Comment by trashtester
Comment by trashtester 2 days ago
Tariffs that merely offset subsidies in the other country has zero net effect on competition, and doesn't harm producers on either side unduely.
The net effect is merely a net transfer from the foreign government to the domestic one.
Tariffs that go BEYOND the subsidies in the foreign country has a net protectionist effect. This CAN cause stagnation in the industry in question. But less so if there is still healthy domestic competition.
Subsidies are potentially the most destructive measure. This is especially true for protectionist subsidies, and less so for export subsidies. But in general, subsides sets up a cash transfer facility between a government and local industry, often removing incentives to innovate. In turn, this means that the subsidies need to increase year by year to have the desired effect.
This can lead to the subsidized industry dying a sudden death once public patience for the growing subisides (and so the subisides themselves) come to an end.
Read “How Asia Works” on how subsidies can be used effectively.
The book calls it “export discipline”, that is, you keep the subsidised firms on their toes by demanding them to be exporters and win the global market, thus making them remain competitive.