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Industrial policy that uses tariffs and subsidies to pick economic winners is once again in vogue among intellectuals. The rationale is to prevent China from "dominating" the global market with its subsidies while boosting American jobs and manufacturing. While I believe it's unwise to mimic China's policies to tamp down the danger of its authoritarianism, I'm amazed at cynics who support such policies but make no effort to adopt a serious strategic plan to achieve this goal.
To see why, look no further than their sudden conviction that the New Deal-era U.S. Export-Import (Ex-Im) Bank, Uncle Sam's official export credit agency, is the ideal vehicle to fight China.
It's no secret that I believe the government should not subsidize exporting companies. Vast research shows that, while subsidies might prop up the direct recipients, governments that subsidize harm their economies overall. That said, in the name of national security or geopolitical concerns, these principles may sometimes be traded off against other concerns.
But this doesn't mean that all subsidies should get a free pass. There must be a concrete strategy behind the effort to use subsidies in this way. For instance, China mostly operates in lower-income nations. If Ex-Im is serious about competing with China, that's where its loans should be going, rather than continuing to finance foreign borrowers in rich countries such as Italy, France, or the United Arab Emirates, where they're served well by a commercial banking market.
Ex-Im's recent annual conference was full of bold statements about fighting China as mandated by Congress during the agency's reauthorization process back in December 2019. Unfortunately, despite much bluster from its leadership, there's been no fundamental change in the way Ex-Im operates or in which companies Ex-Im extends financing to with taxpayer backing.
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