The resurgence of industrial policy and the associated increase in state subsidies are currently shaping global markets. While this development is considered a driver for innovation, it also carries the potential for market distortions. An analysis by the OECD, the club of industrialised countries, estimates industrial subsidies in 15 key sectors at around USD 108 billion in 2024, the highest level since the financial crisis. This trend is observable globally, from the US to the EU and Japan, where governments are deploying significant resources to secure technological advantages, ensure supply security and reduce strategic dependencies.
Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM, emphasises that the quality, not the quantity, of subsidies is crucial. He points to China as an extreme example, where companies in key industries received on average three to eight times more state support than their competitors in OECD countries. Approximately 60 per cent of Chinese companies' global market share gains are attributed to these subsidies. Fischer highlights, however, that subsidies are not a purely Chinese phenomenon, as Western countries also supported their industrial development through targeted state funding. Japan's ascent to an industrialised nation was also strongly shaped by active industrial policy, particularly by the Ministry of International Trade and Industry, which promoted key sectors such as automotive, steel and electronics.
Global Subsidy Policy and its Economic Implications
Currently, the West is intensifying its efforts: The US government is providing significant funds for research and semiconductor production through the CHIPS and Science Act. The EU plans to mobilise over EUR 43 billion in public and private investment with its Chips Act. Fischer explains that from an economic perspective, subsidies make sense where market failures exist. This includes, for example, fostering innovation, building new industries or securing strategically important value chains. Many current programmes, such as those in semiconductors, artificial intelligence or energy technologies, pursue precisely these goals.
However, an analysis by the International Monetary Fund shows that the results of past industrial policy are to be considered 'mixed'. Although product competitiveness tends to improve, the effects are often short-lived and primarily observed in already competitive sectors. Fischer also warns of increasing risks with the extended duration of subsidies. Political support can lead to overcapacities, declining productivity and misallocation of capital, rather than increasing efficiency. Furthermore, subsidies fuel geopolitical conflicts, which can lead to subsidy races, trade wars and greater market fragmentation.
Implications for Investment Strategies
In Germany, a blanket five per cent cut in subsidies is currently being discussed. Fischer describes this as 'not a good idea', as with a subsidy volume of around EUR 285 billion, a 'lawnmower method' could miss strategic priorities and affect both sensible and inefficient programmes. This could become a structural risk at a time when other countries are expanding their industrial policy.
For investors, the increase in national industrial promotion means greater importance of political risks and regional differences. Fischer advises increased diversification, as investors cannot prevent state intervention, but they can reduce dependence on individual political decisions. Regional market knowledge and a broad spread of investments thus contribute to risk mitigation.
