Excellent analysis of how industrial policy has evolved from Hamilton's era to today's securitized competition. The connector countries dynamic is particulary underappreciated in mainstream coverage since it flips the usual narrative about smaller economies being squeezed. I've watched Vietnam and Mexico positon themselves almost like arbitrage players between US and Chinese supply chains, extracting concessions from both sides. The question becomes whether this triangulation stays viable once decoupling accelerates further or if they'll eventually be forced to pick sides.
The return of industrial policy through a national security lens feels inevitable given recent shocks, but your point about the uneven consequences is crucial. For many Global South economies, this shift risks narrowing policy space even further, unless they can strategically position themselves as partners rather than passive participants.
Would be interesting to see more discussion on what that positioning realistically looks like.
This is a strong account of the return of industrial policy within a state-centric world.
The open question is whether industrial capacity remains the decisive bottleneck as intelligence becomes cheaper and execution is increasingly delegated to non-human systems, a shift that is already visible in markets, software, and security domains.
In that transition, coordination speed, control over protocols, and execution layers may matter more than national manufacturing share.
Jostein, this is one of the few lucid takes I've read on this shift. You correctly identify the 'securitization' of economic policy, but from the factory floor, I see it as an immune response rather than just a policy choice.
The West is reacting to the R.I.C.E. System—China's industrial operating system that prioritizes 'Scale' and 'Flow' over 'Profit.' When a hyper-efficient, deflationary machine (China) meets a profit-driven, inflationary machine (West), 'Free Markets' physically collapse. Protectionism is just the heat shield.
The real alpha in your piece is the mention of 'Connector Countries' (Mexico, Vietnam, Indonesia). To the Arbitrageur, these aren't just neutral grounds; they are the 'Conversion Interfaces' between the two parallel universes. They are the only places left where Chinese 'Matter' can be legally converted into Western 'Value.'
A return to ‘industrial policy’ is hardly a shift from free markets because we never truly had free markets. For decades, government intervention, bailouts, subsidies, and regulations have shaped markets. Central Bank created credit has misallocated resources and distorted free and fair competition. The so-called ‘free-market era’ was mostly an illusion; what we see now is simply the continuation of political control dressed in new rhetoric.”
This is a much needed analysis of the shift away from the free market era.
Industrial policy is increasingly being deployed as a tool of economic security—critical minerals are a clear example. The U.S. push to reshore supply chains, from extraction to battery and cell production, and other strategies adopted by resource-rich countries like Indonesia and multiple African countries, which are restricting raw material exports. Layer on today’s scattered tariff regimes, and there are multiple examples of an industrial -policy approach.
That said, these policies cannot be evaluated solely through a national security lens. They have real distributional effects—on prices, access, and living standards for households and downstream industries. Economic security that undermines consumer welfare and affordability is, at best, incomplete. A country may secure supply chains, but if that comes at the cost of lower standards of living or compromised environmental safety, the policy trade-offs deserve much closer scrutiny.
Excellent analysis of how industrial policy has evolved from Hamilton's era to today's securitized competition. The connector countries dynamic is particulary underappreciated in mainstream coverage since it flips the usual narrative about smaller economies being squeezed. I've watched Vietnam and Mexico positon themselves almost like arbitrage players between US and Chinese supply chains, extracting concessions from both sides. The question becomes whether this triangulation stays viable once decoupling accelerates further or if they'll eventually be forced to pick sides.
Love reading your stuff. Saw you first on the majority report, hope you back soon there too!
This is a compelling read, Dr.
The return of industrial policy through a national security lens feels inevitable given recent shocks, but your point about the uneven consequences is crucial. For many Global South economies, this shift risks narrowing policy space even further, unless they can strategically position themselves as partners rather than passive participants.
Would be interesting to see more discussion on what that positioning realistically looks like.
Europe is racing to do what?
This is a strong account of the return of industrial policy within a state-centric world.
The open question is whether industrial capacity remains the decisive bottleneck as intelligence becomes cheaper and execution is increasingly delegated to non-human systems, a shift that is already visible in markets, software, and security domains.
In that transition, coordination speed, control over protocols, and execution layers may matter more than national manufacturing share.
Jostein, this is one of the few lucid takes I've read on this shift. You correctly identify the 'securitization' of economic policy, but from the factory floor, I see it as an immune response rather than just a policy choice.
The West is reacting to the R.I.C.E. System—China's industrial operating system that prioritizes 'Scale' and 'Flow' over 'Profit.' When a hyper-efficient, deflationary machine (China) meets a profit-driven, inflationary machine (West), 'Free Markets' physically collapse. Protectionism is just the heat shield.
The real alpha in your piece is the mention of 'Connector Countries' (Mexico, Vietnam, Indonesia). To the Arbitrageur, these aren't just neutral grounds; they are the 'Conversion Interfaces' between the two parallel universes. They are the only places left where Chinese 'Matter' can be legally converted into Western 'Value.'
👉 I detail exactly how these 'Connector Nodes' function as industrial laundromats—and how to invest in them—in my latest analysis: 'The Great Re-Routing.' Subscribe to my Substack (https://chinarbitrageur.substack.com/p/the-great-re-routing-why-your-made?r=71ctq6 ) for the full audit."
A return to ‘industrial policy’ is hardly a shift from free markets because we never truly had free markets. For decades, government intervention, bailouts, subsidies, and regulations have shaped markets. Central Bank created credit has misallocated resources and distorted free and fair competition. The so-called ‘free-market era’ was mostly an illusion; what we see now is simply the continuation of political control dressed in new rhetoric.”
This is a much needed analysis of the shift away from the free market era.
Industrial policy is increasingly being deployed as a tool of economic security—critical minerals are a clear example. The U.S. push to reshore supply chains, from extraction to battery and cell production, and other strategies adopted by resource-rich countries like Indonesia and multiple African countries, which are restricting raw material exports. Layer on today’s scattered tariff regimes, and there are multiple examples of an industrial -policy approach.
That said, these policies cannot be evaluated solely through a national security lens. They have real distributional effects—on prices, access, and living standards for households and downstream industries. Economic security that undermines consumer welfare and affordability is, at best, incomplete. A country may secure supply chains, but if that comes at the cost of lower standards of living or compromised environmental safety, the policy trade-offs deserve much closer scrutiny.