US subsidies are distorting world trade

August marks

the first anniversary of the launch of two major initiatives

that spearhead the Biden administration’s pivot to industrial policy: the US$430 billion (S$585 billion) Inflation Reduction Act (IRA), which lavishes massive subsidies on green technologies and renewable energies, and the US$280 billion Chips and Science Act, which does the same to expand the United States semiconductor industry.

Producers of US-made goods and services in these industries are being given preferential treatment compared with producers elsewhere. These protectionist initiatives, which violate the provisions of the World Trade Organisation (WTO) requiring equal treatment for local and foreign producers, have succeeded in attracting at least US$220 billion in cleantech and semiconductor manufacturing projects so far. But they will entail costs for US companies and consumers, and penalise other economies, most of which cannot afford to match the scale of the US subsidies.