There have been a lot of news reports regarding the decision by the Department of Commerce to change gears and apply countervailing duties to non-market economies like China (on certain paper imports right now, but possibly many new products in the future). There are a number of specific legal issues that arise in response to this action, but there is also the broader question about why subsidies are regulated at the WTO and countervailable domestically. Greg Mankiw argues that some of the concerns about subsidies are misplaced:
Industrial subsidies are bad policy, but they are bad policy for the country paying for the subsidy. The country buying the subsidized goods benefits from cheaper imports. Think of these subsidies as the opposite of OPEC--another country conspires to sell goods below competitive prices. For the same reason that high prices from a cartel hurt us, low prices from a subsidy help us. It is common sense that when you buy something, you would rather pay less than more for it. That is as true for a nation as it is for a household.
Thus, instead of complaining about foreign subsidies, he appears to say, we should thank the subsidizers.
I can see his point that the overall impact of foreign subsidies can be beneficial to the importing country (even if there may be harm to specific groups within that country). But aside from these trade effects, isn't it better if everyone stops subsidizing? It seems to me that the distortions to production decisions could overcome any benefits derived from lower-priced imports. In other words, if the subsidies cause less efficient companies to produce the goods, consumers could actually be worse off.
