Last week, Deputy Secretary of Commerce Don Graves made some remarks on "Modern Industrial Strategy for U.S. Competitiveness, Equity, and Resilience." In his remarks, Graves explained how the Biden administration was providing direct subsidies and other government support to promote certain sectors of the U.S. economy. Here's an excerpt:
For the first time in decades, we have a generational opportunity to lay claim to the competitive industries of the future, along with the good-paying jobs and economic security that will come with them. But it’s going to require government, business, workers, and communities to work together in new and innovative ways, and it will require the private sector to consider national competitiveness and economic security as part of their corporate social responsibility.
...
With the passage of the American Rescue Plan, the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act – all major legislative accomplishments of its first two years – the Biden-Harris Administration is making transformational investments in manufacturing innovation, research and development, infrastructure, workforce training, and community development.We’re focusing these public investments and leveraging private investment in key areas such as semiconductors and clean energy technologies where private industry, on its own, had not factored in our national and economic security interests. ...
...
The bipartisan CHIPS and Science Act that President Biden signed into law in August provides $50 billion to the Commerce Department to revitalize our domestic semiconductor industry. We are administering this funding through our new CHIPS for America program.
The funding will drive R&D and manufacturing incentives that will facilitate domestic production of the most advanced chips and expand production of mature chips essential to our national and economic security.
...
Similar to CHIPS, under the Inflation Reduction Act, the Administration is making the largest-ever federal investment in clean energy innovation and leveraging private capital to scale clean technologies of the future—from electric vehicles to clean hydrogen to offshore wind. ...
So that all seems pretty clear: In the Biden administration's view, subsidies and other forms of government economic intervention are a good way to promote certain domestic industries, and are appropriate domestic policies.
At the same time, Graves pointed to other countries' subsidies and economic intervention, but also expressed concern about their "unfair subsidies and dumping":
Even as we seek to address these vulnerabilities, our competitors and trading partners are not standing still. They are moving ahead with strategic public investments, along with private investments, in their own domestic manufacturing, including in semiconductors and other emerging tech.
Some are also using use unfair subsidies and dumping and becoming increasingly sophisticated at finding loopholes in our antidumping and countervailing duty laws.
Our adversaries are ever-more aggressive in their efforts to control supply chains that we rely on – including critical minerals – and expropriate critical technologies.
The problem here is that many other governments are likely to see the U.S. financial support for particular sectors as "unfair subsidies and dumping," and react negatively to the U.S. policies. In order to prevent trade conflict from arising over these kinds of measures, we are going to need international agreement on what is acceptable and what is not.
Existing WTO obligations set forth a carefully negotiated balance on these issues. For example, there are detailed rules on when subsidies are prohibited and when they cause adverse effects for trading partners.
At times, the Biden administration seems to want to renegotiate the existing balance, although exactly what new balance they are seeking is unclear. For example, do they think domestic or regional content requirements, such as those in the Inflation Reduction Act, should be permissible under WTO rules? It would be a pretty radical departure from the current rules if these were permitted and everyone started using them.
If the subsidies Graves described above are going to continue, the Biden administration, or some future administration, will have to come to a view on the right balance in terms of domestic policy and international economic relations. What level and kinds of government economic intervention are acceptable? How will international rules provide disciplines? At the moment, it seems as though we are stumbling into trade conflict, and out of that conflict we may develop some new boundaries. However, it would be better if these issues could be fleshed out in advance, with a goal of reaching a domestic and international consensus quickly and (trade) peacefully.
