Old Rules, New Realities: How industrial policy is shaking up global trade

A number of countries have recently been rethinking industrial policy. Once seen as protectionist, these government efforts to shape or support specific sectors are increasingly viewed as essential for achieving climate action, securing supply chains and meeting energy needs, and developing new industries and creating jobs. 

Each economy chooses tools that work best for it, yet, as these policies take hold globally, key questions are emerging: Are the new industrial policy instruments compatible with the existing multilateral trade rules? If not, what changes are needed? Do countries need more or less space in those rules? How do these discussions fit into the broader context of World Trade Organization (WTO) reform? And what role should international cooperation play in shaping the next generation of industrial policies? 

The WTO: An old system meets new realities 

The trading system of the 1990s was shaped by the optimism of a liberalizing global order and reflected a strong belief in the Washington Consensus. It assumed that markets, not governments, would drive efficiency and growth—treating subsidies, local content requirements, and state intervention as distortions rather than instruments for structural transformation. The focus was on tariff reduction and comparative advantage rather than on climate, sustainability, and resilience. 

In 2026, climate ambition is no longer a peripheral topic in trade discussions. Geopolitics is again fractured. Priorities have shifted toward areas such as supply chain and national security, strategic autonomy, and industrial resilience—often at the expense of comparative advantage. Much like the United States and the European Union, China is an established industrial powerhouse, followed by several other emerging economies of the Global South. 

These evolving realities are driving debates about the suitability of the existing multilateral rulebook to the needs of industrial policy instruments used by countries, such as subsidies, local content requirements, export restrictions, tariffs, and technology transfer. Each of these policy measures raises difficult policy questions. 

Subsidies: Subsidies are important instruments for industrial development and green transformation, yet they remain constrained by WTO rules that prohibit export-contingent and local-content-based subsidies and allow measures proven to have adverse effects on other members to be challenged. In the fast-developing 21st-century global economy, some countries face a difficult balancing act; they want to expand support to green or digital transformation, while avoiding the risks of overcapacity and trade distortions in international markets. Countries with limited fiscal space face a different challenge: they are looking for ways to support strategically important domestic industries without certainty on how to do that within the existing WTO disciplines. The absence, after the expiry of Article 8 of the WTO subsidies agreement, of provisions reflecting the positive externalities of some subsidies (such as climate mitigation and carbon footprint reduction), has led some to question whether the current WTO framework shouldn’t do more to accommodate modern industrial and climate priorities, for example, by allowing more policy space for certain green subsidies. 

Local content requirements: These oblige entities to source a certain share of inputs (goods, services, or both) from within the implementing country. While the objective is usually to boost domestic manufacturing, build capabilities in strategic sectors, and create jobs, such measures sit uneasily within the existing WTO framework on national treatment, investment, and subsidies, which restricts preferences for local inputs over imported ones. This tension has sparked debates over the effectiveness of existing rules in accommodating such policies, particularly amid efforts to safeguard local industries in the wake of rising geopolitical and supply chain risks. Export restrictions: Countries use export restrictions to limit exports of resources like agricultural produce or critical minerals to secure their domestic supplies, prevent shortages, or manage price fluctuations. WTO rules discourage such restrictions as they distort trade and unduly limit other countries’ access to goods, unless they are temporary and justified. As more resource-dominant countries rely on export restrictions to manage supply chain risks, geopolitical pressures, and the green technology race, the question is whether and how the WTO rules should be updated to respond to modern concerns over resilience, strategic autonomy, and fair access to essential inputs. 

Import tariffs: Tariffs have historically been used by WTO members for a range of reasons, from increasing fiscal revenues to cushioning domestic industries from foreign competition. They are permitted under the WTO rules, provided they remain within each member’s commitments. But there have recently been questions over the growing use of tariffs in response to global competition and geopolitical tensions. Some countries feel the tariff limits negotiated three decades ago don’t allow them to respond to today’s economic realities. Many more, however, value the predictability that bound tariff rates provide for the multilateral trading system. 

Technology transfer: Technology transfer is critical for developing countries and least developed countries to spur domestic innovation, encourage long-term foreign investment partnerships, and build local capabilities, rather than remain import dependent. The debate on the most efficient ways to transfer technology is almost as old as the concept itself: potential options range from simple import of necessary goods or services to mandates for foreign firms to share their knowledge, skills, and/or intellectual property with domestic partners. Some countries see mandates as creating unfair pressure on foreign firms to share knowledge or intellectual property, which may not only conflict with WTO rules on intellectual property and investment, but also create disincentives for innovation. On the other hand, simply purchasing technology can be prohibitively expensive for many developing countries. With rapidly evolving green technologies, digital infrastructure, and critical innovations, the question of how trade policy could both support and protect innovation while ensuring equitable access to critical technologies is at the heart of the conversation about the industrial policies in many developing economies. 

Next Steps for a Multilateral Conversation 

Governments are wrestling with a range of systemic questions about the suitability of rules designed in a different economic era for the new age of industrial policies aimed at stimulating green transition, digital transformation, and supply chain resilience. An important additional dimension to this conversation is the undeniable fact that countries do not start from the same point: in many developing countries, governments do not have access to fiscal largesse or plentiful natural resources to push their economies forward. It is against this backdrop that the multilateral conversation on industrial policy has gained renewed attention. 

The WTO provides a structured forum for members to administer and discuss existing trade rules. These include standing committees, whose functions are limited to transparency, notification, and discussions on the implementation of the provisions of relevant agreement(s), and the dispute settlement body, which helps clarify how existing rules apply. Formal rulemaking or amendment to existing rules requires an explicit negotiating mandate from members, and no such mandate currently exists for negotiating new rules to address the pressures of modern industrial policy. Thus far, WTO members’ discussion of industrial policy and its intersection with trade rules takes place through structured but informal dialogues and discussions of smaller groups, in which interested members exchange information and explore emerging policy issues. 

These informal WTO dialogues have focused on various industrial policy themes, including the role of state banks and investment funds in financing industrial policies, the relationship between industrial policy and supply chain resilience, the role of WTO rules, transparency challenges, and the WTO’s subsidy disciplines. 

Another initiative, the Trade and Environmental Sustainability Structured Discussions (TESSD), while primarily focused on environment- and climate-related topics, also includes an informal working group on subsidies. This group, which is open to stakeholder participation, has, in recent years, looked into potential positive and negative environmental effects of subsidies, as well as their trade impacts. Discussions have covered various themes and sectors like green industrial subsidies, subsidies related to critical minerals, energy-intensive industries, green hydrogen and renewable energy, and low-carbon transition. The structured discussions have been a place for members to share their experiences and practices, including key design elements of members’ programs and the challenges faced by developing countries. At the WTO's 14th Ministerial Conference MC14, a TESSD package, including a Co-Convenors' Ministerial Communiqué, an Overarching Document for MC14, and outcome documents from the four TESSD Working Groups, is expected to be put forward. 

Lastly, the overall process of WTO reform includes a workstream focused on discussion of the suitability of the WTO rules in light of the pressures governments face. While the discussions in the above forums do not substitute the formal reform process, they are becoming an important channel through which members can test ideas, share technical information, build a shared understanding of issues, and, over time, feed into more formal outcomes. 

Looking to the Future 

The resurgence of industrial policy has exposed the growing tensions between the decades-old rules-based trading system and challenges of today’s polycrisis era—where climate, security, and development challenges intersect. 

Both trade negotiators and civil society organizations are actively engaged in the debate on the need for the WTO framework to change to adapt and reflect positive externalities, address regulatory asymmetries, and fix capacity constraints faced by many developing countries. An intense discussion about the compatibility of many contemporary instruments with multilateral trade rules might not have reached a conclusion, but many feel that their objectives, design, and scale might struggle to fit the existing framework. 

These unresolved debates and discussions illustrate how contemporary industrial policy objectives are increasingly testing the boundaries of the existing WTO framework. Taken together, the discussions outlined above point to persistent uncertainty about the extent to which existing disciplines can accommodate and balance contemporary policy priorities, particularly in areas such as climate action and economic development. As a result, questions about the adequacy of the multilateral trading system in addressing modern industrial policy challenges remain open within the broader debate on the future of the WTO. 

MC14 offers a critical opportunity for ministers to enable their WTO delegates, likely in the context of the WTO reform rubric, to continue this important work that matters to the whole membership. Next steps in the work could focus on identifying common interests and priorities for deeper exploration and analysis before debate turns, eventually, to important questions about the need to adjust the legal framework. Importantly, this conversation must reflect the realities and priorities of developing and least developed members as much as it does the priorities of larger and middle powers.