Comparison Between Subsidy Policies on Photovoltaic Industry of China and the U.S.: Based on Three-Stage Sequential Game Models

Abstract

This paper firstly analyzes the effects of China’s and the U.S. subsidy policies through comparing the developing strategies, specific subsidies and industrial conditions. Then by establishing two three-stage sequential game models, the inherent defects of China’s subsidy are studied. Finally the advantages of the U.S. industrial and trade policy portfolio are analyzed to give policy enlightenment. The result shows: China’s export oriented production subsidies could not maximize social welfare in the short term. It was not conductive to the development of core industrial competitiveness because of the extrusion effect of R&D. What’s more, it tended to provoke quick and excess production capacity which led to a large number of low-priced exports, causing trade conflicts and loss of oversea markets. While the U.S. combined regulatory compliant subsidy and trade remedy. Market subsidy increased the demand and helped industry to expand production scale and lower the cost. R&D subsidy encouraged R&D investment and improved industrial competitiveness. Trade remedy was used to prevent foreign low-priced import shocks and guarantee the effectiveness of the two subsidies. To sum up, China shall change the export-oriented development strategy, develop core competitiveness on technology, eliminate unreasonable subsidies, make good use of market subsidy, R&D subsidy and trade remedy measures.