States impose countervailing duties, or punitively high import tariffs, when they suspect another country of gaining an unfair trade advantage through subsidies.
WTO ruling against Indian steel subsidies is telling us something about how the Americans now think. Americans are not practicing what they have been preaching for years, about free markets and free societies. They are intent on ‘protecting’ their special interest industries at the cost of their consumers and normal people. Basically what Americans are saying is that the people of India are taking the burden of lowering the price of steel for American consumer. The Indian government may cover these costs by using taxes, getting more into debt, or by printing money. American government though is hell bent on making sure Americans pay more, despite a country willing to bend over backwards to give them something for cheaper!
There are those who would come out and say, well yes, these subsidies keep the local Indian industries in business. This in turn keeps the people employed, and helps serve a social benefit. Indians would rather keep producing steel, artificially boosting their GDP, even though it’s margins or even the gains are suspect. The former Soviet Union did the same thing, and had a high price to pay for this fallacy.
On the surface it appeared the production of the steel was wonderful, but beneath the surface, Soviet Union missed out on using their resources on productive endeavors, such as semi-conductors, and computers. While the West moved onto internet, computers, and high tech, the communist Soviet Union kept on producing more steel. In the end the economy collapsed and with it the entire socialist/communist system.
Now India is doing the same thing, albeit not on such a large scale. Whenever a government steps in to support an industry, it usually means there’s some understanding between those in political power and those in the industry. It’s this kind of understanding that gives free markets a bad name. It’s the kind of understanding that helps build cartels. If an industry cannot compete on its own, it should go out of business, releasing the resources and personnel for better use.
So what can Pakistan learn from this ruling and the Indian steel subsidies? It can learn that it’s futile to waste funds propping up firms and industries that are not competitive enough. The funds can be used for something better, such as perhaps paying down the government debts.