This episode features Eric Peterson, managing director at consulting firm Kearney and head of the Global Business Policy Council, alongside Liz Liu, assistant professor of international business at Georgetown University's McDonough School of Business, who specializes in the intersection of politics, technology, and business with a focus on China.

The conversation explores the dramatic resurgence of industrial policy after decades of economic liberalization, examining how governments worldwide are increasingly intervening in business through subsidies, trade barriers, and strategic investments. The discussion traces this shift from the post-Cold War era of free market ideology through the 2008 financial crisis to today's security-focused approach.

Key topics include China's evolution from ad hoc interventions to systematic industrial policy through initiatives like Made in China 2025, the role of geopolitical tensions in driving self-reliance strategies, and the emergence of economic choke points as tools of statecraft. The experts also address how businesses should navigate this new landscape and whether international institutions like the WTO can adapt to these changes.

Defining Industrial Policy in the Modern Era

Industrial policy requires two defining characteristics: selective government interventions targeting specific firms, sectors, or regions, and a long-term structural view aimed at transforming the national economy for broader public goals.

The New Industrial Policy Observatory dataset shows industrial policy has been rising since 2009, with a structural break around 2020 when advanced economies doubled down on policies tied to geopolitics and national security concerns.

Common industrial policy tools include subsidies (most popular), trade barriers like tariffs, government procurement preferences, foreign investment restrictions, and localization requirements for foreign investors.

From Globalization's Peak to Government Intervention

The post-Cold War period saw 30 years of remarkable growth with political and economic liberalization, as governments retracted from business following the logic that industrial policy was a slippery slope to economic autarky, referencing The End of History and the Last Man era thinking.

"We had 30 years of remarkable growth where we saw this political and economic liberalization. Governments kind of retracted themselves from the picture. Government is now back in the business of business" - Eric Peterson

The fundamental shift involves moving from absolute gains thinking (trade makes everyone better) to relative gains focus (whether you're better positioned than others), transforming globalization from efficiency optimization to security optimization.

China's Strategic Evolution and Made in China 2025

Despite political centralization, China is economically decentralized with 80% of industrial policy originating at the local level, though central influence over local priorities increased after 2014.

Made in China 2025 marked a qualitative change where government became an investor through guidance funds, allocating public funds to behave like venture capital in strategic sectors including robotics and semiconductors.

After 2020, China shifted industrial policy toward self-reliance and national security due to credible threats from U.S. export controls, strengthening resolve to build indigenous industries rather than importing Western technology.

"External pressure is unlikely to curb China's industrial policy. If anything, export controls, technology restrictions, and geopolitical tensions have strengthened Beijing's resolve" - Liz Liu

Economic Choke Points as Geopolitical Weapons

Economic choke points extend beyond geographical bottlenecks like the Strait of Hormuz to include technology resources, critical materials, and intellectual innovations, as detailed in Choke Points by Edward Fishman.

Countries can theoretically use choke point dependencies as economic statecraft to pressure others, but overuse incentivizes alternative development - China building domestic chips, other countries developing rare earth capacity outside China.

"It's a very interesting strategic game that's played on the global stage right now" - Liz Liu, describing how choke point pressure creates counter-responses.

Business Strategy in the New Industrial Policy Era

Companies can no longer rely on stable geopolitics, continued globalization, rules-based order, or government policies promoting free markets - they must use strategic foresight for turbulent outcomes.

For targeted sectors, businesses should examine policy details carefully as many industrial policies are performative rather than substantive, lacking enforcement details or follow-through.

Companies outside targeted sectors should focus on supplying inputs and infrastructure rather than competing directly in crowded, policy-driven sectors with high failure rates.

COVID created opportunities for domestic substitution when supply chain disruptions forced companies like BYD to discover domestic robotics producers were 'good enough' automation at much cheaper prices.