From Washington to Beijing, governments are rediscovering industrial policy. But no matter how much a nation subsidizes, plans, or protects, its success still depends on the same forces that have governed markets for centuries: supply, demand, and competition.
Industrial policy can shape who steps into the ring, but once there, the fight is market-driven.
This reality has an unavoidable implication for national policy: no nation can thrive in a market it refuses to emulate; beyond its borders, there is no government setting prices or protecting favorites, only market forces that reward true efficiency.
The World Still Runs on Markets
Even as industrial policy has come roaring back — from U.S. President Joe Biden’s CHIPS Act and Inflation Reduction Act to China’s Belt and Road investments — the ultimate arbiter of value remains the global market. Prices, productivity, and consumer choice determine who wins, not ministerial decrees.
A firm that thrives under subsidy but cannot compete abroad is not competitive at all. The global market functions as a relentless meritocracy, rewarding efficiency, innovation, and adaptability. National economies that shield their industries from this pressure only delay the inevitable reckoning.
China’s Mirage of Competitiveness
China’s economic model, long celebrated as a hybrid of state control and capitalist dynamism, is increasingly showing its cracks. As Dr. Desmond Lachman of the American Enterprise Institute warned in 2024, Chinese growth has slowed to 4.75%, roughly half its former pace. The model that powered China’s rise — investment-heavy, export-dependent, and debt-fueled — has reached its limits. Without major reforms to boost domestic consumption, Lachman cautioned, China risks a “Japanese-style lost decade.”
A June 2025 Bruegel report, Ten Challenges Facing China’s Economy, reaches a similar conclusion. It describes an economy caught in a web of deflation, overcapacity, and stagnating domestic demand. China’s official fiscal deficit has widened to 4% of GDP, yet most of that new debt merely refinances local governments rather than stimulating consumer spending.
The report notes that China continues to produce far more than it can consume, forcing it to “export its way out” of structural weakness. But that export-driven strategy is colliding with growing Western protectionism and with the limits of global demand.
Beneath those headline figures lies a deeper structural malaise. China’s manufacturing investment continues to rise even as returns on both state-owned and private enterprise assets decline. The country’s household savings rate, at 44% of GDP, remains the world’s highest, reflecting not thrift but insecurity — a lack of social safety nets, pensions, and unemployment protections. President Xi Jinping has dismissed welfare reform as “welfarism,” preferring to expand state direction rather than allow market-based consumption to flourish.
The result is an economy running on borrowed competitiveness — expanding output without increasing productivity or consumer welfare. The same industrial policies once credited with China’s rise are now impeding the efficiency, innovation, and openness that markets require. As Bruegel concludes, Beijing’s strategy of capacity expansion “does not seem to be tackling the root causes” of slowdown, and only structural liberalization can restore balance.
China’s apparent competitiveness, in other words, is less a durable advantage than a mirage, a temporary strength built on credit and compulsion rather than on efficiency and freedom.
Singapore: Freedom with a Strategy
Contrast that with Singapore. It’s fashionable to call the city-state a model of “state capitalism,” but the Fraser Institute’s 2025 Economic Freedom of the World Report tells a more precise story: Singapore ranks second globally in overall economic freedom, with near-top scores for freedom to trade internationally and regulatory openness.
Singapore’s government is active but market-conforming — it builds infrastructure and invests in education without picking winners. Its domestic market mirrors the pressures of the global one — and that’s precisely why Singaporean firms compete, and win, on the world stage.
What makes Singapore even more remarkable is its competitiveness relative to size. With fewer than six million people, the nation ranks among the top economies in per capita GDP and global trade integration, exporting goods and services worth nearly twice its GDP each year. In practical terms, each Singaporean worker contributes more to global output than their counterparts in almost any other country. Singapore’s system magnifies the power of scale through efficiency, openness, and institutional design — showing that market freedom can substitute for population size as a source of strength.
Markets as Discipline, Not Dogma
The lesson here is not ideological but practical. When a nation’s internal economy is as competitive as the global one, its firms grow resilient. When it is distorted by subsidies, protectionism, and bureaucratic favoritism, its firms grow soft.
America’s own turn toward industrial policy — through tariffs, government stock stakes in private firms, and reshoring incentives — risks repeating the same errors it criticizes abroad. Protection and ownership may buy breathing room, but in the long run they erode efficiency and dull competitive instincts. A dynamic economy doesn’t need insulation; it needs confidence in its own market strength — grounded in open trade, reliable energy, smart regulation, and education systems that empower workers to adapt.
This doesn’t mean abolishing all strategic policy — defense industries, critical technologies, and infrastructure warrant coordination. But those interventions should serve to enhance competitiveness, not shield inefficiency. The goal is not laissez-faire for its own sake, but market discipline as a national fitness program.
The global economy is a mirror, reflecting how well America’s own system prepares its firms and workers for competition. When we fog that mirror with protectionism and industrial favoritism, we may buy time, but we lose the clarity that markets demand.
Economic nationalism can feel comforting, but it dulls the edge of our competitiveness. President Ronald Reagan warned in 1987 that when nations “impose tariffs on foreign imports,” they may seem to be acting patriotically, but protectionism breeds complacency, inefficiency, and, ultimately, job losses. His warning proved timeless: markets reward innovation, not insulation.
To lead in a free global marketplace, the United States must keep its own economy free, open, and disciplined at home.
