United States Export Subsidies in Wheat: Strategic Trade Policy or Expensive Beggar‐Thy‐Neighbor Tactic?

Abstract

Abstract This paper examines the domestic and international impacts of the U.S. Export Enhancement Program (EEP) for wheat. EEP uses targeted in‐kind subsidies to expand U.S. exports and was designed specifically to compete with subsidized exports from the European Community (EC). We argue EEP cannot be welfare‐improving for the U.S., even considering strategic trade theory. We then model EEP as an in‐kind, constrained, targeted export subsidy and determine its price, quantity, and budgetary effects. Empirical results show that no exporting country gains from EEP and that the intended loser, the EC, is only slightly harmed. We find the export subsidies generate only a small increase in U.S. wheat exports. EEP is an expensive program; based on our estimates for 1988, government cost of additional wheat exports under EEP reached $@@‐@@469 per metric ton.