This paper presents a theoretical framework to explain government intervention in the form of R&D subsidies and export subsidies in imperfectly competitive international markets. The authors argue that governments have an incentive to subsidize R&D or export subsidies to capture a larger share of rent-earning industries. The model is structured as a three-stage subgame perfect Nash equilibrium, where the government can influence the equilibrium outcomes by altering the credible actions available to firms. The optimal subsidy is found to be positive, but the optimal R&D subsidy is negative, suggesting that R&D should be taxed to restore production efficiency. The paper also discusses the noncooperative international equilibrium, where both countries impose export subsidies and R&D taxes, leading to increased production efficiency but reduced total rent. The authors conclude that while the model does not recommend the use of industrial strategy policies, it provides insights into the incentives for such policies and their potential welfare implications.This paper presents a theoretical framework to explain government intervention in the form of R&D subsidies and export subsidies in imperfectly competitive international markets. The authors argue that governments have an incentive to subsidize R&D or export subsidies to capture a larger share of rent-earning industries. The model is structured as a three-stage subgame perfect Nash equilibrium, where the government can influence the equilibrium outcomes by altering the credible actions available to firms. The optimal subsidy is found to be positive, but the optimal R&D subsidy is negative, suggesting that R&D should be taxed to restore production efficiency. The paper also discusses the noncooperative international equilibrium, where both countries impose export subsidies and R&D taxes, leading to increased production efficiency but reduced total rent. The authors conclude that while the model does not recommend the use of industrial strategy policies, it provides insights into the incentives for such policies and their potential welfare implications.