The Obama Administration fired a shot across China’s bow on Wednesday, challenging the country’s export subsidies in a dispute filed at the World Trade Organization (WTO). But, with last year’s renewal of the U.S. Export–Import Bank and the President’s announcement of new manufacturing innovation hubs, this new dispute is dripping with irony.
At the center of the Administration’s claims are that China unfairly provided subsidies for domestic firms through a series of “demonstration bases” throughout the country. Within these bases, firms could access discounted public services and receive cash grants and “other incentives to…meet export performance criteria.”
This certainly sounds hokey, and it very well could be against WTO rules. Indeed, China does provide subsidies to thousands of other firms. But, people in glass houses shouldn’t throw stones, and the President should take a hard look at U.S. policies first if he really wants to fight export subsidies.
Take the President’s new “Manufacturing Innovation Hubs,” for example. Announced at a meeting of the President’s Export Council back in December, these hubs would receive up to $145 million in federal money in a public-private partnership to sponsor investments in energy and advanced electronic technology. These hubs sound eerily similar to China’s “demonstration bases.” And while they may not be necessarily against WTO rules, they certainly don’t show leadership in promoting a fair, rules-based international trading system.
Furthermore, U.S. subsidies don’t just stop at these trade hubs. The real (big) elephant in the room is the Export–Import Bank, a government bank that has been subsidizing exports for over 80 years. The bank extends loans to foreign companies that are seeking to buy U.S. products, and its financing cap is currently set at $140 billion.
The U.S. certainly isn’t innocent in the WTO when it comes to export subsidies, either. Since 2004, the U.S. has been ensnared in a dispute over subsidies to Boeing for large civil aircraft, subsidies that include the Export–Import Bank. Indeed, in 2012 the WTO upheld findings that the U.S. does in fact provide unfair subsidies to Boeing. The European Union is currently pursuing additional litigation over the tax breaks Boeing receives from Washington State.
If President Obama wants to be a true champion of a rules-based trading system, then he should ensure that the U.S. follows the rules, too. This means getting rid of crony export credit agencies and buzzword-laden industrial policies, like the Export–Import Bank and manufacturing innovation hubs. It’s time we start recognizing that export subsidies are bad and that they need to be repealed, unilaterally if necessary.