{
  "title": "Industrial Policy and Trade Tensions in Strategic Sectors",
  "publication": "IMF Working Papers, July 24, 2026",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2026/07/24/industrial-policy-and-trade-tensions-in-strategic-sectors-578065",
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  "summary": "This paper examines the global trade and welfare effects of industrial subsidies, employing a multi-country, multi-sector general equilibrium trade model with economies of scale.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Paper examines the global trade and welfare effects of industrial subsidies using a multi-country, multi-sector general equilibrium trade model with economies of scale.\n- Subsidy magnitudes are estimated from a novel approach exploiting information on subsidy counts during the period 2015-23.\n- Quantifies impact of implied subsidy rates on trade flows and global welfare."
    },
    {
      "heading": "Methodology",
      "content": "- Multi-country, multi-sector general equilibrium trade model with economies of scale.\n- Estimation of subsidy magnitudes based on subsidy counts for 2015-23."
    },
    {
      "heading": "Key findings on trade flows",
      "content": "- Subsidies boost net exports in strategic sectors, especially for China.\n- Subsidies cause export declines in competing economies.\n- Subsidies by the EU and the US produce qualitatively similar but smaller effects because these economies target relatively more non-strategic sectors.\n- Tariff actions in 2018-19 and since 2025 partly offset these trade patterns."
    },
    {
      "heading": "Mechanisms and decomposition",
      "content": "- Decomposition of trade effects highlights the role of:\n  - Economies of scale.\n  - Productivity changes.\n- These factors explain sectoral specialization in response to subsidies."
    },
    {
      "heading": "Welfare and externalities",
      "content": "- Recent subsidies and import tariffs, while targeting strategic sectors, lower global welfare.\n- Welfare losses arise from distortions and negative cross-border externalities."
    },
    {
      "heading": "Policy implications and considerations",
      "content": "- Industrial subsidies can shift sectoral specialization through economies of scale and productivity effects, altering global trade patterns.\n- Tariff responses can partly offset subsidy-induced trade reallocation but coexist with welfare losses.\n- Policymakers should weigh targeted industrial support against negative cross-border externalities and global welfare costs.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2026/07/24/industrial-policy-and-trade-tensions-in-strategic-sectors-578065"
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    "Authors: Lorenzo Rotunno, Michele Ruta, Priyam Verma",
    "Published: July 24, 2026",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229053495.001",
    "Paper examines the global trade and welfare effects of industrial subsidies using a multi-country, multi-sector general equilibrium trade model with economies of scale.",
    "Subsidy magnitudes are estimated from a novel approach exploiting information on subsidy counts during the period 2015-23.",
    "Quantifies impact of implied subsidy rates on trade flows and global welfare.",
    "Multi-country, multi-sector general equilibrium trade model with economies of scale.",
    "Estimation of subsidy magnitudes based on subsidy counts for 2015-23.",
    "Subsidies boost net exports in strategic sectors, especially for China.",
    "Subsidies cause export declines in competing economies.",
    "Subsidies by the EU and the US produce qualitatively similar but smaller effects because these economies target relatively more non-strategic sectors.",
    "Tariff actions in 2018-19 and since 2025 partly offset these trade patterns.",
    "Decomposition of trade effects highlights the role of:",
    "These factors explain sectoral specialization in response to subsidies.",
    "Recent subsidies and import tariffs, while targeting strategic sectors, lower global welfare.",
    "Welfare losses arise from distortions and negative cross-border externalities.",
    "Industrial subsidies can shift sectoral specialization through economies of scale and productivity effects, altering global trade patterns.",
    "Tariff responses can partly offset subsidy-induced trade reallocation but coexist with welfare losses.",
    "Policymakers should weigh targeted industrial support against negative cross-border externalities and global welfare costs.",
    "**Working Paper**"
  ],
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