This is from a speech last week by White House NEC Director Brian Deese on "Executing a Modern American Industrial Strategy":
Some have raised a valid concern that countries may keep one-upping each other on ever-larger industrial subsidies, reducing their efficiency. But the investments we’re making will pay enormous global dividends in expanding supply, speeding adoption, and driving down costs. And for industries like semiconductors and clean energy, we’re nowhere near the global saturation point of needed investments. We should welcome actions by most countries if they’re structured fairly and scaled appropriately.
This passage raises several question for me.
First, I agree that the concern about a subsidy war ("countries may keep one-upping each other on ever-larger industrial subsidies") is valid. This sort of thing has been common for a long-time with location incentives provided by national and local governments. Governments compete for investment with subsidies in a way that doesn't lead to much, if any, additional investment, but rather just better deals for companies who were planning to invest anyway. So what's the plan to deal with this potential problem here? The last sentence of the passage says: "We should welcome actions by most countries if they’re structured fairly and scaled appropriately." Does "scaled appropriately" mean some sort of limit on the amounts involved? Does "structured fairly" mean some forms of subsidies are allowed while others are not? Would this be like the Agriculture Agreement subsidy limits, but applied to industrial subsidies, with the result being some sort of WTO agreement with specific maximums on these subsidies? That's one possibility, and I think I recall that some people have suggested this approach recently. If that's not what Deese has in mind though, what is the plan exactly?
Second, what does he mean by "[w]e should welcome actions by most countries"? The obvious answer here is that Chinese actions would not be welcomed, but what does that mean? Does it mean they think China shouldn't be giving these subsidies, and we won't "welcome" it if China does? How exactly would the Biden administration react to Chinese subsidies of this sort? A Section 301 investigation and tariffs?
Third, he says that with "semiconductors and clean energy, we’re nowhere near the global saturation point of needed investments." But how do we know what the saturation point is? If we get to a moment when most of the companies in one of these industries are losing money because there is overcapacity, are we at the saturation point then? And do we change course at that point, or do we just keep the subsidies coming and maybe even increase them?
And finally, domestic countervailing duty law allows for tariffs to be imposed on subsidized imports. With all these new subsidies, is the Biden administration anticipating that other countries will impose tariffs on subsidized U.S. goods that are exported? Are they expecting U.S. industries to ask for tariffs against subsidized foreign goods? How do they see CVDs playing out here? With the level of subsidies they seem to have in mind, I'm not sure how long we can go before these CVD cases start coming.
