According to the U.S., what constitutes as fair subsidies?

Question

The U.S. asked China to do this during the trade negotiations:

China immediately will cease providing market-distorting subsidies and other types of government support that can contribute to the creation or maintenance of excess capacity in the industries targeted by the Made in China 2025 industrial plan;

However, why does the U.S. think it's unfair? And also what would constitute fair subsidies since the U.S. is known to give massive subsidies to companies like Boeing and Ford? Is it me or were logic and fairness thrown completely out of the window during the U.S. trade negotiations?

Answer 1

One potential approach to this question would be to look at the agreements made under the WTO, of which both China and the US are members.

According to the WTO there are two different categories of non-allowable subsidies.

Prohibited subsidies... require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade.

There are also "Actionable subsidies" which are not permitted if the complaining country can show that these subsidies cause damage.

The agreement defines three types of damage they can cause. One country’s subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market.

Both the US and China have brought complaints about each other's subsidies to the WTO in the past. However the present US administration has expressed a lot of mistrust towards all forms of multilateral institutions including the WTO. By taking unilateral action instead, the US effectively dodges the question of defining fair versus unfair trading practices in a clear and rational way.

Answer 2

China has a lot of problems protecting companies' trade secrets and sometimes providing globally-agreed-unfair subsidies.

A country should subsidize a company or industry temporarily to provide a niche to grow. However, this should not make the market uncompetitive.

There is no clear answer, but if government subsidy favors a company and makes it almost impossible for anyone in the industry to compete then it would be considered unfair.

Ex. Providing a company subsidy to develop a 5G network. This is good since there is no outstanding infrastructure. This promotes innovation and opens up a field to compete in.

Ex. Providing a company subsidy to weed out international competitors for the sake of promoting national companies. This drives down the competition and is considered bad.