Government subsidies: What makes them so controversial

They are a major bone of contention in current Sino-US tensions but predate US President Trump's trade wars, and are unlikely to go away, and not just in China

A year ago, I argued in these pages that the US-China trade war is about technology rather than trade, and about contrasting models of economic governance and technological innovation - China's of state-driven industrial policy versus the US' of market-led private entrepreneurship. Sure enough, bilateral trade negotiations have now stalled precisely over this divide. A major point of contention is China's subsidies for state-owned enterprises (SOE) in targeted high-tech sectors. This strategy has also been followed by European countries with decidedly unimpressive results, particularly in France.

The most notable (and rare) success story, the European multi-country consortium Airbus, has been embroiled in decades-long World Trade Organisation (WTO) disputes with the US-owned Boeing over "illegal state subsidies".

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A version of this article appeared in the print edition of The Straits Times on June 13, 2019, with the headline 'Govt subsidies: What makes them so controversial'. Print Edition | Subscribe