Some Interesting Subsidy Headlines

Several recent headlines reinforce many of the subsidy-related things that I've been discussing over the last few weeks and the themes of my new Cato paper:

• I spent a lot of time last week talking about the US Department of Commerce's final anti-dumping and countervailing duty determinations on Chinese solar panels and how the case encapsulates all that's wrong with current US subsidy and anti-subsidy policy.  The WSJ's Tom Orlik follows up with a fantastic analysis of the solar case and copycat cases in the EU and India.  The whole thing is worth reading, but here are the key grafs:

The Commerce Department's tariffs... will neither kill China's exports nor turn around the fortunes of U.S. manufacturers. For starters, solar panels assembled in China with imported cells won't be subject to the tariff. GTM Research says that even using slightly more expensive Taiwanese cells, Chinese firms will still be able to undercut U.S. competitors on price. 

For Chinese firms, the risk is that the U.S. tariffs are a sign of things to come. Europe accounts for 50% of the global market according to GTM, far more than 10% in the U.S. If the E.U. case goes against Chinese manufacturers, the result could be a significant hit to demand for their products.

Meanwhile, competition from conventional fossil fuels—not other solar panel producers—is a major challenge for the sector. Chris Namovicz, an analyst at the U.S. Energy Information Administration, says that solar is around 20% more expensive per watt than natural gas.

Western subsidies for alternative energy drove the massive expansion of China's solar power industry. Now it is cheap gas and Western protectionism that threatens to turn out the lights on China's solar exports.

• Mexico today filed a new WTO dispute over Chinese textile subsidies.  Not only does this add yet another subsidy dispute to my running tally (and one hitting an industry that was targeted by the WTO/OECD subsidy reports noted in my paper).   Reuters notes that Mexico has challenged a wide array of government programs, including may of the alleged subsidies (e.g., loan and land programs) that Commerce has found over the last few years in its CVD investigations of Chinese imports.  As I note in my paper, some of the things that Commerce does to find "subsidies" in those cases are not exactly kosher, so - assuming this new case goes to a WTO panel and isn't settled or dropped - it'll be fascinating to see how an independent third party handles those (and other) sticky issues.

• One of my paper's main themes is that multilateral and domestic anti-subsidy disciplines are necessary because the global subsidies race is partly fueled by politicians' - even some conservatives - use of foreign subsidy practices as an excuse to advocate for more subsidies or other forms of protectionism at home.  I actually want to dive into that theme sometime soon, but for now I'll just point to a little more evidence of this subsidy finger-pointing and its attendant harms, this time in Brazil.  According to a great new WSJ editorial, Brazil has been quick to defend its depressing protectionist backsliding by pointing to, you guessed it, US subsidies and monetary policy:

Brazil is the latest country to raise its import tariffs, targeting 100 items ranging from chemicals to paper to steel, with plans to add 100 more items soon. Brasilia claims the tariffs will only last a year, but such things have a way of remaining permanent as they build domestic political constituencies. The move is technically legal under World Trade Organization rules because it doesn't target a single country and doesn't exceed the tariff ceilings Brazil negotiated when it joined the WTO.

This could nonetheless cost U.S. exporters tens of billions of dollars annually, given that Brazil is America's eighth-largest export market. Brazil is part of the Mercosur trade compact, so Argentina and Uruguay may also feel obliged to follow suit.... 

Brasilia is pointing to U.S. policy to justify its protectionist outburst. In a testy exchange with U.S. Trade Representative Ron Kirk last month, Brazil's Foreign Minister Antonio Patriota wrote that "the world has witnessed massive monetary expansion and the bailout of banks and industrial companies on an unprecedented scale, implemented by the United States and other developed countries" that harms Brazilian exporters. 

There's no doubt that the Federal Reserve's easy-money policy has pushed the dollar down against some currencies, including Brazil's real. Brazil would be wiser economically to let a rising currency raise living standards for Brazilian consumers and make its producers more competitive. But Brazil's protectionist response is further proof that the Fed's weak-dollar policy has global economic costs.

Brasilia has other trade complaints against the U.S., including the Obama Administration's "Buy America" program and agricultural subsidies, which distort domestic production and global prices. Brazil challenged America's egregious cotton subsidies at the WTO and won in 2008. The Obama Administration appealed the ruling, lost in 2009 and still hasn't changed its policies. Brazil can now retaliate legally under WTO rules.

Something to think about the next time you hear an American politician arguing that some taxpayer subsidy is desperately needed to counteract pernicious foreign protectionism.  Not only are we frequently guilty of the same offense, but we often got the ball rolling in the first place.  

And the global subsidy race rolls on.

Time for a change, don't you think?