Keiko Ito
Todo (2026) discusses the role and importance of industrial policy particularly from the perspective of supply chain resilience. Historically, industrial policy has primarily been used to address market failures and promote the development of infant industries. More recently, however, its scope has expanded to include objectives such as economic security and the reduction of regional disparities. Supply chain resilience, which Todo focuses on, can also be regarded as one of these newer objectives (Aiginger and Rodrik 2020). While the effectiveness of industrial policy has long been debated with both positive and negative assessments, recent studies, such as Grossman et al. (2023), have provided more refined theoretical foundations for its use. Todo first reviews the literature that examines, both theoretically and empirically, the need for supply chain resilience and the role of industrial policy in achieving it, particularly in the context of rising geopolitical risks, economic coercion by major powers, and natural disaster risks. Todo argues for the importance of diversifying supply chains to avoid excessive dependence on specific countries and to mitigate the negative impacts of supply disruptions and economic coercion. Drawing on recent empirical findings, Todo also identifies key conditions under which industrial policy can achieve its intended outcomes. These include ensuring that policies are competitive and open, targeting industries with large technological spillover effects, and fostering sustained collaboration between the public and private sectors. Furthermore, Todo highlights multilateral initiatives in the Asia-Pacific region and discusses Japan's semiconductor industrial policy as a case study. He recognizes the importance of diversifying trade partners among like-minded countries (friend-shoring) and (re)locating production facilities domestically (onshoring). At the same time, Todo emphasizes that, in order to maintain efficiency under friend-shoring and onshoring, it is essential to promote joint R&D among like-minded countries, coordinate policies internationally, and avoid excessive subsidy competition. Building on recent advances in both theoretical and empirical research, Todo presents a persuasive argument that industrial policy is increasingly regarded as having a certain degree of legitimacy from the perspective of economic security. While I agree with many of Todo's arguments, several concerns remain. First, it is not entirely clear whether friend-shoring is truly effective. While it can be considered a rational form of insurance against risks such as wars, export controls, and unpredictable economic coercion, studies such as Javorcik et al. (2024) suggest that the economic costs associated with reversing international specialization may be substantial. Therefore, friend-shoring should not be implemented broadly but rather be limited to strategic sectors such as semiconductors and critical minerals. A further concern is the ambiguity surrounding the definition of “friends” or “like-minded countries.” Although Todo provides a definition in Section 1, it is difficult to operationalize this concept objectively in empirical analysis. Many studies classify countries based on similarities in voting behavior at the United Nations, but such measures do not necessarily align with economic relationships or firm-level behavior. Moreover, whether a country is considered “like-minded” can change over time, for example due to major political shifts. Given that supply chain development and joint R&D are inherently long-term endeavors, the instability of geopolitical alignments raises doubts about the practicality of friend-shoring as a stable strategy. Because friend-shoring often requires large irreversible investments in supply chains, production facilities, and joint R&D, uncertainty regarding the long-term stability of geopolitical alignments may itself discourage private investment. In other words, if firms perceive that the definition of “friends” or “like-minded countries” may change over time due to political transitions or diplomatic conflicts, they may hesitate to undertake relationship-specific investments involving substantial sunk costs. This suggests that geopolitical instability may undermine the very objective of friend-shoring by weakening private-sector incentives to invest in resilient supply chains. Although Todo emphasizes the importance of promoting research collaboration with like-minded partners, it is also crucial for governments to strengthen bilateral and multilateral diplomatic communication within international cooperation frameworks in order to stabilize geopolitical alignments and facilitate sustained collaboration among like-minded partners. These concerns suggest that, notwithstanding the strategic utility of friend-shoring, priority must still be given to economic efficiency and the reinforcement of international legal norms to prevent the weaponization of trade policy. Second, there is a risk of subsidy competition. If countries engage in subsidy races, this could lead to global overinvestment and inefficiency. Todo argues that recent subsidies for the semiconductor industry in countries such as Japan and Korea do not violate the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM Agreement) and may be justified under the national security exception of Article XXI of the General Agreement on Tariffs and Trade (GATT). It is true that the semiconductor industry is highly exposed to international competition and that subsidies may not necessarily distort firm-level competition. Increased investment driven by subsidies could accelerate technological progress and generate positive spillovers. Nevertheless, avoiding overinvestment requires international coordination. Furthermore, the ambiguity surrounding the scope of the national security exception of GATT Article XXI raises concerns that excessive protection and subsidization could be invoked under the pretext of security. Third, it is unclear whether the apparent success of China's industrial policy can be replicated in other countries. The growing emphasis on industrial policy worldwide is partly attributable to China's active use of such policies. While China has strengthened its competitiveness in various industries through policies that reinforce its comparative advantages, some studies (e.g., Barwick et al. 2024) argue that, although these policies have succeeded in expanding industries, they have not necessarily improved welfare or efficiency. It remains uncertain whether similar “quantitative expansion” through industrial policy is feasible in smaller developing economies. Moreover, as Juhász et al. (2025) point out, advanced economies engage in industrial policy interventions far more frequently than developing countries, raising concerns that the resurgence of industrial policy in advanced economies could widen global inequality. Although Todo emphasizes the importance of supporting countries in the Global South, it is crucial to design strategies that promote domestic development while also ensuring inclusiveness. Finally, addressing these concerns requires strengthening multilateral frameworks and international cooperation. Todo also highlights the importance of coordinating national policies through international collaboration and of utilizing frameworks such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to mitigate economic coercion by major powers. While cooperation among countries—particularly among middle powers—is essential, a key challenge remains: how to ensure that major powers adhere to international rules. Rules established solely by middle powers may lack effectiveness if major powers are not involved. Therefore, it is necessary not only for middle powers to take the lead but also to engage major powers in rule-making processes. If, in the short term, the return of the United States to international frameworks is unlikely, it becomes even more important to consider how to engage with China and incorporate it into the development of effective international trade rules. However, incorporating China into frameworks such as the CPTPP also raises concerns regarding governance balance and rule enforcement, particularly in the absence of the United States and major European economies. This suggests that the challenge is not simply whether China should be included, but rather under what conditions major powers can be incorporated into rule-based frameworks while preserving the credibility and effectiveness of the rules themselves.