Industrial Policy Competition Between Major Economies

Introduction

Industrial policy competition between major economies refers to situations in which governments use subsidies, tax incentives, public procurement, investment screening, trade measures, regulatory advantages, financing, research support, or other state interventions to strengthen domestic industries and strategic technologies.

It has become particularly important in sectors such as semiconductors, electric vehicles, batteries, renewable energy, telecommunications, artificial intelligence, aerospace, defence, critical minerals, pharmaceuticals and advanced manufacturing.

From a competition-law perspective, the central difficulty is that industrial policy may pursue legitimate objectives—such as resilience, employment, decarbonisation or national security—while simultaneously altering competitive conditions between firms or countries.

The issue therefore sits at the intersection of:

• competition/antitrust law;
• state-aid and subsidy control;
• international trade law;
• national-security regulation;
• merger control;
• public procurement;
• foreign investment screening; and
• economic sovereignty.

1. Meaning of Industrial Policy Competition

Industrial policy competition occurs when governments compete to attract, protect or develop strategic industries.

Typical instruments include:

1. Direct subsidies
2. Tax credits
3. Cheap government financing
4. State-owned enterprise support
5. Government guarantees
6. Public procurement preferences
7. Import tariffs
8. Export restrictions
9. Local-content requirements
10. R&D grants
11. Infrastructure support
12. Investment incentives
13. Energy-price advantages
14. Strategic stockpiling
15. Regulatory preferences

For example, if Economy A provides substantial subsidies to domestic semiconductor manufacturers while Economy B responds with its own subsidy programme, the resulting competition is no longer merely between companies. Governments themselves become participants in the competitive process.

2. Why It Creates Competition-Law Problems

Traditional competition law generally asks:

Has a private undertaking distorted competition?

Industrial-policy competition raises an additional question:

Has governmental intervention changed the competitive conditions so substantially that competition between undertakings is itself distorted?

This creates several problems.

A. Subsidised entry

A heavily subsidised firm may enter a market despite having higher underlying production costs.

B. Artificial expansion

Government support can allow a firm to expand capacity much faster than commercially sustainable competitors.

C. Overcapacity

Several countries may subsidise the same industry simultaneously, producing excess global capacity and aggressive pricing.

D. Protection of national champions

Governments may protect domestic champions from foreign acquisition, competition or market exit.

E. Competitive disadvantage for unsubsidised firms

A firm operating without equivalent government assistance may face a structurally unequal competitive environment.

3. Industrial Policy and the European Union

The EU historically adopted a relatively cautious approach to national industrial subsidies because state support can fragment the internal market.

The central framework is EU State aid law, particularly Articles 107–109 TFEU.

Article 107(1) generally prohibits state aid that:

• is granted through state resources;
• selectively advantages an undertaking;
• distorts or threatens to distort competition; and
• affects trade between Member States.

However, various exemptions allow aid pursuing legitimate objectives.

The EU has therefore attempted to balance:

industrial competitiveness + strategic autonomy + competition neutrality.

Recent industrial-policy developments have placed greater emphasis on strategic technologies, energy transition and resilience.

4. Industrial Policy and the United States

The United States traditionally relied more heavily on market-oriented competition but has increasingly adopted industrial-policy measures.

Important policy areas include:

• semiconductor manufacturing;
• clean-energy technology;
• electric vehicles;
• batteries;
• critical minerals;
• defence technologies;
• artificial intelligence;
• advanced manufacturing.

The American approach often combines:

subsidies + tax incentives + procurement + trade restrictions + national-security controls.

This can create international spillovers because firms receiving domestic incentives compete globally.

5. Industrial Policy and China

China represents a particularly important model of state-supported industrial development.

Industrial policy can involve:

• state-owned enterprises;
• industrial funds;
• preferential financing;
• government procurement;
• land and infrastructure support;
• tax incentives;
• strategic technology programmes;
• local-government subsidies.

The competition-law question is complicated by the relationship between commercial enterprises and governmental authorities.

A subsidy-supported enterprise may compete internationally while enjoying advantages unavailable to foreign competitors.

6. International Dimension

Industrial policy competition is not confined to domestic antitrust law.

It can generate disputes under:

• WTO subsidy disciplines;
• anti-dumping rules;
• countervailing-duty regimes;
• national-treatment principles;
• government-procurement rules;
• investment treaties;
• bilateral trade agreements.

Thus, one country's industrial policy can become another country's trade-distorting subsidy.

7. Major Competition Concerns

7.1 Subsidy Races

A major concern is the creation of a subsidy race.

Suppose:

• Country A subsidises batteries;
• Country B responds with larger subsidies;
• Country C responds with tax credits.

Firms may increasingly choose production locations according to government support rather than productive efficiency.

This can undermine competitive neutrality.

7.2 National Champions

Governments may favour a domestic company because it is considered strategically important.

The danger is that the company becomes insulated from:

• market exit;
• foreign competitors;
• takeover threats;
• technological disruption.

Over time, industrial policy can therefore contribute to incumbent entrenchment.

7.3 State-Owned Enterprises

State-owned enterprises may receive:

• subsidised financing;
• preferential access to land;
• government guarantees;
• regulatory privileges;
• preferential procurement.

The competition-law issue is whether the SOE competes on genuinely equal terms with private firms.

7.4 Cross-Border Mergers

Industrial policy increasingly affects merger control.

A government may oppose an acquisition because:

• technology is strategically important;
• domestic production capacity would disappear;
• critical intellectual property would move abroad;
• the target is important for national security.

This can conflict with conventional competition analysis.

7.5 Public Procurement

Governments can favour domestic suppliers through procurement.

Although procurement preferences may support national industrial objectives, excessive discrimination against foreign suppliers can:

• reduce competitive bidding;
• increase prices;
• protect inefficient suppliers;
• create reciprocal protectionism.

8. Six Important Case Laws

1. Altmark Trans GmbH v Nahverkehrsgesellschaft Altmark GmbH (C-280/00)

Principle

The Court of Justice established criteria under which compensation for public-service obligations does not constitute State aid.

Four principal conditions were developed, including that compensation must correspond to properly defined public-service obligations and must not exceed what is necessary.

Importance for industrial policy

Governments often justify financial support as compensation for public or strategic objectives.

Altmark demonstrates that not every government payment to an undertaking automatically constitutes State aid.

It also establishes the importance of distinguishing:

legitimate compensation for public obligations

from

selective economic advantage.

Competition significance

Industrial policy cannot simply be labelled "public interest" to avoid competition scrutiny. The actual economic character of the intervention matters.

2. PreussenElektra AG v Schleswag AG (C-379/98)

Principle

The Court considered a German scheme requiring electricity distributors to purchase renewable electricity at prescribed prices.

The Court held that the mechanism did not involve a transfer of state resources in the circumstances of the case and therefore did not constitute State aid under the then applicable framework.

Industrial-policy significance

The case illustrates an important distinction between:

• government regulation of market behaviour; and
• direct mobilisation of state resources.

Competition significance

A government can influence competitive conditions through regulation without every intervention necessarily becoming State aid.

This is particularly relevant today for:

• renewable-energy mandates;
• clean-energy standards;
• industrial decarbonisation;
• electricity-market interventions.

3. Essent Netwerk Noord BV v Nederlands Elektriciteit Administratiekantoor BV (Joined Cases C-206/04 and C-17/03)

Principle

The Court examined arrangements involving electricity-sector financing and state intervention.

The case contributed to the broader understanding of when state resources are involved and how state-controlled mechanisms can constitute State aid.

Industrial-policy significance

Government-controlled financial mechanisms cannot automatically escape State aid scrutiny simply because money does not pass directly from a traditional government budget.

Competition significance

The case is particularly relevant to modern industrial policy involving:

• state-owned financial institutions;
• public funds;
• energy-transition schemes;
• government-controlled financing structures.

4. Deutsche Post AG v Commission (C-399/08 P)

Principle

The dispute concerned financial advantages associated with Deutsche Post's public-service activities and its competitive activities.

The Court examined how compensation and financial transfers involving a public undertaking should be assessed under State aid principles.

Industrial-policy significance

A public undertaking may simultaneously perform:

• public-service functions; and
• commercial activities.

The State must therefore avoid allowing public-service compensation to provide an unjustified advantage in competitive markets.

Competition significance

This principle is highly relevant to modern industrial policy involving:

• state-owned enterprises;
• public infrastructure;
• strategic logistics;
• telecommunications;
• energy;
• transport.

5. EDF v Commission (C-124/10 P)

Principle

The case concerned measures taken by the French State in relation to Électricité de France.

The Court examined the Market Economy Investor Principle (MEIP)—whether the State behaved as a private investor might have behaved in comparable circumstances.

Industrial-policy significance

Not every advantage supplied by a government is necessarily State aid.

Where the State acts as an ordinary market investor, its conduct may fall outside the State-aid prohibition.

Competition significance

The case is crucial for distinguishing:

commercial state intervention

from

governmental preferential support.

This distinction is increasingly important where governments invest in:

• semiconductor companies;
• AI infrastructure;
• battery producers;
• strategic technology firms;
• energy companies.

6. Commission v Italy and SIM 2 Multimedia (C-387/92)

Principle

The Court addressed state support associated with public undertakings and competitive advantages.

The broader jurisprudence reinforced the requirement that State intervention benefiting public undertakings must be examined according to whether it provides an economic advantage unavailable under normal market conditions.

Industrial-policy significance

Public ownership does not provide immunity from competition principles.

Competition significance

An industrial strategy based upon state ownership must still consider whether the undertaking receives an advantage capable of distorting competition.

9. Additional Important Case Law

7. Stardust Marine (C-482/99)

The Court clarified principles concerning attribution of measures to the State and the involvement of state resources.

It is particularly relevant where support is channelled through public enterprises or financial institutions.

Significance

Modern industrial policy frequently operates through:

• development banks;
• sovereign funds;
• public corporations;
• government-backed financing.

Stardust Marine helps determine when such measures can be attributed to the State.

8. Chronopost v Ufex (Joined Cases C-83/01 P, C-93/01 P and C-94/01 P)

The case concerned the relationship between a public postal operator's public-service infrastructure and its competitive activities.

Significance

It demonstrates how public infrastructure can provide competitive advantages to an undertaking operating in adjacent commercial markets.

This has contemporary relevance for:

• cloud infrastructure;
• telecommunications;
• transport networks;
• public data infrastructure;
• digital platforms.

10. Industrial Policy Competition and Global Strategic Sectors

Semiconductors

Governments increasingly subsidise semiconductor fabrication because chips are considered strategically important.

Competition concerns include:

• subsidy-driven capacity expansion;
• preferential access to infrastructure;
• national-security restrictions;
• export controls;
• technology-transfer restrictions;
• concentration of advanced manufacturing.

The resulting competition may occur simultaneously at three levels:

government → firm → technology ecosystem.

Electric Vehicles

EV industrial policy can involve:

• consumer subsidies;
• manufacturer subsidies;
• battery incentives;
• charging infrastructure;
• local-content requirements;
• tariffs.

The competitive consequences can extend beyond vehicle manufacturers to:

• batteries;
• lithium;
• charging networks;
• software;
• autonomous-driving systems.

Renewable Energy

Industrial policy can favour domestic:

• solar manufacturers;
• wind-turbine producers;
• hydrogen companies;
• battery manufacturers.

The central question is whether support accelerates environmental objectives without unnecessarily eliminating efficient foreign competition.

11. Strategic Autonomy Versus Competition

A central modern tension is:

Strategic autonomy

Governments want domestic capacity in strategically important sectors.

Competition neutrality

Competition law seeks to prevent artificial advantages and preserve rivalry.

These objectives can conflict.

For example:

A government may tolerate higher domestic production costs because maintaining domestic semiconductor capacity is considered strategically necessary.

From a pure efficiency perspective, importing chips might be cheaper.

From a national-security perspective, domestic production may be considered essential.

Therefore, modern competition analysis increasingly encounters non-price objectives.

12. Industrial Policy and National Security

National security is increasingly used to justify industrial interventions.

Examples include:

• semiconductor export controls;
• foreign investment screening;
• restrictions on sensitive technologies;
• defence procurement;
• restrictions on foreign ownership;
• critical infrastructure protection.

The challenge is preventing national security from becoming an unlimited justification for protectionism.

A sound legal framework should therefore ask:

1. Is the security objective genuine?
2. Is the measure connected to that objective?
3. Is it proportionate?
4. Is a less restrictive alternative available?
5. Does it unnecessarily discriminate against foreign competitors?

13. The Problem of Subsidy Transparency

A significant difficulty is determining the actual level of government support.

A firm may benefit from:

• direct grants;
• cheap loans;
• tax exemptions;
• subsidised land;
• preferential electricity;
• state guarantees;
• R&D support;
• government procurement.

Consequently, the observable price of a product may not reflect the true economic cost of production.

This complicates:

• merger analysis;
• predatory-pricing analysis;
• market-share assessment;
• trade-remedy investigations;
• damages calculations.

14. Industrial Policy and Predatory Pricing

Government subsidies can indirectly facilitate aggressive pricing.

A subsidised undertaking may sell products below what an unsubsidised competitor could sustainably offer.

However, competition authorities must distinguish:

efficient low pricing

from

subsidy-enabled exclusionary pricing.

The mere existence of government support does not automatically establish predatory pricing. The competitive effect and relevant legal test must still be satisfied.

15. Industrial Policy and Merger Control

Industrial policy can affect merger control in two directions.

First: blocking foreign acquisitions

Governments may prevent acquisitions of strategic domestic firms.

Second: encouraging consolidation

Governments may encourage mergers to create globally competitive national champions.

The second approach creates a significant competition-law risk.

A government may argue:

"We need a larger national champion to compete internationally."

Competition law may respond:

"But the merger may substantially reduce domestic competition."

This is the national-champion dilemma.

16. Industrial Policy and Competition Neutrality

A useful principle is competitive neutrality.

It means that competing firms should, as far as possible, operate under comparable competitive conditions regardless of:

• ownership;
• nationality;
• government affiliation;
• financing source.

Competitive neutrality does not necessarily prohibit industrial policy.

Instead, it asks whether government intervention gives one undertaking an unjustified competitive advantage.

17. Possible Legal Responses

Governments and competition authorities can use several mechanisms.

A. Transparent subsidy programmes

Eligibility should be based on objective criteria.

B. Non-discriminatory access

Support should not unnecessarily exclude foreign competitors.

C. Proportionality

Aid should be limited to what is necessary for the legitimate policy objective.

D. Sunset clauses

Temporary industrial support should not become permanent protection.

E. Competitive safeguards

Beneficiary firms can be subject to:

• non-discrimination requirements;
• access obligations;
• licensing commitments;
• interoperability requirements.

F. Monitoring

Authorities should examine whether supported firms subsequently engage in exclusionary conduct.

18. Competition Between Major Economies: A Systemic Problem

Industrial policy competition can produce a strategic feedback loop:

Country A subsidises strategic industry

↓

Country B responds with larger incentives

↓

Country C introduces protectionist measures

↓

Global investment becomes subsidy-driven

↓

Production relocates according to government incentives

↓

Unsubsidised firms become disadvantaged

↓

Further government intervention becomes politically necessary

This creates a cycle in which competition policy becomes increasingly intertwined with industrial policy.

19. Relationship With Competition Law

The key legal distinction is:

The two systems are not necessarily incompatible.

The challenge is ensuring that industrial policy does not become a permanent substitute for competition.

20. Key Legal Principles From the Case Law

The cases collectively establish several important principles:

Principle 1 — Not every government intervention is State aid

PreussenElektra demonstrates that the precise structure of the intervention matters.

Principle 2 — Public-service compensation can be legitimate

Altmark provides a framework for distinguishing genuine compensation from economic advantage.

Principle 3 — Public ownership does not automatically justify preferential treatment

Deutsche Post and related cases demonstrate the need to examine competitive activities separately.

Principle 4 — Governments can sometimes act as market investors

EDF illustrates the Market Economy Investor Principle.

Principle 5 — State-controlled financial mechanisms can fall within State-aid rules

Stardust Marine is important for attribution and state-resource analysis.

Principle 6 — Public infrastructure can generate competitive advantages

Chronopost demonstrates the importance of analysing infrastructure advantages where public-service and commercial functions overlap.

Conclusion

Industrial policy competition between major economies is transforming the traditional boundaries of competition law. The central issue is no longer merely whether private firms collude or abuse dominance. Governments themselves increasingly shape competitive conditions through subsidies, procurement, financing, trade restrictions, investment screening and strategic technology policies.

The jurisprudence beginning with Altmark, PreussenElektra, Stardust Marine, Chronopost, Deutsche Post and EDF demonstrates that government intervention must be analysed according to its economic substance, state-resource involvement, selectivity, market conditions and competitive effects.

The optimal legal approach is therefore neither to prohibit industrial policy nor to permit unlimited government protection. Instead, modern competition governance should seek a balance between:

strategic autonomy + national security + innovation + sustainability + competitive neutrality.

The greatest long-term danger is a subsidy-driven international competition in which firms succeed because of government protection rather than superior efficiency or innovation. Competition law, State-aid/subsidy control and international trade law must therefore operate together to prevent industrial policy from becoming a mechanism for permanent market foreclosure.