Scott Lincicome has written a great piece about how to respond to the subsidies-driven excess capacity, in China in particular, in lower-end semiconductors, electric vehicles and batteries , solar panels, and other goods.
His solution isn’t more Section 301 tariffs as the United Steelworkers are requesting. It isn’t to put in place an identical level of countervailing subsidies or duties (we are in this mess in part because of this stupid approach to foreign subsidies). It isn’t, either, to wait around for China’s economy to collapse under the weight of its unsustainable policies.
So, what then? As Lincicome correctly notes, “‘doing nothing’ might make for great economics, but, thanks to politics, it could mean even worse policy in the future — and we have plenty of evidence in just that regard.”
Instead, he suggests:
the global anti-subsidy disciplines set forth in the World Trade Organization’s Agreement on Subsidies and Countervailing Measures (SCM Agreement). All 164 WTO members, including the United States and China, have agreed to abide by the SCM Agreement’s rules, which are intended to encourage international trade by both preventing the proliferation of trade-distorting subsidies and providing reasonable dispute-settlement mechanisms for adjudicating subsidy-related disputes. The SCM Agreement 1) defines what is and isn’t a “subsidy”; 2) prohibits the most trade-distorting subsidies (those tied to exports or the recipients’ use of local content over imports); 3) lets a WTO member challenge other subsidies (i.e., ones that harm the member’s domestic companies at home or in overseas markets) at the WTO or via a “countervailing duty” (CVD) investigation; and 4) sets forth procedures for CVD cases.
Read the whole thing here, including the parts warning against abuses of countervailing-duty investigations as they are practiced in the U.S.