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 hidden cost of industrial policy under WTO agreements. At every stage of AD/CVD investigations, industrial 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 tariffs applied to all other firms exporting the investigated product. While AD/CVD tariffs 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. AD/CVD tariffs induced by subsidies reduced the subsidy effect on firm revenue growth by 25%. The intended benefits of industrial subsidies are partially offset by increased foreign trade protection.

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
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