As part of the WTO Ministerial Conference last week, there were some side events going on. I was watching one called "Business Forum at MC13" and came across some interesting discussion of subsidy races and trade remedies.
The question that kicked off the subsidy race discussion was about the government help going to the semiconductor industry around the world, asking basically, if there is a subsidy race going on, don't all the subsidies cancel each other out to an extent. John Neuffer, President and CEO of the Semiconductor Industry Association (SIA), responded as follows:
I'll just speak for the US chip industry. So our federal government was not in the subsidy race for decades. As a result, 1990, US manufactured about 40% of the world's chips, 37%. And now it's about 10 or 12%. And the overriding reason for that is that it's 25 to 50% more expensive to build a fab or a semiconductor manufacturing facility in the US than it is in other countries, depending on which country you're comparing it to. And the biggest reason for that is that other countries, other competitors around the world, were in the subsidies race, and we were standing on the start line looking down the field, kind of scratching our navels saying what's going on here.
So while some call this a race to the bottom, at least now we're in the race as a country, because if the status quo continued, we would be even in further decline with our manufacturing on shore. So we're not trying to -- our government, I won't speak for the government -- but I'll just say, we're not trying to bring it all on shore, that's insane. We want more robust supply chains around the world that support our industry. We just need to reduce our vulnerability. So that's what's going on. And the harsh political reality is that as long as our competitors around the world are providing subsidies, our federal government needs to do it as well.
Now if everyone can agree to knock it off and say let's be done with that, then that's okay. But we got to get on some kind of level playing field. And that's what we were not in the US enjoying, and that's why the Chips and Science Act is so important.
I feel like there's a decent, although perhaps not perfect, steroids analogy here. The first person to take steroids gets an advantage over his/her competitors (while also causing long-term health damage of course). Then others jump in and start taking steroids in order to catch up with the first mover, and in the end, they are all back to where they started in terms of competitiveness, but at a significant cost. Along the same lines, if everyone is giving subsidies, who wins here? Neuffer suggested that perhaps everyone could agree to "knock off" the chips subsidies. Is that possible? Would that put us in the best place in terms of fair competition and an amount of U.S. production that would make people feel secure?
If everyone doesn't knock it off, what kinds of trade frictions will result? That leads me to the next item, which was Brazilian Foreign Trade Secretary Tatiana Prazeres talking about possible trade remedy responses to subsidies:
Another issue that I think is relevant, I mean, the elephant's been in the room and we need to talk about it, is the participation of the state in the economy. So the African group, for example, has put forward a proposal about policy space. There's a lot of talk about green subsidies. So for a country like Brazil, who wants to pursue an industrial policy, who wants to "new industrialize" if you want, the challenges are many, right. So if we see a subsidy race that is going on at the global level, for a country like Brazil that does not have the deep pockets of other countries, the challenge is how do you deal with that? There's a lot of conversation about this, green subsidies, subsidies race, etc. But for countries who don't have the same resources, what I fear is that we'll see a race towards trade remedies. And I'm in charge of trade remedies in Brazil, and I can tell you, it's coming. The wave is coming. Very often private sector comes to us, saying look at what country X is doing, economy Y is doing, etc., and what are you doing, right? And it's been very challenging to deal with the current economic circumstances, current views on trade policy, on industrial policy, on the role of the state in the economy, and we need to have a serious conversation about that in the WTO. Also taking into account different levels of development. I don't know the end result of this conversation, but we just cannot pretend it's not there.
These statements leave me with two questions.
First, what is the expectation or hope of subsidy supporters with regard to the use of trade remedies as a response to subsidies? I've asked this in various places, but for the most part have not gotten a clear answer.
Second, for those on the progressive left in the U.S. who have been pushing for this subsidy race, I'm curious what their view is of the impact on developing countries. So far I haven't heard concerns about this acknowledged by the progressives who have a say in making these policies, although some progressives who are on the outside do seem worried.