Reverse-Redistribution Gains of Intervention: Why Industrial-Policy States Prefer Laissez-Faire among Rivals

Existing literature interprets the diffusion of industrial policy mainly through the standard prisoner-dilemma framework: when one country adopts intervention, competing states have incentives to follow suit to avoid competitive disadvantages. This paper identifies a set of under-explored chained paradoxes. Economies pursuing industrial policy may extract strategic gains when rival countries maintain laissez-faire institutions. Nevertheless, domestic intervention itself erodes the political feasibility of laissez-faire in other jurisdictions. Furthermore, the widespread adoption of interventionist instruments abroad supplies rhetorical justification for continuing industrial policy at home, raising the political costs of policy reversal and generating a self-reinforcing interventionist equilibrium. Drawing on Cold-War U.S.-Soviet experience, the paradigm shift after the Soviet collapse, and contemporary green-trade barriers, this paper investigates historical conditions under which the interventionist closed loop may be broken, and illustrates how interventionist competition reappears under new institutional guises. This paper conducts qualitative mechanism reasoning using heuristic thought-experiments and illustrative real-world cases. It does not claim historical determinism, but highlights powerful systemic tendencies within geopolitical-economic competition.