U.S. Export Subsidies in Wheat: Strategic Trade Policy or An Expensive Beggar-My-Neighbor tactic?
Carter, Colin A.
This paper examines the domestic and international impacts of the United States' Export Enhancement Program (EEP) in the wheat market. EEP uses targeted in-kind subsidies to expand U.S. exports and was specifically designed to compete with subsidized exports from the European Community (EC). Theoretically, we argue that the EEP program cannot be a welfare improving trade policy for the U.S., even when considering strategic trade theory. We then model EEP as an in-kind, constrained targeted export subsidy and determine its price, quantity and budgetary effects. Our empirical results show that no exporting country gains from EEP and that the intended loser, the EC, is only slightly harmed. We find only a small increase in U.S. wheat exports due to the export subsidies. EEP is an expensive program - based on our estimates, the cost of additional wheat exports under EEP reached $469 per metric ton in 1988.
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