Some further thoughts on Paul Krugman's suggestion that "[a] countervailing duty on Chinese exports would be job-creating."
First off, I don't think he had in mind countervailing duties imposed pursuant to the Tariff Act of 1930. I think he just meant "slap a tariff on all products China." The reason I say this is because a countervailing duty takes time. You need to carry out an actual investigation of subsidization and injury. That means you can't impose duties (and create jobs) right away, which I presume is what he wants.
But let's just assume he is talking about an actual countervailing duty imposed pursuant to all the rules. Keep in mind that you don't know for sure if there is subsidization and resulting injury until you have carried out the investigation. I doubt Krugman has done that himself as part of his blog post, so we don't even know for sure to what extent (e.g., on what products) a CVD would be available.
But let's also assume that due to Chinese subsidies examined as part of an investigation, CVDs could be legally imposed on some products. Let's even assume that the duties are imposed consistently with WTO rules in all respects. How would China react to such CVDs? Well, cause and effect may be a little difficult to ascertain here, but arguably this is how China reacted to the Tires safeguard tariffs a while back:
China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation.
I suspect that the response to CVDs imposed in the circumstances envisioned by Krugman (i.e., as part of a job creation policy) would be along the same lines.
ADDED: In response to feedback from readers, let me just mention that there is an issue as to whether Chinese "retaliation" in this way would constitute a violation of DSU Article 23.1. I did a post a while back which mentioned this issue in another context: http://worldtradelaw.typepad.com/ielpblog/2009/09/the-tires-tariffs-chinas-response.html Clearly, China cannot "seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements" without "abid[ing] by, the rules and procedures of this Understanding" (the language of DSU Article 23.1). But they may have arguments that this is not what they are doing.
