Export subsidy

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Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market through low-cost loans or tax relief for exporters, or government financed international advertising or R&D. An export subsidy reduces the price paid by foreign importers, which means domestic consumers pay more than foreign consumers. The WTO prohibits most subsidies directly linked to the volume of exports.

Export Subsidies are also generated when internal price supports as in a guaranteed minimum price for a commodity creates more production than can be consumed internally in the country. That is without undermining the guaranteed minimum price. These price supports are often coupled with import tarrifs. Instead of letting the commodity rot or destroying it the government exports it. Saudi Arabia is a net exporter of wheat, Japan often is a net exporter of rice.

Export subsidies can also be a perpetual inflation machine: the government subsidises the industry based on costs, but an increase in the subsidy is directly spent on wage hikes demanded by employees. Now the wages in the subsidised industry are relatively higher than elsewhere, which causes the other employees demand higher wages, which are then reflected in prices, resulting in inflation everywhere in the economy.