“Are China’s subsidies kindling a trade war?” The front-page teaser for your Big Read feature by Joe Leahy, James Kynge and Sun Yu piqued my interest (January 31).
But the military metaphor of war only goes so far when it comes to trade. Suppose China has awarded sizeable subsidies to its electric vehicle producers, taken by some as an aggressive economic act. This does not necessarily merit a response by importing nations.
After all, imports fill in demand gaps brought about by inadequate or poor-quality local supplies. In the case of EVs, cheaper imports also accelerate the adoption of a technology vital to the energy transition.
Invasions of imports aren’t troop invasions. More troubling were the unstated assumptions in the Big Read, which was entitled “The looming tensions over China’s subsidies”.
Your analysis assumes that corporate subsidies must result in excess capacity that will be exported and ultimately cause import surges in trading partners.
Using publicly available data, over the past five years on several occasions my colleagues and I have examined whether this chain of logic can be borne out by evidence.
Remarkably, the answer is no. The complaints of import-competing companies deserve more scrutiny.
As do the assumptions of the current cohort of geopolitical grinches in western governments.
Simon J Evenett
Professor of Economics, University of St Gallen, Switzerland; Co-Chair, World Economic Forum Council on Trade & Investment
