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1、04The return of industrial policy10Is industrial policy good for investors and businesses?15Squaring the circle in the EU19 June 2024Allianz ResearchIndustrial policy:old dog,new tricks?AllianzTrade2 Industrial policies and subsidies are back with a bang,especially in major economies such as the US,

2、China,India,Germany and Brazil.Governments are increasingly getting involved in setting industrial priorities and supporting strategic industries through subsidies to promote innovation and technology diffusion.The 2,642 industrial policy measures implemented in 2023 were driven by efforts to secure

3、 strategic competitiveness and mitigate climate change,as well as an increasing emphasis on national security.But industrial policy is not a perfect solution and can even be counterproductive,leading to tit-for-tat reactions.And fiscal capacity is the main constraint for financing industrial policy.

4、Subsidies averaged 0.3%of GDP in EU27 economies in 2023.As more and more countries face constraints from budget deficits,public debt and fiscal pressures,this emphasizes the need for well-considered fiscal policies to promote innovation while being mindful of potential economic distortions.For inves

5、tors and businesses,the return of industrial policy offers short term gains for some but can also create longer-term challenges.Over the short run,transition-related and tech sectors will gain the most from industrial policies,especially low-carbon technologies,metals(steel,aluminum and critical mat

6、erials),advanced technologies,semiconductors and defense-related sectors.Companies should benefit from a significant profitability boost:The average renewable/green tech manufacturer could see its gross profit margin double by 2025 compared to a baseline without tax credits.Industrial policy will al

7、so allow investors to play the commodities playbook at the expense of corporates and consumers.As the supply-demand gaps for some metals are becoming increasingly evident and inflationary risks loom,prices will increase in the future.Large corporates looking to finance projects eligible for industri

8、al policy subsidies through green bonds could also benefit from significantly lower financing costs as industrial policies could lower risk.However,investment can eventually turn into over-investment and lose its efficiency.And industrial policy could lead to a crowding-out effect as large corporate

9、s are taking the lions share of receipts.For instance,only seven very large global firms will benefit from 75%of the CHIPS program grants that have already been allocated(USD29.3bn).This needs to be addressed by smarter,more efficient industrial policies.ExecutiveSummaryAllianz ResearchAno Kuhanatha

10、nHead of Corporate Research ano.kuhanathanallianz-Jasmin GrschlSenior Economist for E19 June 20243 3 The EUs industrial policy faces challenges as it aims to balance the green and digital transition,maintain the Single Market,foster innovation and retain national control over policies.The EUs indust

11、rial strategy focuses on key sectors such as semiconductor technologies,hydrogen,industrial data,space launchers and zero-emission aviation to achieve targets such as producing 10mn tons of green hydrogen by 2030 and securing a 20%share of the global microchips market.EU cross-border projects are su

12、pported with EUR80bn in approved investments across the chips,battery and hydrogen sectors,while allocating 32.6%of the total EU budget between 2021 to 2027 towards climate tech.But technological neutrality in EU industrial policy has led to less targeted support for innovative technologies compared

13、 to the US.Moving forward,EU policymakers should mainly target countries with high emissions and carbon prices just at or below the EU ETS price of USD61.3,such as Germany,France,Spain,Italy or Poland.To achieve strategic competitiveness,climate goals and resilient supply chains,the focus should be

14、on industry,energy supply and agriculture.In this context,we argue that the EU needs to design smart,horizontal,conditional and complementary policies that help the bloc leap forward instead of chasing the US and China.The bloc should(i)focus on horizontal policies,designing a mobility policy instea

15、d of a standalone EV policy for example;(ii)coordinate policies considering member states specializations and taking advantage of complementarities between countries and sectors;(iii)implement strong conditionality on sustainability and domestic content of projects before unlocking public support,wi

16、thout increasing red tape,(iv)ensure policymakers are made accountable for industrial policies through relevant KPIs and design policies with multiple stakeholders,including scientists and civil society,(v)place the innovation ecosystem at the core and think“two steps ahead”instead of chasing the US

17、 and China and(vi)share risks and profits with the private sector through blended industrial policy(PPS,mixed financing).4Allianz ResearchFigure 1:Newspaper mention of“industrial policy”Sources:GTA,Allianz Research.020004000600080004000000005200

18、23The return of industrial policyIndustrial policies and subsidies have made a strong comeback on the global stage,driven by both economic and non-economic motives.While industrial policy is not new,some economies that avoided it in the past are now embracing it with new motives.In 2023,new industri

19、al policy was mentioned by 16,230 newspapers(Figure 1).This reflects the new context of rising competition between economic blocs and geopolitical tensions,as well as the proliferation of ambitious national targets for climate neutrality.Indeed,countries counter higher geopolitical risk with more ex

20、port policy measures(Figure 2),subsidies and sanctions,while higher economic policy uncertainty between 2020 and 2023 led to a+13.4%higher likelihood of governments implementing industrial policy measures,with export-related policies being more likely by+36%and subsidies by+21%.Figure 2:Geopolitical

21、 risk index and number of export policiesSources:GTA NIPO,Caldara and Iacoviello(2022),Allianz Research.02468000.511.522.5Number of export policiesGeopolitical risk index We use the New Industrial Policy Databases(NIPO)definition of industrial policy,i.e.targeted government interventions

22、to support specific domestic firms,industries or economic activities for national economic or non-economic objectives.Included policies must align with criteria such as new motives(climate change,national security,geopolitical concerns,strategic competitiveness or security of supply),strategic produ

23、cts/services(low-carbon tech,semiconductors,critical minerals,advanced tech,medical,IT and digital services or military or civilian dual-use)and high-level plans and strategies spanning multiple years that relate to multiple subsequent policies and interventions.Policies related to the Covid-19 pand

24、emic and the Russia-Ukraine conflict are excluded from our analysis.19 June 20245 5Governments implemented 2,642 industrial policy moves in 2023,mainly in the form of subsidies favoring local firms.The current wave is specifically targeting manufacturing sectors to enhance comparative advantages.Ind

25、ustrial policy can take many forms and mobilize a variety of tools,including investment in R&D,direct subsidies to firms and industries,tax incentives for corporates and households,regulations and industry standards and the development of infrastructure.But subsidies for local firms are the most pop

26、ular tool:The annual implementation of subsidies has more than tripled over the past decade.The US,China and India have been the top users of industrial policy over the last decade,followed by Germany and Brazil.Notable examples include the Inflation Reduction Act(IRA)and the CHIPS and Science Act i

27、n the US,the European Green Deal and the Digital Europe program in the EU,along with Chinas Made in China 2025 program.Figure 4:Number of industrial policies,by sector in 2023 Notes:The sector count includes only policies that target the specific sector.The difference to the total is policies that t

28、arget more than one sector.Sources:GTA NIPO,Allianz Research.0500300350400More than one sectorServicesAgriculturalManufacturingFigure 3:Number of industrial policy measures implemented across countries,by policy in 2023Notes:EU27 is the aggregate including policies from all 27 EU member s

29、tates and the EU Commission itself.The EU comprises industrial policy measures undertaken by the EU Commission itself.Sources:GTA NIPO,Allianz Research.00500600EU27*USACANINDBRAITADEUAUSJPNGBREU*CHNKORRUSFRAESPARGTURCHEMEXPOLNLDAUTIDNPRTSAUDNKBELCZEZAFTHAOtherLocalization policyProcuremen

30、t policyFDI policyExport subsidySubsidyImport policyExport policyAllianz ResearchFigure 5:Industrial policy measures implemented by motive in 2023,as share of total in%and total number(rhs)as reference Notes:The sector count includes only policies that target the specific sector.The difference to th

31、e total is policies that target more than one sector.Sources:GTA NIPO,Allianz Research.Despite the growing emphasis on national security and resilience of supply chains,strategic competitiveness and climate-change mitigation were the primary drivers behind industrial policy in 2023.But national inte

32、rests differ,the US put the largest emphasis on national security 43%of measures implemented in 2023 in this category,while it was only 18%from the EU27(Figure 5).The EU put the strongest emphasis on policies related to climate change mitigation(49%)and resilience of supply chains.But looking at sub

33、sidy values,national security and geopolitical concerns are not where governments spend the most:the highest spending in the EU27 in 2023 relates to promoting competitiveness or strategic sectors with USD304bn,followed by resilience and security of supply chains with USD186.1bn and climate change mi

34、tigation with USD179.7bn.Geopolitics and national security account for only USD 22.5bn and USD2.9bn respectivelyBut industrial policy is not a perfect solution and can even be counterproductive,leading to tit-for-tat reactions.A worrying trend for tenets of open markets is that governments have star

35、ted to double-down on tariffs by changing the industrial policy path from subsidies versus tariffs to subsidies followed by tariffs(i.e.,the current introduction to electric vehicle tariffs after massively subsidizing them through the IRA in the US)005006007000%10%20%30%40%50%60%National

36、securitySupply securityStrategiccompetitionClimate changeGeopoliticsTotal number(rhs)USAEU27 aggregateChinaGermanyFranceItalySpainas the best tool to expand a favored firm or sector.But governments are notoriously bad at choosing and picking winners,also due to a lack of accountability,as well as th

37、e risks of cronyism.In fact,1,659 of the protectionist policy interventions implemented in 2023 were firm specific.Subsidies directed towards import-competing industries are expected to bolster domestic production and reduce imports,aligning with import-substitution strategies.Conversely,subsidies t

38、argeted at sectors with a comparative advantage and large,export-oriented firms are anticipated to increase production and potentially boost exports.Further,subsidies may facilitate trade by addressing market failures and overcome the fixed costs of exporting and importing,while also reshaping firm-

39、level productivity and industry-level comparative advantage,thereby influencing trade patterns.And as the crowding-in effect from government spending into corporate investment continues,firms start to count on this capital payout.In 2023,firm-specific subsidies range between 23%of total subsidies in

40、 the EU27 and 51%in the US.This may lead to an advantage of firms receiving capital payouts over those cautious of state intervention.Moreover,industrial policies in one country can often provoke a response from others that can neutralize the intended effects.The introduction of a new subsidy by Chi

41、na may 619 June 20247 7prompt a 92%probability response from the EU27 and 71%from the US within a year.Conversely,when the EU27 or the US introduce a new subsidy,China shows an 87%and 82%response rate within a year,respectively.Fiscal capacity is a significant factor in financing industrial policy.P

42、rivate investors frequently do not reap the full societal benefits of innovation,resulting in inadequate research and development,especially in areas of fundamental interest.This indicates a need for public policy to fill this gap.Many major economies have thus adopted more targeted industrial polic

43、ies aimed at fostering innovation in specific sectors and restricting international technology diffusion,prompted by economic and national security concerns.In 2023,subsidies made up 0.3%of GDP in EU27 economies on average,with a large dispersion of 0.1%in Sweden,0.9%in France or 3.7%in Germany,whil

44、e subsidies constituted 0.9%of GDP in the US and are estimated to make up more than triple the size in China.Advanced economies with higher growth and per-capita incomes typically have more flexibility to offer corporate subsidies,whereas developing countries often rely on import barriers.Small and

45、less affluent countries find it particularly challenging to compete in industrial policies with large and rich nations.However,even developed countries are more and more constrained by large budget deficits and high levels of public debt.Sizable fiscal pressures loom large from geopolitical tensions

46、 shifting priorities to defense and security,climate change with a focus on the green transformation and population aging.In a world with fiscal limitations,fostering long-term growth requires well-thought-out fiscal policies that promote innovation and the broad spread of technology.But when design

47、ing policies,governments need to keep in mind that the fiscal costs of industrial policies can introduce economic distortions due to higher taxation or costs due to lower government spending in other areas.Box 1:Industrial policies:past and presentIn recent history,the experiences of the US,Japan an

48、d China offer key insights into the efficacy,impact and pitfalls of industrial policies.Before the very recent resurgence,the US already had a long history of industrial policies,which was particularly evident in the post-World War II era.For instance,the Defence Advanced Research Projects Agency(DA

49、RPA),established in 1958,was key in driving several ground-breaking innovations.To name a few,DARPAs investments have led to technologies such as the internet and GPS.These advancements not only bolstered national security and served a military purpose but also led to commercial applications that pa

50、ved the way to billion-dollar markets.Japans post-war economic miracle is also often associated with its effective industrial policies.The Ministry of International Trade and Industry(MITI)played a key role in coordinating economic development and implementing some key policies for Japans auto and e

51、lectronics sectors through subsidies and protectionist measures,and by brokering strategic alliances.Indeed,the Japanese government fostered cooperation between businesses,universities and research institutions,creating a robust innovation ecosystem.MITIs support in adopting lean manufacturing techn

52、iques was key for the auto sector,which improved productivity but also became a global leader in quality and efficiency.Interestingly,back in the 1980s,the US was facing fierce competition from Japan in the semiconductor and electronics segment,which led the US government to launch the Semiconductor

53、 Manufacturing Technology(SEMATECH)consortium,a public-private partnership aimed at strengthening the US semiconductor industry through coordinated R&D efforts.By pooling resources and knowledge,SEMATECH played a crucial role in regaining the technological lead from Japan.These policies laid the gro

54、und for nascent small firms to grow substantially.Intel and Sony,to name one example from each country,went from start-ups to global players thanks to these policies.In this context,the recent CHIPS act and US policies seem to echo that period.China,the new powerhouse forcing everyone back into indu

55、strial policyIn recent years,China has emerged as a global economic powerhouse;its aggressive industrial policies are also a key ingredient behind the countrys success.The country has managed to incorporate both a“traditional”strategy for its industrial policy and a“innovative”one at the same time.C

56、hina has been spending big on traditional industries such as metals sector or construction which both account for large numbers of employees.But in addition,it has managed to foster innovation and start-ups in specific sectors and products.For instance,the“Made in China 2025”initiative,launched in 2

57、015,aimed at upgrading Chinas manufacturing capabilities and reducing its dependency on foreign technology.Many experts to attribute the large advancements the country has made in key sectors,including robotics,aerospace,solar panels and electric vehicles,to this.Chinas approach involves substantial

58、 government investment,subsidies and strategic partnerships.For example,in the electric vehicle(EV)sector,the Chinese government has provided generous subsidies and incentives to both manufacturers and consumers.As a result,China now leads the world in EV production and sales.Another example is Chin

59、as Belt and Road Initiative(BRI),which illustrates its strategic use of industrial policy to expand economic influence.By investing in infrastructure projects across Asia,Africa and Europe,China not only secures access to critical resources but also promotes the internationalization of its industrie

60、s.Recent industrial policies:hitting several birds with one stone through strong conditionalitiesIndustrial policies,such as the IRA,are designed to address a broad range of targets.Similar to previous industrial policies,the IRA seeks to promote innovation,job growth and economic development,while

61、also addressing sustainability and social goals.A key focus of the IRA is facilitating the shift towards a low-carbon economy in the US.This involves substantial investment in projects that advance green technologies in an environmentally responsible manner.Compliance with stringent environmental st

62、andards is required for green projects seeking IRA funding.Moreover,the IRA aims to boost domestic employment and ensure fair wages by imposing specific conditions on these fronts.Projects seeking IRA funding must meet a domestic content requirement for materials like steel and iron,as well as other

63、 manufactured goods,to support US-based businesses.Additionally,the IRA includes provisions related to fair wages and apprenticeship programs.By linking subsidies to criteria related to sustainability,fair wages,domestic job creation and equity,the IRA not only accelerates the transition to clean en

64、ergy but also ensures that this transition benefits a wide range of Americans.This strategy demonstrates how industrial policies can be utilized to achieve diverse objectives effectively.Allianz Research819 June 20249 9Box 2:Green subsidies to operationalize the green transitionGovernments worldwide

65、 are using green subsidies to support the transition to a sustainable economy,particularly in response to market failures.Green subsidies can guide businesses and consumers towards cleaner technologies when carbon emissions are undervalued,or carbon pricing is lacking.Many of the recently implemente

66、d and planned industrial policies are less focused on economic growth,job creation and competitiveness,designed rather to achieve climate goals,secure supply chains and push past the technological frontier(Figure 6).The likelihood of achieving these goals is relatively high.Figure 6:Green subsidies

67、as share of total subsidies,in%in 2023Sources:GTA NIPO,Allianz Research.0554045Low Carbon TechnologyHydrogenCritical MineralsEU27ChinaUnited States ofAmericaGlobalA large piece of climate changerelated industrial policy is the US IRA,but Europe is at the forefront and is scaling up its gr

68、een subsidies.The IRA aims to reduce emissions by up to 20pps,a significant step towards the USs climate goals.However,its reliance on all carrots,no stick may lead to inefficiencies as companies can receive tax credits regardless of emission reductions.The European Net-Zero Industry Act is part of

69、the European Green Deals effort to make Europe climate-neutral by 2050.The Act focuses on creating a supportive regulatory environment,securing funding,developing skills for the transition to net-zero and ensuring resilient supply chains through open trade.Europe plans to boost EU funding by realloc

70、ating resources from programs like REPowerEU,the InvestEU Program and the Innovation Fund,as well as increasing overall financing.An additional EUR25.4bn will be added to the existing EUR225bn under REPowerEU,which encourages one-stop-shops for approvals,tax breaks and workforce reskilling.The Inves

71、tEU Fund provides guarantees for sustainable infrastructure and R&D investments,with EUR11.37bn available for 2024-2027.The Innovation Fund supports cleantech through competitive bidding,including financing for wind projects under the EU Wind Power Package.The EIB announced increased support for cle

72、an investments to EUR45bn by 2027,including de-risking guarantees for wind projects.A pilot auction was held to award EUR800mn in funds to renewable hydrogen producers in Europe.Overall,these initiatives aim to accelerate the transition to a green economy and achieve climate goals in Europe.Green in

73、dustrial policies and investments in green industries aim at reducing greenhouse gas emissions through subsidies for green technology innovation but they can be counterproductive.While they may not be as efficient as price-based measures,protectionist actions could impede the green transition and in

74、ternational trade relations.Green growth necessitates industrial policies to expedite the shift,alongside carbon pricing.A well-designed mix of policies supporting new technologies and sectors,reducing emissions without immediate carbon pricing,along with complementary measures addressing competitiv

75、eness concerns,is essential to prevent unintended consequences and market failures.This approach can facilitate the transition of carbon-intensive sectors towards greener paths,advancing a resilient global economy while preparing for future environmental challenges.9Allianz Research10Is industrial p

76、olicy good for investors and businesses?Transition-related and tech sectors stand to gain the most from industrial policies.Recent industrial policies have increasingly targeted sectors deemed critical for future growth,technological leadership,environmental sustainability and economic sovereignty.T

77、hese sectors include low-carbon technologies,metals(including steel,aluminum and critical materials),advanced technologies,semiconductors and defense-related sectors(Figure 7).As the world shifts towards a low-carbon economy,green technologies have become a primary focus of industrial policies.Gover

78、nments are heavily investing in renewable energy sources such as wind,solar and hydroelectric power.Lithium,cobalt and rare earth elements are essential for the production of high-tech devices and green technologies,including batteries for EVs and energy-storage systems.Due to this strategic importa

79、nce,countries are implementing policies to secure supply chains and reduce dependency.The recent breakthroughs in artificial intelligence(AI)and quantum computing have also kicked off a race for adoption and further research to gain a decisive competitive edge.Governments are investing in R&D and cr

80、eating conducive environments for innovation in these fields.For example,the US has launched the National AI Initiative to maintain its leadership in AI,while Chinas AI policy aims to make it the world leader in AI by 2030,supported by vast state funding and private sector partnerships.Just like met

81、als for green tech,advanced technologies and AI will require a large and high-quality semiconductor supply.Semiconductors are critical for a wide range of technologies,from consumer electronics to military systems.Countries are enacting policies to bolster their semiconductor industries and western

82、countries are also engaged in“semiconductor war”to counter Chinas growing ambition in the sector.In addition,biotechnology and medical products,especially in the wake of Covid-19,have seen substantial investment globally,alongside defense-related investments.Countries are striving to advance their c

83、apabilities in medical technologies and products including very basic ones such as protective masks.And in the context of rising geopolitical tensions and conflicts both in Ukraine and the Middle East,defense-related industrial policies and investments are also in the rise.Figure 7:Trade distortive

84、industrial policies by sector implemented in 2023,cumulative number of measuresSources:Evenett et al.(2024),Allianz Research.020040060080000Jan-23Mar-23May-23Jul-23Sep-23Nov-23Low Carbon TechMilitary/Civilian Dual UseSteel&AluminumCritical MineralsAdvanced TechSemiconductorsMed

85、ical ProductsOthers19 June 20241111Corporates operating in these sectors will likely experience a boost in terms of revenues and investments thanks to government support.Some firms,especially multinationals,will also be required to“make a choice”or re-think their geographic allocation and reach as t

86、hey might have to choose between competing and conflicting subsidies.For instance,semiconductor firms might need to choose carefully between setting up shop in the US to benefit from the CHIPS act at the risk of losing business China or the other way around.A profitability boost is also in sight for

87、 targeted sectors but all players will not benefit to the same extent.Industrial policies offer subsidies and tax credits among other incentives.In the US,the IRA offers tax credits for manufacturers and especially to manufacturers in green technologies such as renewables,battery production etc.It i

88、s expected that the average renewable/green tech manufacturer could see its gross profit margin double by 2025 compared to a baseline without tax credits(Figure 8).Investors are likely to play the commodities playbook at the expense of corporates and consumers.Surging for key metals such as lithium,

89、cobalt,nickel,and copper reflect growing demand and investor interest amid concerns about supply constraints.For example,lithium prices saw a dramatic rise in 2021 and 2022,driven by the booming electric vehicle market.The price of lithium carbonate,a key form of lithium used in batteries,increased

90、from about 7000 USD/mtn in 2020 to over 70000 USD/mt in 2022.Likewise,cobalt prices have also experienced significant volatility.After peaking in 2018 due to high demand and limited supply,prices fell but started to rise again as the EV market continued to expand.Copper has also seen sustained price

91、 increases.The supply-demand gaps for these metals are becoming increasingly evident.For instance,the anticipated demand for lithium by 2030 could outstrip supply by 1.7 times,creating significant opportunities for investors in lithium mining and processing.Similarly,new mining projects for cobalt,n

92、ickel and copper are urgently needed to avoid future shortages and price spikes.This could prove to be a successful investment but it would imply higher prices for corporates and consumers,as we highlighted in our previous research.The“five Ds”of structurally higher inflation,Feb.2023,Allianz Resear

93、ch.Figure 8:Gross profit margin for the average US renewable/green manufacturer,2018=100Sources:Morgan Stanley,Allianz Research.0020024Baseline-No tax creditsWith tax creditsAllianz Research12The greenium could reduce further.In 2023,USD575bn worth of green bonds were issued,wi

94、th corporates accounting for about two-thirds of issuances.Investors are enthusiastic about these assets and most issuances exhibited very strong bid-to-cover.But due to this strong investor demand and thanks to their commitment to environmental targets,the greenium(i.e.,the green premium associated

95、 with green bonds)is estimated to be negative(Figure 9).The greenium is lowest for USD denominated bonds.Ongoing green industrial policies could potentially reduce further the risk of green bonds and improve even more their attractiveness,thereby reducing further the greenium.Large corporates lookin

96、g to finance projects that are eligible for industrial policy subsidies could benefit from significantly lower financing costs through green bonds.This could be even more pronounced for USD bonds.Figure 9:Evolution of greenium for selected currencies,bpsSources:Ben Slimane et al.(2023),Allianz Resea

97、rch.-6-5-4-3-2-10All CurrenciesEURUSDNon-EUR2002219 June 20241313Higher anticipated profitability is expected to boost capital expenditures as companies gain clarity on the potential returns from expanded production.However,in the case of the US,renewable project developers might not see

98、such significant profit increases.Developers can earn the“domestic content”credit from the IRA only if they purchase components from the currently limited number of US manufacturers of green technology.This high demand will allow manufacturers to charge premium prices,potentially diminishing the tax

99、 credit benefits for developers at least until domestic manufacturing capacity expands and the pricing power of existing ones diminishes.Beyond these sectoral differences,evidence from China indicates that targeting the right firms when designing industrial policy can also impact the sectors profita

100、bility.Chinese industrial policy often established“white lists”of firms that could be recipients of subsidies,but those selections can be biased and sub-optimal in Figure 10:Ship manufacturing industry profits in China under different“white lists”Sources:Barwick et al.(2019),Allianz Research.3035404

101、5505560652014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Optimal White List without subsidiesActual White ListOptimal White Listterms of raising the industrys overall profits(Figure 10).Too much investment can also be bad.Investment can eventually turn into over-invest

102、ment.Evidence from China reveals that industrial policies have had mixed effects on investment efficiency.The primary mechanisms driving this inefficiency are government subsidies and increased inter-industry competition.Firms receiving subsidies may over-invest in less productive areas due to the a

103、vailability of easy capital,leading to an inefficient allocation of resources.Furthermore,intense competition and the rush to benefit from these policies can lead to redundant investments,exacerbating inefficiency.See for instance Wang et al.(2023)or Zhou and Zhao(2022).Allianz Research14Figure 11:C

104、HIPS grants by firm,USD bnSource:CSIS,Allianz Research.Large corporates are taking the lions share of receipts.Industrial policies are intended to benefit a wide range of businesses,from small start-ups to large corporations.However,in practice,large corporates tend to capture most of these benefits

105、,leveraging their substantial resources,lobbying power and established market positions to maximize their receipts.Large corporations have extensive resources and dedicated teams to overcome red tapes in application processes for subsidies and grants.They also have the financial positions to meet th

106、e requirements and upfront costs that often come along with these policies.For instance,under the IRA in the US,substantial subsidies and tax incentives are available for clean energy projects.While these incentives are theoretically accessible to all,large corporations with established project pipe

107、lines and financial clout are better positioned to secure and benefit from these funds.The European Investment Bank reports that major energy companies and industrial giants are the primary recipients of financing aimed at transitioning to renewable energy and improving energy efficiency.Furthermore

108、,large corporations often engage in extensive lobbying efforts to ensure that the structure of industrial policies aligns with their strategic and operating interests.In the US,large tech companies and automotive giants have been particularly active in lobbying for favorable terms under the IRA.As a

109、 result,75%of the CHIPS program grants have been allocated and seven very large global firms will benefit from these receipts totaling to slightly above USD29.3bn(Figure 11).Such outcome raises the question of unintended crowding-out effects from industrial policies that could lead to longer-term ch

110、allenges.See for instance Wang et al.(2023)or Zhou and Zhao(2022).19 June 20241515The EU faces a conundrum when it comes to industrial policy.The bloc has set an objective to achieve the green transition,but it is also committed to maintain its single market;it would like to foster innovation and br

111、ing up European champions but member states want to retain some control over policies since they are key for jobs and national economies.The establishment of the Single Market in 1993 was a pivotal moment,aiming to eliminate barriers to trade in Europe and create a more competitive environment.This

112、integration facilitated economies of scale,increased competition and attracted foreign investment.Nevertheless,it has substantially complicated the implementation of industrial policies in the EU as national policies can distort competition in the bloc.Moving swiftly towards green and digital transi

113、tions is also hard to reconcile with industrial policies.For instance,Chinese solar panels and EVs are cheaper.Should the EU buy Chinese products to get greener or should it try to foster European industries,but face the risk of slowing down the transition?The EU has launched industrial alliances in

114、 semiconductor technologies,hydrogen,industrial data,space launchers and zero-emission aviation.The EU Industrial Strategy,introduced in March 2020 and updated in early 2021,focuses on supporting the digital and green transitions.It emphasizes strategic autonomy,supply-chain diversification and the

115、resilience of the Single Market in 14 key sectors through international partnerships and industrial alliances,sharing the development burden with the private sector.Supported by the EU Hydrogen Strategy and EU Chips Act,these initiatives aim to achieve targets like producing 10mn tons of green hydro

116、gen by 2030,establishing a hydrogen energy ecosystem and securing a 20%share of the global microchips market(currently 9%).The EU is establishing an EU Hydrogen Bank to facilitate private investment,and sustain production and infrastructure development.The Chips Act focuses on knowledge transfer,col

117、laboration enhancement among EU economies and monitoring semiconductor supply chains for crisis management,with plans for EUR43bn of public and private investments.Squaring the circle in the EU16Allianz ResearchAnother key EU industrial policy tool aimed at achieving these goals is the Important Pro

118、ject of Common European Interest(IPCEI),launched in 2018.IPCEIs support cross-border innovation and infrastructure projects to boost economic growth,job creation and the green and digital transition and competitiveness of the EU industry.Through IPCEIs,EU member states can provide state aid to speci

119、fic sectors or cross-border infrastructure,totaling about EUR80bn in approved investments across the chips,battery and hydrogen sectors.To promote the development and deployment of clean technologies in Europe,the EU allocated 32.6%of the total EU budget between 2021 to 2027 toward climate action.Th

120、e challenge is that the EU climate funding is spread over many different envelopes in the budget.The Net-Zero Industry Act(NZIA)supports the Green Deal Industrial Plan for the Net-Zero Age as part of the European Green Deal aiming for climate neutrality by 2050.It focuses on regulatory simplificatio

121、n,funding access,skills development and resilient supply chains.Further funding sources include REPowerEU,InvestEU and the Innovation Fund.Overall,the EU has a significant amount of funding available for clean energy subsidies,comparable to the US IRA,even without the European Sovereignty Fund.Howev

122、er,the EUs approach of technological neutrality and letting the market decide investments has led to less targeted and certain support,favoring established industries over innovative technologies.This has hindered the scaling up of innovation,with the EU lagging behind the US in cleantech venture ca

123、pital investment,or even just the creation of jobs or the construction of new plants(Figure 12).Figure 12:CHIPS grants by firm,USD bnNotes:For the US:Total private construction spending:Manufacturing in USD mn,monthly,seasonally adjusted(US Census Bureau)price adjusted with the producer price index

124、for intermediate demand“materials and components for construction”(Bureau of Labor Statistics).For Germany:Estimated costs,building permits for factory and workshop buildings(Destatis),price-adjusted with construction price index for commercial buildings,construction work on buildings(Destatis).Sour

125、ces:LSEG Datastream,Allianz Research.05002000222024USDE19 June 202417In determining where EU politicians should prioritize industrial policy interventions,countries with low greenhouse gas(GHG)emissions and high carbon prices serve as key indicators for addressing cl

126、imate change and green technologies effectively.A good indicator is the Climate Change Performance Index,where Denmark leads,followed by Estonia,the Netherlands,Sweden,Portugal and Germany,while Poland,Czech Republic,Hungary,Bulgaria,Italy,Ireland and Cyprus lag.But despite this,the top categories r

127、emain empty as all countries must speed up the green transformation and need support from industrial policy to transform the industry.Looking at carbon prices and greenhouse-gas emissions(GHG),we find that countries in the lower right quadrant should be the ones targeted by policymakers,namely high

128、GHG emitters with carbon prices below the European ETS price of USD61.3(Figure 13).These include Germany,France,Spain,Italy and Poland.The top sectors contributing to EU emissions in 2023 include industry(26.0%),energy supply(22.3%),agriculture(17.2%),domestic transportation(15.9%)and buildings(11.1

129、%).While EU27 emissions decreased by-22.1%from 2010 to 2023,sectors such as domestic transportation and agriculture require more attention.Policymakers are urged to target high-productivity and high-value-added sectors over competitive industrial policies within the EU.However,varying frameworks acr

130、oss EU countries create competition for attracting top companies.Balancing these factors is crucial for achieving strategic competitiveness and climate goals,and for fostering resilience in supply chains across the EU.One notable example of successful industrial policy in Europe is the Airbus consor

131、tium.Formed in 1970 as a collaboration between France,Germany,Spain and the UK,Airbus received significant government support to compete with the American giant Boeing.Through coordinated R&D efforts,subsidies and political backing,Airbus transformed into the only major competitor,capturing a signif

132、icant share of the global commercial aircraft market.The example of Airbus embodies some of the key factors that make an industrial policy successful:it fostered government-private sector collaboration,leveraged strategic investments in R&D and encouraged innovation ecosystems.It was also adapted to

133、 meet a benchmark in global competitiveness.Moreover,in the European context,it was an industrial effort that mutualized and pulled together existing industrial capacities without creating competition among the bloc.Figure 13:Carbon prices(in USD)as of 1 April 2024 and GHG emissions(in mn tons)in 20

134、23Sources:World Bank,Eurostat,Allianz Research.AUTBELCYPDNKESTFINFRADEUHUNIRLITALVALUXNLDPOLSVNESPSWE02040608000200300400500600700800Carbon price in USD/tCO2eGHG emissions in mn tonnesEU average emissionsEU ETS=61.3 USD1818Allianz ResearchDrawing from past experiences,insights from other

135、countries and ongoing policy debates,the EU needs to get ahead of the curve and must proactively design smarter forward-thinking industrial policies.This entails more than just responding to external policy trends;it requires innovation and the establishment of an ecosystem that fosters technologica

136、l advancements essential for addressing future challenges.By elevating companies and industrial sectors within the value chain that are currently lagging but crucial for future progress,the EU can position itself as a leader in shaping a dynamic and competitive industrial landscape,holding tight the

137、 principle of subsidiarity.To do so,we believe Europe needs to follow the following principles:Horizontal policies:When implementing industrial policies,many countries took an“industry”or“sector”approach in the past.Nevertheless,we believe that policies should be horizontal and based on households a

138、nd firms needs,aimed at improving overall framework conditions.Even though the EU defines its industrial policy as horizontal by nature,many policies implemented by EU member states over the last years were rather vertical or targeted ones that favored a specific sector or firm.Moving forward,the EU

139、 should remind itself of the horizontal approach to spur growth and master the green transformation.For instance,it should not come up with a plan solely for automotive but should rather design a policy for mobility considering the need for EVs but also other factors from the electricity and grid de

140、velopment necessary for charging stations to public transportation policy to alternative mobility options.Coordinated policies considering member states specializations and taking advantage of complementarities:For industrial policy to be efficient,it must be coordinated so that member states indust

141、ries can complement each other.For example,both France and Germany have strong auto industries;if they were to both implement strong EV policies for their respective industries,it could result in a net loss.Historically,both countries sectors thrived as they specialized in different segments(high-en

142、d for Germany versus entry/medium level for France).Policies need to be coordinated so that these specializations in products but also target markets remain and countries do not compete with one another on the same products and market segments.Responsibilities as well as profits needs to be shared.F

143、urthermore,policies should build on countries existing technological and economic capabilities.Policymakers should target where it makes the most sense and difference to strengthen competitiveness.For instance,fostering the production of lithium batteries requires several steps from refining metals

144、to cell component manufacturing to cell manufacturing to battery system manufacturing.These processes could be split and coordinated across Europe,in different countries,making the best use of each countrys strengths.Implement strong conditionality of public support without increasing red tapes:Rece

145、nt EU industrial policies lack clear conditions.Tying public support to specific conditions is not about creating more bureaucracy,but about moving away from a programmatic approach.Making these conditions explicit would unlock sustainable and fair economic growth.We propose linking incentives like

146、subsidies or tax breaks to production outcomes,social criteria and sustainability standards(EU employment,low carbon policies from corporates etc.).This is crucial for the efficient use of state funds and effective policy implementation in EU industries.Policymaker accountability and multiple stakeh

147、olders:As for any public policy,industrial policy should have a set of KPIs(production of goods and services,CO2 avoided,industrial capacity created etc.).Policymakers should be accountable for achieving targets and improving these KPIs.Furthermore,these KPIs and targets should be set through a dial

148、ogue with multiple stakeholders including civil society and scientists to avoid opaque discussions with corporate experts.Place innovation ecosystem at the core and think“two steps ahead”:Europe should design smart industrial policies that do not run“behind”the two other major blocs(US,China).Instea

149、d of developing large manufacturing capacities for products in which European firms do not have a technological or competitivity edge(eg.chips or EV factories),Europe could invest massively in autonomous car software development or next generation batteries or fabless chip design etc.Such policies w

150、ould have the advantage of betting on a leap forward instead of playing catch-up.Sharing risks and profits with the private sector through blended industrial policy:Industrial policy cannot only de-risk private investment and not provide the taxpayers profits(beyond the positive externalities aimed

151、by the policies).One way to achieve this is by having closer collaboration between public and private sectors.There are several options for this,from increased public equity in private companies to more public-private partnerships(PPPs)to mixed funding mechanisms.19 June 202419ALLIANZ RESEARCHteamOu

152、rChief Economist Allianz SELudovic SAna Boataana.boataallianz-Arne HHead of Economic Research Allianz TradeHead of Insurance,Wealth&Trend ResearchAllianz SEFranoise HuangSenior Economist for Asia Pacificfrancoise.huangallianz-Manfred StamerSenior Economist for Middle East&Emerging Europemanfred.stam

153、erallianz-Luca MonetaSenior Economist for Emerging Marketsluca.monetaallianz-Macroeconomic ResearchMaxime LemerleLead Advisor,Insolvency Research maxime.lemerleallianz-Ano KuhanathanHead of Corporate Researchano.kuhanathanallianz-Corporate ResearchMichaela GrimmSenior Economist,Demography&Social PKa

154、thrin StoffelEconomist,Insurance&WPatricia Pelayo-RomeroSenior Economist,Insurance&ESGpatricia.pelayo-Insurance,Wealth and Trends ResearchPablo Espinosa UrielInvestment Strategist,Emerging Markets&Alternative Assetspablo.espinosa-Capital Markets ResearchMarkus ZimmerSenior Economist,ESGJordi Basco C

155、arreraLead Investment Strategistjordi.basco_Maria LatorreSector Advisor,B2Bmaria.latorreallianz-Maxime Darmet CucchiariniSenior Economist for US&Francemaxime.darmetallianz-Maddalena MartiniSenior Economist for EBjoern GriesbachSenior Investment Strategist and Eurozone Economist Patrick HoffmannEcono

156、mist,ESG&AIYao LuSector Advisoryao.luallianz-Jasmin GrschlSenior Economist for E19 June 202421Recent PublicationsDiscover all our publications on our websites:Allianz Research and Allianz Trade Economic Research14/06/2024|What to watch 13/06/2024|Climate change and the double impact of aging06/06/20

157、24|What to watch 04/06/2024|What to expect from the European elections 31/05/2024|What to watch 29/05/2024|Allianz Pulse 2024:What unites and separates the demos of Europe16/05/2024|What to watch 23/05/2024|Allianz Global Insurance Report 2024 16/05/2024|What to watch 14/05/2024|Allianz Trade Global

158、 Survey 2024:Mithridatism 03/05/2024|What to watch 30/04/2024|Ashes to ashes,carbon to soil26/04/2024|What to watch 22/04/2024|Global outlook for private debt&private equity:private(r)for longer?18/04/2024|What to watch17/04/2024|Latin America:Shall we dance?11/04/2024|The best is yet to come 11/04/

159、2024|What to watch05/04/2024|What to watch 04/04/2024|The cost of pay me later 26/03/2024|Economic Outlook:Its a wrap!22/03/2024|What to watch 21/03/2024|Global Auto Outlook 14/03/2024|What to watch 13/03/2024|Trumponomics:the sequel07/03/2024|What to watch 06/03/2024|When the penny drops-analyzing

160、longevity literacy in six countries29/02/2024|What to watch 28/02/2024|Global insolvency outlook:Reality check22/02/2024|What to watch 16/02/2024|What to watch 14/02/2024|European labor markets:Migration matters08/02/2024|What to watch 07/02/2024|China:keeping the Dragon awake02/02/2024|What to watc

161、h 31/01/2024|Country Risk Atlas 2024:Assessing non-payment risk in major economies26/01/2024|What to watch 24/01/2024|Europe needs to step up its game-Lessons from the American playbook19/01/2024|What to watch 16/01/2024|Allianz Risk Barometer-Identifying the major business risks for 2024 11/01/2024

162、|What to watch2222Director of PublicationsLudovic Subran,Chief EconomistAllianz ResearchPhone+49 89 3800 7859Allianz Group Economic Researchhttps:/ 28|80802 Munich|GallianzallianzAllianz Trade Economic Researchhttp:/www.allianz- Place des Saisons|92048 Paris-La-Dfense Cedex|Franceresearchallianz-all

163、ianz-tradeallianz-tradeAbout Allianz ResearchAllianz Research encompasses Allianz Group Economic Research and the Economic Research department of Allianz Trade.Forward looking statementsThe statements contained herein may include prospects,statements of future expectations and other forward-looking

164、statements that are based on managements current views and assumptions and involve known and unknown risks and uncertainties.Actual results,performance or events may differ materially from those expressed or implied in such forward-looking statements.Such deviations may arise due to,without limitati

165、on,(i)changes of the general economic conditions and competitive situation,particularly in the Allianz Groups core business and core markets,(ii)performance of financial markets(particularly market volatility,liquidity and credit events),(iii)frequency and severity of insured loss events,including f

166、rom natural catastrophes,and the development of loss expenses,(iv)mortality and morbidity levels and trends,(v)persistency levels,(vi)particularly in the banking business,the extent of credit defaults,(vii)interest rate levels,(viii)currency exchange rates including the EUR/USD exchange rate,(ix)cha

167、nges in laws and regulations,including tax regulations,(x)the impact of acquisitions,including related integration issues,and reorganization measures,and(xi)general competitive factors,in each case on a local,regional,national and/or global basis.Many of these factors may be more likely to occur,or

168、more pronounced,as a result of terrorist activities and their consequences.No duty to updateThe company assumes no obligation to update any information or forward-looking statement contained herein,save for any information required to be disclosed by law.Allianz Trade is the trademark used to designate a range of services provided by Euler Hermes.