Trade versus Subsidies

Earlier this week Rwanda's President, Paul Kagame, had an editorial in the Washington Post. In it, he suggests that "we may be on the verge of a new partnership" between Africa and the US, one that recognizes each side has something of value to offer the other, as opposed the traditional relationship of dependency.

President Kagame has been promoting "trade not aid" for some time now. He makes the case that increased US-Africa trade will be a win-win and calls on African states to do more to take advantage of AGOA. He focuses on the vital role the private sector plays in driving economic growth and prosperity and acknowledges that African countries have not done a good enough job supporting this sector. He even connects the dots and argues that the private sector is essential for building "capable, reliable, and transparent societies."

Where I disagree with President Kagame is on his call for US taxpayers to increase our funding of the Export-Import Bank and OPIC (the Overseas Private Investment Corporation). The Export-Import Bank provides financing to US exporters to help them sell more products and services in overseas markets. President Kagame notes that the Chinese government guarantees 30 times more loans to Chinese investors in Africa than does the US. He believes that increased investment would lead to more profitable opportunities for American firms. He may be correct, but this doesn't necessarily mean that the US government/taxpayers should subsidize these activities. (Coincidentally, the New York Times ran an article the next day that talks about some major problems associated with China's ExIm lending in Africa).

Presumably President Kagame does not like US agricultural subsidies, so why are export subsidies different? We can imagine that he'd view them differently because they have the potential to help his citizens, whereas US ag subsidies do not. But subsidies are subsidies: one group is helped/favored at the expense of others. In the case of exports, US exporters are helped by US taxpayers. Nigerian, Tanzanian or Sri Lankan exporters may not have a comparable benefit yet they have to compete against the US producers for market share. Many people are critical of our protection of US cotton growers, should we be similarly critical of our protection of US tool manufacturers? While export subsidies are often sold as a way to "level the playing field" what they really do is create a plateau -- one that's difficult for many developing-world entrepreneurs to climb.

- Karol