Industrial Policy and Retaliatory Protection under the WTO: Lessons from China

Yusheng Feng, Haishi Li, Siwei Wang and Min Zhu

No 11982, CESifo Working Paper Series from CESifo

Abstract: Using Chinese firm-level trade data combined with global anti-dumping (AD) and countervailing duty (CVD) investigations, we uncover a previously overlooked cost of industrial policy under WTO agreements. At every stage of AD/CVD investigation, subsidies significantly raise the probability of affirmative tariff rulings and lead to higher imposed tariffs. Firms that received larger subsidies are also less likely to be granted firm-specific duties, which are lower than the product-level duties applied to all other firms exporting the investigated product. While AD/CVD duties create a moderate trade barrier that an average Chinese firm expects to face, they represent a significant cost of subsidy for those heavily subsidized and those potentially receiving firm-specific duties. The intended benefits of industrial subsidies are partially offset by increased foreign trade protection: AD/CVD duties induced by subsidies reduced the subsidy effect on firm revenue growth by 22%.

Keywords: industrial policy; subsidies; anti-dumping; countervailing duties (search for similar items in EconPapers)
JEL-codes: F13 L52 O25 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cna and nep-inv
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