The pandemic, the intensifying geopolitical collisions between the US and China, and the wars in Ukraine and the Middle East are reversing decades of globalisation as Western economies scramble to “onshore,” “re-shore” and “friend-shore” strategic activities.
Some industry policies can be justified if they support sectors which generate strong knowledge spillovers to the domestic economy or drive green innovation, but policies had to be designed to avoid wasteful spending and protectionist measures that could further fragment global trade, the IMF paper said.
In other words, both the IMF and the Fed’s New York branch have concluded that the new protectionism can carry significant economic costs.We already know that from the direct experience of throwing billions of dollars of taxpayer funds in the futile attempt to try to prop up the local car manufacturing sector during the 1980s, 1990s and into the middle of the last decade.
China produces almost 80 per cent of the world’s solar panels and most of the components used in their fabrication, the most important of which is polysilicon, which is extremely energy-intensive. Its scale, government-subsidised investment in leading-edge solar technologies, cheap brown coal and, more recently, vast solar farms provide it with a massive competitive advantage.