policy interventions expanded after 2021. However, composition matters. As shown in Figure 2, energy supply measures consistently exceeded energy infrastructure measures between 2019 and 2025.

Figure 2. Energy-related subsidies expanded after 2021 driven mainly by energy supply measures.

While the Commission’s grid initiatives target connection queues and permitting delays—implicitly recognising infrastructure as a binding constraint—most energy-related subsidies remain skewed toward expanding generation capacity rather than accelerating network build-out and connections. Infrastructure-focused interventions have increased but still represent a relatively small share of total energy support (France: EUR 20 billion for reformed electricity capacity mechanism) (Italy: EIB provides financing for ‘e-Grid Electricity Network Upgrade’). The result is a policy mix in which electricity is subsidised or expanded in principle, but not always deliverable in practice to industrial users facing tight timelines.

Conclusion

Electricity systems have become first-order constraints on European industrial strategy. Rising industrial electricity prices and binding grid bottlenecks are already shaping production and investment decisions.

Energy-price shocks force curtailment (Yara), persistently high electricity costs drive capacity contraction (aluminium) and AI intensifies these pressures. Across industry leaders and policymakers, the message converges: competitiveness in AI—and increasingly in advanced industry—depends on the ability to deliver affordable, reliable electricity at specific locations and on predictable timelines.

Subsidies alone cannot overcome these constraints. Without faster grid expansion, accelerated permitting and credible delivery of firm power, Europe risks substituting financial support for physical capability. The decisive margin of industrial competition has shifted from subsidies to sockets.

Note: This article was edited with the assistance of AI tools to improve language, clarity, and concision. All analysis, data, and interpretations are the author’s own.

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