Hi, I'm Carl Tannenbaum, Chief Economist for Northern Trust. In sports, most teams enjoy a home court advantage. The urging of the crowd inspires action and intimidates officials. It can be very difficult for visitors to level the playing field. 

The same can be said of the atmosphere in the trade arena. Domestic industries are getting a lot of help from home crowds, and organizations chartered to officiate have not been able to level the playing field. The outcome has been a retreat from globalization, which will have significant consequences for growth, inflation, and debt around the world. 

In classical economics, an invisible hand steers resources to their best use. Capital and labor migrate naturally to industries and occupations where opportunities are the best. Any attempt to interfere in the process creates inefficiency, which is costly to societies. 

Nonetheless, all governments engage in some steering of their economies, a practice known as industrial policy. The level of that shepherding has escalated substantially in the last several years. As one example, problems with faraway supply chains during the pandemic and increasing stress between Beijing and the west has prompted governments to become more heavily involved in promoting local sourcing. 

Security has also become more tenuous in the wake of wars in Ukraine and the Middle East. Policy support for the defense sector is increasing, and countries are investing more in strategic industries such as microchip fabrication. Reliance on potential rivals for these supplies is seen as a significant risk. Industrial policy has also been justified on the basis of competitiveness. If trading partners are supporting key industries, then nations feel more justified in responding. Creating national champions as opposed to trusting external channels, seems to be the order of the day. 

Battles over subsidies and sponsorship have become more common. Reversing anti-competitive behavior is difficult given the waning influence of the World Trade Organization. The result is an industrial arms race that will almost certainly result in lower levels of productivity and higher levels of inflation. 

Smaller economies are at a disadvantage to larger ones in promoting their industries, narrowing their paths to development and making it more difficult for them to handle their debts. The execution of industrial policy invites a host of potential hazards. Governments may not be the ideal agents to determine which sectors are worthy of special emphasis. Dulling the influence of markets in directing capital can create poor outcomes. Government involvement invites politics into the process, which may not be aligned with economic ideals. 

Debate over industrial policy is active in both academic and political circles. Some studies hail its benefits, while others illustrate downsides. Only one thing is clear-- countries are looking out for themselves more than they used to, which weakens the global order. A win for the home team may be a loss for the global economy. And that's The View From Here.