A Subsidy Race for Clean-Tech Dominance: A Comparative Analysis on the Impact of Subsidies on Clean-Tech Trade Flows between China, the EU, and the US

Abstract

As clean-energy technologies become central to economic and industrial strategy, governments are increasingly deploying subsidies to promote domestic production and global competitiveness. This thesis investigates how such subsidies affect international trade flows, focusing on China, the EU, and the US, during the years 2013-2023. Using a Callaway-Sant’Anna difference-in-differences approach, it estimates the causal effects of subsidy programs on trade in two critical sectors: Machinery, Mechanical Appliances & Electrical Equipment and Vehicles & Transport Equipment. Drawing on Global Trade Alert and UN Comtrade data, the analysis reveals that domestic subsidy programs produce mixed outcomes: Chinese subsidies are associated with significantly higher imports of machinery, whereas US’ subsidies led to reduced vehicle imports and increased vehicle exports. EU domestic subsidies had modest and statistically weak effects, reflecting a later and less aggressive rollout. Chinese subsidies on EU an US trade levels, however, triggered significant international spillovers: EU machinery imports rose by 22%, while EU vehicle exports fell by 34%, suggesting competitive displacement. Yet, Chinese subsidies also spurred a rise in EU and US machinery exports. These findings carry important policy implications: subsidy races can distort trade patterns, benefitting the initiating country while harming others’ industries, but they may also favor trade partners through supply-chain linkages.