The Global South must redefine industrial policy to build new productive capabilities and address escalating global challenges.
The global economy is undergoing a profound transformation, moving away from the neoliberal globalisation that defined international economic relations from the 1980s until the 2008 financial crisis. This shift is driven by the climate emergency, the digital revolution, rising military tensions, and an escalating trade war involving the United States, the European Union, and China. This conflict extends beyond tariffs, encompassing the race for critical minerals, control of digital platforms, the restructuring of global value chains, and the appropriation of intellectual property.
This structural conflict has had two major consequences. First, the neoliberal multilateral trade order has been effectively surpassed. Unilateral measures, such as tariffs, investment restrictions, and selective subsidies, have displaced foundational World Trade Organisation (WTO) principles like “Most-favoured-nation” (MFN) and “National Treatment”. New logics, based on national security, strategic autonomy, and geopolitical competition, have taken precedence. Second, the use of industrial policy (IP) instruments, including tariffs, investment regulations, subsidies, and public spending, has become normalised as a legitimate means to strengthen domestic strategic sectors and reconfigure national comparative advantages.
Given the transformation of the international economic order and the renewed emphasis on industrial policy in the Global North, crucial questions arise: How is the Global South positioned within this new context? And what kind of (IP) can be designed from the Global South, considering its structural challenges and peripheral position in the global economy?
The Return of Industrial Policy: A Shifting Focus
The current industrial policy orientation of developed economies is primarily shaped by national security concerns and the goal of strategic autonomy. In the United States, successive administrations have promoted the reshoring or nearshoring of production, particularly away from China, by offering subsidies and incentives to large corporations. Notable examples include the CHIPS Act and the Inflation Reduction Act (IRA). Under the Trump administration, this strategy was largely reduced to a unilateral tariff policy focused on confronting global competitors, especially China.
The European Union, by contrast, has adopted a more fluctuating approach. Initially grounded in environmental sustainability and decarbonisation, European IP has increasingly shifted towards strengthening its military-industrial complex, supported by targeted fiscal spending, credit programmes, and strategic subsidies. In this context, IP in the Global North has taken the form of corporate de-risking, providing regulatory and financial guarantees largely decoupled from labour or environmental requirements to large firms investing in sectors deemed strategic.
The outcomes of this renewed industrial policy remain uncertain. Protectionist strategies without obligations — “carrots without sticks” — combined with weak labour protections and a lack of institutional capacity to steer complex reindustrialisation processes, are unlikely to reverse the long-term erosion of productive capabilities that has occurred over decades of neoliberal deregulation. Furthermore, these policies generate significant collateral effects on the international economic order, particularly for Global South countries and global commons such as the environment.
As Raúl Prebisch warned decades ago, tariffs imposed by advanced economies function, in practice, as indirect taxes on peripheral countries, curtailing their developmental policy space. Today, escalating tariffs and new barriers to investment are undermining global trade, increasing financial market volatility, and feeding a cycle of global economic slowdown, whose impacts are most acutely felt in developing economies.
Moreover, the shift towards national security has overshadowed structural global challenges, including environmental protection, public health, and equity. During the pandemic, both the US and the EU opposed waiving intellectual property rights to allow universal access to vaccines, rejecting proposals put forward by India and South Africa. In the area of investment, while the EU has introduced limited reforms to its investor–state dispute settlement (ISDS) system, the US has retained traditional ISDS clauses in most of its treaties with countries in the Global South. Likewise, both powers have defended the WTO moratorium on tariffs for digital services, thereby enabling the free appropriation of digital data from the Global South by large Northern-based platforms.
In summary, the climate emergency, the trade war, and inequalities constitute critical challenges to the long-term sustainability of economic growth. Yet, the current resurgence of industrial policy in the Global North appears blind to these transformations. By focusing narrowly on rescuing declining national industries and militarising their economies, these strategies risk deepening international fragmentation and reinforcing a zero-sum logic, thereby squandering a pivotal opportunity to collectively rethink the foundations of the global economic order.
A Progressive Industrial Policy Agenda for the Global South
In the context of growing international instability and intensifying geopolitical competition, Latin America risks deepening its subordinate position within global value chains. The region faces a dual trap: a specialisation in low-productivity sectors with high carbon emissions. This situation is exacerbated by its exposure to global disruptions, such as trade wars and technological fragmentation, as well as the escalating climate crisis.
The new global race for control over critical minerals could lock countries rich in copper, lithium, and rare earths into rigid trade agreements, extractive investments with weak local linkages, and development models disconnected from domestic ecosystems. Meanwhile, economies like Mexico and those in Central America are losing ground in light manufacturing to Chinese competition, further entrenching a specialisation in low-value-added activities and low-skilled labour.
This peripheral insertion persists within a region already marked by longstanding structural weaknesses: premature deindustrialisation, low productive complexity, and deep internal gaps in productivity and income, all of which have contributed to volatile and stagnant long-term growth. The fragility of national industrial strategies compounds this. Over the past two decades, industrial policy in Latin America has been inconsistent, subject to political cycles, poorly financed, and limited in its ability to foster technological learning and spillovers. Even during favourable periods, such as the commodity boom between 2003 and 2013, windfall profits were largely spent on redistributive measures decoupled from structural change.
Against this backdrop, a progressive industrial policy agenda for the region must simultaneously build new productive capabilities and address the global challenges currently unfolding. To this end, we propose five strategic dimensions that articulate action across multiple scales.
First, establishing a new deal with respect to foreign direct investment (FDI). While FDI remains a key source of capital, it has primarily targeted extractive sectors or domestic oligopolistic markets in Latin America. Given the region’s market power in critical minerals and renewable energy, it is feasible to leverage this position to negotiate investment frameworks that include technology transfer requirements, local content provisions, high environmental standards, and public–private partnerships. To prevent a regulatory “race to the bottom”, such frameworks should be regional in scope and coordinated among the leading resource-intensive economies.
Second, strengthening regional production networks. In a world of increasing fragmentation and uncertainty, Latin America must deepen its intra-regional trade and investment ties to foster productive autonomy and reduce carbon footprints. Strategic sectors such as electromobility — dependent on minerals such as copper and lithium — could serve as a platform for promoting productive diversification and upgrading within global value chains.
Third, aligning productive regionalism with financial regionalism. Coordinating national development banks (such as BNDES) with multilateral ones (such as CAF) could enable joint investments in key sectors, improving access to capital on favourable terms and enhancing financial autonomy from global financial centres. One idea worth exploring is the creation of intergovernmental public enterprises that act as catalysts of innovation and pioneers in the development of dense and technologically sophisticated production networks (the cases of Airbus and Eurostar in Europe can serve as important examples).
Fourth, ensuring digital sovereignty. Today, digital data flows from the Global South to the North are extracted as raw material by major tech platforms, which then process and repackage them into high-value-added digital services sold back to peripheral markets. These flows constitute a form of public good the use of which must be regulated. Latin American governments — and those in the Global South more broadly — must push for national, regional, and multilateral legal frameworks that secure sovereign control over these strategic digital assets.
Fifth, redefining the institutional architecture of industrial policy. A progressive IP agenda must go beyond correcting market failures or granting subsidies with no strings attached. It should be conceived as a comprehensive institutional architecture that sets the “rules of the game”, redefines market boundaries, and directs accumulation towards collective objectives. This architecture must be socially embedded, with mechanisms for transparency, public deliberation, and participation of labour and civil society. Today, industrial policy in the Global North appears dominated by a centralised military-industrial complex focused on national security, with limited concern for deep decarbonisation or regional employment upgrading. Latin America can provide an alternative: a participatory, sustainability-oriented industrial policy committed to protecting the global commons.
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