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There is zero question that a combination of government subsidies and tariffs or other import restrictions can benefit a specific targeted domestic industry. But when it comes to industrial policy, the questions are about whether the costs of such a policy ultimately benefit the overall economy by focusing on a sector that is conducive to future productivity gains due to ongoing technological learning and economies of scale, or whether an industrial policy benefits a few well-connected domestic firms, while imposing costs–both budgetary and misallocated resources–on the rest of the domestic economy.

The October 2025 World Economic Outlook report, published by the IMF, devotes a chapter to “Industrial Policy: Managing Tradeoffs to Promote Growth and Resilience.” The IMF report considers a combination of theoretical models and empirical studies. Here, I’ll focus on the report’s discussion of lessons from economies: Korea, which is often regarded as an industrial policy success story, and Brazil, which is not.

For the comparison between Korea and Brazil, the report argues (footnotes omitted):

[T]his section examines two prominent and well-documented historical cases in emerging markets: Brazil and Korea. During the 1970s, the two countries adopted large-scale industrial policies using instruments that resemble those documented in modern industrial strategies, with the aim of promoting structural transformation in
selected strategic sectors … However, their approaches differed markedly. Brazil emphasized mainly import-substituting industrialization and relied on state-owned enterprises as the primary implementation vehicle, whereas Korea pursued an export-oriented model based on large private business conglomerates (chaebols). Korea’s experience is broadly regarded as more successful …

What are the key differences between industrial policies in Korea and Brazil? The report considers three areas: policy design, implementation, and complementary policies.

Policy design. A comparison of the two countries’ experiences reveals the crucial role played by good policy design, elements of which include fostering domestic learning by doing, targeting a sufficiently large market to allow firms to reach an efficient scale of production, and directing support toward areas with high potential returns or positive externalities. In Korea, deliberate policies emphasized experiential learning on the factory floor. Chaebols relied on salaried engineers over administrators at the plant level to absorb foreign technologies and build domestic capabilities. In contrast, Brazil’s IPs [industrial policies] were implemented through state-owned enterprises and lacked the private sector engagement that was central to Korea’s learning-by-doing model (Peres and Primi 2019). The outward-oriented strategy in Korea also enabled chaebols to access global markets and benefit from scale economies, whereas in Brazil, import-substitution confined state-owned enterprises to a limited domestic market, constraining their ability to scale up production volumes. …

Implementation. The two cases underscore the importance of careful implementation, including fostering competition, relying on competent implementing agencies and objective benchmark criteria to evaluate success or failure, and incorporating safeguards—such as sunset clauses—to limit the costs of policy failures. In contrast to the limited competition faced by Brazil’s state-owned-enterprises, domestic and international competition were central to Korea’s approach, helping to ensure market discipline. For example, the government supported multiple firms within sectors and allowed market forces to determine the winners. This approach was evident in the early stages of the automotive industry, when numerous entrants initially competed and benefited from state support, before Hyundai emerged as the dominant firm. IP governance was also institutionalized in Korea. Monthly export promotion meeting —chaired by senior officials and involving representatives from academia, finance, and industry—provided a structured forum for oversight and performance review. Export targets served not only as benchmarks for allocating state resources but also as de facto sunset clauses: firms that failed to meet targets risked losing access to state support, regardless of their size or political influence. Brazil, by contrast, lacked an IP governance framework and safeguards comparable to Korea’s.

Complementary policies. Finally, the cases demonstrate the vital enabling role of structural reforms … and macroeconomic stability. In Korea, an anti-corruption campaign launched prior to its industrial policy drive helped to signal that all chaebols were subject to the rule of law. During its industrial push, the government invested in industrial parks and facilitated imports of essential raw materials and capital goods to support domestic production. It also strengthened the education system to meet the growing demand for skilled engineers and production workers.

These distinctions lead me to think about current US efforts at industrial policy, whether enacted through Trump-style tariffs or Biden-style subsidies. For my taste, the emerging US form of industrial policy has too much Brazil and not enough Korea. For example, there is too much emphasis on Brazil-style substitution for currently imported products, and too little Korean-style emphasis on areas with high potential returns, economies of scale and experiential learning from future expansion, and a future of selling into global markets. The US form of industrial policies doesn’t seem to make much effort to identify key benchmarks of success–with the corresponding threat of withdrawing the supports if the benchmarks are not being met. The US method does not seem focused on facilitating key imports, as needed to support the growth of domestic production. It does not seem focused on building the nation’s research and development infrastructure, or on increasing the supply of skilled engineers and production workers. Successful industrial policy moves an economy toward a ladder of future productivity gains and economic change–in that way, success is about embracing future economic disruption. In contrast, the US form of industrial policy has what I think of as a “Field of Dreams” hopefulness: “If you subsidize it, prosperity will come.”

The IMF report puts the lesson in clear, if uninspiring prose: “[P]olicymakers should be keenly aware of opportunity costs and trade-offs: While industrial policy can raise production in the targeted sector, this needs to be balanced against other considerations such as fiscal cost, higher consumer prices, and possible resource misallocation. Appropriate targeting and safeguards, market discipline, and complementary structural reforms are crucial elements of a well-designed industrial policy package.”

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