ABSTRACT
Because of the low level of US subsidies, it has been sensible for the United States consistently to seek cuts in subsidies through international trade agreements and support strong countervailing duty laws in the United States. Subsidies have a different economic effect. Subsidies for domestic production or exports transfer wealth from government treasuries and the taxpayers that support them and from foreign producers to domestic producers and to consumers, foreign and domestic. Subsidies can induce industries to develop new technologies, build capacity beyond what is warranted by the market, and enter markets more quickly and on a broader scale. Subsidies can allow firms to exploit the so-called first-mover advantages of being a pioneer in new technologies or products, and exploit economy-of-scale advantages, by producing on a larger scale. A reason that subsidies cannot be ignored by US trade policy is that subsidies are increasingly being used to replace other, more traditional, trade barriers.
