Since 2008, government subsidies to industry have sharply increased in the European Union, China and the United States, with particularly generous subsidies directed to the semiconductor industry. Rising subsidies in the big world economies and the entanglement of national security and commercial motives pose difficult policy issues for countries such as Australia, which cannot match the subsidies provided by the great powers.

US–China competition over advanced semi-conductors is an awkward instance of such entanglement of national security and commerce, of subsidies and export denials. Australia needs to find its own path between adhering to US views on controlling the sale of strictly military products and technologies, while resisting the inevitable pressure from the United States to extend controls on new commercial products and technologies.

Key findings:

• Government subsidies to industry in leading economies are large and growing, with potentially deep, wide-ranging, and unpredictable consequences for the world.
• It is not clear what rules, if any, will apply in this new era of industry competition, nor whether the measures will be effective in denying frontier technology to rival economies.
• The impacts of industry subsidies and export controls, including for countries such as Australia, hang on their implementation — beneficial in so far as they speed tech innovation, but detrimental if they split the global economy into competing blocs.