International trade and enterprises

This report discusses the subsidies provided in the agriculture sector, car industry and solar energy industry. It includes the positive aspects and the negative aspects of the subsidies. The report also discusses the impact of subsidies on the economy and the environment.

RUNNING HEAD: International trade and enterprises
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International trade and enterprises

International trade and enterprises 1
Contents
Introduction...........................................................................................................................................2
Subsidies in Agriculture, Car industry, and solar energy.......................................................................2
Positive aspects......................................................................................................................................7
Negative aspects....................................................................................................................................9
Conclusion...........................................................................................................................................10
References...........................................................................................................................................12

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Introduction
The international trade includes a set of actions aiming to exchange goods and services
between countries across borders. It allows companies to compete in the international market
to employ competitive advantage for the products and services. The international trade allows
companies to expand their market share (Bernard, Grazzi & Tomasi, 2015). This report
includes the subsidies provided in the agriculture sector, car industry and solar energy
industry. The agriculture subsidy and car industry subsidy of India and U.S are explained in
detail. The agricultural subsidies are provided to the farmers to enhance agricultural
productivity. The car industry subsidies promote car manufacturers and customers to use
resources available in the country. These subsidies provide benefits to the manufacturers and
focus on increasing production. These provide assistance in the form of cash or tax reduction.
It considers the interest of the public and promotes economic policy. It also promotes
industries by providing financial assistance. The government strives to implement policies
and encourage production and consumption in the industries. The report further includes the
positive aspects and the negative aspects of the subsidies.
Subsidies in Agriculture, Car industry, and solar energy
The agricultural subsidy is a government subsidy which is paid to the agricultural businesses,
organizations, and farms. The subsidies are basically the financial assistance offered by the
government to the farmers by government-sponsored price support programs. These subsidies
are having aim at providing benefits to farmers by stabilizing food prices, ensuring abundant
food production and guaranteeing a basic income to farmers. The agriculture subsidies are
given in various forms.
The agriculture subsidies provided in India
Input subsidies
The subsidies granted through the distribution of inputs at prices less than the regular market
price. There are several subsidies which are categorized under this category:
 Fertilizer subsidy: It includes cheap chemical or non- chemical fertilizers among the
farmers. It is the difference between the price paid to a fertilizer manufacturer and the
price received from the farmers. The fertilizer subsidy ensures low-priced input to the

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farmers, stability in the price of the fertilizers and accessibility of fertilizers to the
farmers. It also provides reasonable returns to the manufacturers (Dupas, 2014).
 Irrigation subsidy: This subsidy is provided to the Indian farmers on the account of
offering proper irrigation facilities. It is the difference between operating and
maintenance cost of irrigation infrastructure and the charges are recovered from the
farmers. It works through various public facilities such as canals and dams which are
constructed by the government. The farmers are charged low prices or no prices at all
for using these facilities.
 Power subsidy: The government charges low rates from the farmers for the electricity
supplied to them. The power is basically used by the farmers for the irrigation
purpose. It is the difference between the cost of producing and distributing electricity
to the farmers and the price received from them (Bronzini & Piselli, 2016). There are
state electric boards in India which either generate power or purchase from other
producers. The farmers are encouraged to invest in pump-sets and bore-wells through
this subsidy.
 Seed subsidy: The high yielding seeds are provided to the farmers at low prices. The
research and development are made on producing such seeds by the government. The
expenditure made on producing productive seeds is granted by the government to the
farmers.
 Credit subsidy: The availability of credits is such a critical problem for the farmers.
The credit subsidy is the difference between the interest charged and the actual cost of
providing credit (Chen, Wen, Wang & Nie, 2017). The farmers do not have enough
collateral needed for the loans. They are not in such a situation that they can approach
the credit market. The government provides loans at low rates to the farmers in the
rural areas. The collateral requirements are also kept less for the farmers.
Price subsidy
The farmers bear loss due to the low market prices instead of making profits. The price
subsidy is the difference between the prices at which Food Corporation procures grains from
the framers and the price at which grains are sold to the traders (Bruckner, 2016). The
government purchases crops from the farmers at a price higher than the market price. This
price is known as the procurement price.

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Infrastructural subsidy: The efforts made by the private sector are not enough to enhance
agricultural production in India. The facilities such as good roads, power, market information,
transportation and the storage facilities are provided by the government so that such facilities
can be availed by the poor farmers (Edmond, Midrigan & Xu, 2015).
Export subsidies: The subsidies which are provided by the government to encourage exports
are termed as export subsidies. The export subsidies are provided by the government to the
farmers who export agricultural products in the foreign market. The farmers earn money for
themselves and contribute in the foreign exchange to the country (Burstein & Vogel, 2017).
The agricultural exports are encouraged which benefits to the domestic economy.
The agricultural subsidies provided in U.S
The U.S government makes a huge investment in the subsidies for the farm businesses.
Insurance
The largest subsidy provided by the U.S government is crop insurance. The insurance is
available for more than 100 crops out of them, corn, soybeans, cotton are the main. Almost
80% of the policies protect against the shortfalls whereas 20% protects against yield
shortfalls. The U.S government pays average it’s 62% of premiums on the subsidies.
Agriculture risk coverage
This subsidy is provided to the farmers when their revenue per acre falls below a benchmark
level. It should be noticed that lower the prices and revenues, larger the subsidies are. This
program covers more than 20 crops (Dür, Baccini & Elsig, 2014).
Price loss coverage
This subsidy is paid to the farmers on the basis of the national average price of crops
compared to the crop price set by the government. If there is a fall in the national crop price
than the large pay-out is made to the farmers. This subsidy covers more than 20 crops. The
farmers can either cover under the agriculture risk or price loss.
Conservation programs
The U.S government runs various conservation programs to improve lands which are used for
the production purpose like conservation stewardship program (Geels & Penna, 2015). There

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are also programs which pay farmers to take land out of production such as conservation
reserve program.
Marketing loans
It is a price guarantee program. The loan is made available to the farmers during the harvest
time so that they can store their crops to sell at higher prices later on. It boosts the income of
farmers.
Disaster Aid
The government has established a disaster aid program for the farmers from wheat growers to
orchard operators. The amount is distributed more for the adverse events in this program
(Hennig & Breustedt, 2018).
Marketing and export promotion
The government spends $1.2 billion on the farm and food promotional activities per year
whereas the foreign agricultural services spend almost $300 million on the marketing
activities.
Research and other support
The government employs scientists and experts from various departments to support the
agricultural industry. The government spends $3 billion on the research for the food and
agriculture every year. This subsidy also supports farmers by providing statistical data and
the data related to the economy (Hud & Hussinger, 2015).
The car industry subsidies in India
Tax deduction
The tax deduction is given to the automobile manufacturers in India under the Income Tax
Act. The grants are provided to the national laboratories and the universities to conduct R&D
programs approved by the authority (Helveston, et. al. 2015).
State incentives
India offers additional incentives for the industrial projects. The incentives are provided
related to rebate in land costs, tariff incentives, concession on the interest on loans and

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reduction in stamp duty (Jones & Kierzkowski, 2018). Some states in the country are
committed to providing land at concessional rates accompanied by 24 hours uninterrupted
power supply.
Financial assistance
The financial assistance of 50% for fixed capital is provided for the investments in buildings
and infrastructure. The automobile industries are also provided 100% electricity duty
exemption for the next 10 years from the starting date of production.
Export incentives
The automobile manufacturers are provided the benefit of 2% on the export of vehicles under
the merchandise export incentive scheme. There are 20 tariffs which are considered sensitive
items and are maintained in the negative list of the trade agreements (Kirwan & Roberts,
2016).
GST
The Indian government has implemented GST, provides subsidies and charges lower excise
duties for the electric and hybrid vehicles. A lower rate of interest is charged on the auto
loans from the customers of rural areas. The government has also cut down the excise duties
on the commercial and passenger vehicles.
The car industry subsidies in the U.S
Hybrid electric vehicles
The national government and the local authority provide financial assistance to the plug-in
electric vehicles. It includes exemptions from the taxes and provides tax credits. These
incentives depend on the size of the battery and the range of the electric vehicle.
Tax credits
The federal and the state government offer financial incentives comprising tax credits. Such
credits are also provided for lowering upfront costs of electric vehicles. The size of the tax
credits depends on the size of vehicle (Kirwan, 2017).
Research and development

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The U.S is providing subsidies for the innovations. The research and development initiatives
are transforming the car industry to respond better to the opportunities. The government has
made an investment of $105 billion on research and development.
Open investment policy
The U.S has exported 2 million on the new light vehicles, medium and heavy trucks over 200
markets worldwide. The open investment policy of U.S attracts a large base of consumers and
highly skilled workforce.
Profitability tax solutions
As the economy is developed the demand for the automobile grows on the daily basis. The
federal and the state government provide tax planning to the automobile companies and
making global effective tax rates (Meng, Shoulin & Jia, 2016). The government also assists
capital expenditure planning.
Vehicle scrappage scheme
It is a special consumer subsidy which aims to increase the demand for cars in the country. It
enables consumers to scrap vehicles which are more than 10 years older. The consumers can
avail discount on the exchange of new vehicles.
The subsidies for the solar energy measure the prices for the consumers below the market
price. The subsidies charges reduced costs from the producers and consumers. The solar
energy subsidies may be in the form of cash or indirect support mechanism such as trade
restrictions, tax exemption and rebates (Allcott, Knittel & Taubinsky, 2015). It also
comprises energy conversation subsidies. All the solar energy subsidies depend on the
subsidies for the development.
Positive aspects
Positive aspects of agricultural subsidies
The agriculture subsidies are designed to increase the income of farmers in the U.S. It is
made possible by raising long-term level of prices and by offering direct payment to the
farmers. Such subsidies influence costa and supply of commodities such as milk, sugar,
cotton, wheat, grains, tobacco, soybeans and more.

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Reduce agricultural imports
The need for the food is growing along with the growing population. The countries like India
and U.S lack agricultural products and required to import products from other countries.
Imported products are usually more expensive than the domestic products. In such a scenario,
the agricultural subsidies encourage farmers to produce more in the domestic country which
leads to more local products and fewer imports (Ouyang & Lin, 2014). In such a way,
reliability can be reduced on the international food sources. Exporting local products can help
countries to gain some economic benefit.
Steady income to farmers
The agricultural subsidies provide financial aid to the farmers and help in purchasing
equipment and technology required for farming. The subsidies also provide infrastructure
facilities for the transport of agricultural produce from the farm to the end users. It is seen
that farmers cannot afford to buy farm infrastructure especially the products which need
heavy capitalization (Penna & Geels, 2015). The farmers do not get income instantly; they
need to wait until the crop rises. In such a scenario, farmers can take help from the
governments in the form of subsidies. Such subsidies can also be used to take care of the
field.
Manage food supply
The countries which produce agricultural products in plenty do not face a problem in the food
supply. The subsidies can be used to make sure that the right amount of crops is produced by
the farmers to serve a huge population. The subsidies provide every possible assistance to the
farmers to produce a greater harvest. The subsidies make possible to manage resources when
there is plenty of agricultural produces (Schaner, 2018).
Risk coverage
The subsidies cover risk coverage for the farmers. If there is a shortage of rainfall, an excess
of rainfall, dearth or famine, the government takes up the charge and provides financial
assistance to the farmers. They help farmers and help to bear the loss and provide them the
opportunity to start again their work. The farmers are provided with good quality and hybrid
seeds along with manure and fertilizers (Sahu, 2015).

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Positive aspects of the subsidies for the car industry
Good value of scrap items
The subsidies provided to the car industries gives the opportunity to the customers to get
exchange their old cars with new cars. The consumers get a good amount of discount while
purchasing a new vehicle. These subsidies are limited to the electric vehicles.
Air quality
The subsidies provided by the government to improve the quality of subparts used by the car
manufacturers. The subsidies focus on improving air quality so that the pollution can be
reduced in the environment. The focus is made on using filters which can reduce the harmful
effect on the environment.
Technology
The manufacturers are required to use the green technology under the subsidy provided by
the government. It provides direct benefits to the companies such as extra jobs.
Increased production
The subsidies are provided by the government to the car manufacturing companies to
produce the car at minimum costs so that everyone can afford to purchase cars. The good
volume of production reduces the cost of the companies. It ultimately leads to increase the
profit of the companies and results in increased revenue of the government treasury (Thow,
Downs & Jan, 2014). The subsidies also help companies to gain competitive advantage from
the international car manufacturers. The hybrid system is advised to use under subsidies to
get better results.
Negative aspects
Negative aspects of agricultural subsidies
Need government intervention
The farmers require government intervention as the subsidies directly affect the price and
supply of commodities. It is considered that the government never want the price to come
naturally through supply and demand. It is because it would make agricultural subsidies
senseless. It will be predicted by the market fluctuations.

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Lack of product diversity
All types of crops do not fall under the subsidy. The farmers who really need subsidies are
seen to grow crops dictated in the program forcefully. It affects both the variety and diversity
of the agricultural products in the market. It leads to the failure of the purpose of lowering
agricultural imports because the products which are not produced locally have to be sourced
from somewhere else (Yarbrough & Yarbrough, 2014).
Damages environment
Some subsidies are harmful to the environment. The agricultural subsidies ignore the
traditional method of farming which includes alternating and diversified crops. It is seen that
continuous planting of the similar crop for a long time can reduce the productivity of land and
leads to soil erosion. The use of certain chemicals can also lead to a disaster of the
environment.
Negative aspects of the subsidies for car industries
Reduced incentives
The government subsidies reduce incentives for the car industry to cut costs. The government
in India and U.S should stop subsidizing firms unless there is a social benefit to the
companies. An automobile company which uses environmentally friendly technology should
be given positive externality.
Job losses
The car industry is suffering from the problems like a recession, the credit crisis and
oversupply. The large subsidies do not help companies to deal with unemployment. The job
losses are avoided in the subsidy (Zuniga‐Vicente, Alonso‐Borrego, Forcadell & Galán,
2014).
Conclusion
The subsidies have an important role in the growth of the companies. These are the cash
grants or loans which are provided by the government to encourage activities. The subsidies
rely on the number of goods and services provided. These are the financial benefit provided
to the industries in the form of unfair advantage. The subsidies provided to the agriculture

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sector in India and U.S resulted in reducing agricultural imports, steady income to the farmers
and risk coverage related to crops from rainfall or natural calamity. The subsidies provided in
the car industry results in a good value of scrap items, enhanced technology, air quality and
increased production. The main negative aspect realized in subsidies is government
intervention. But this intervention is sometimes unnecessary but aims to increase the profits
of the farmers as well as car manufacturers. The subsidies have more positive influence than
negative.

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References
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subsidies. American Economic Review, 105(5), pp.187-91.
Bernard, A.B., Grazzi, M. and Tomasi, C., 2015. Intermediaries in international trade:
Products and destinations. Review of Economics and Statistics, 97(4), pp.916-920.
Bronzini, R. and Piselli, P., 2016. The impact of R&D subsidies on firm innovation. Research
Policy, 45(2), pp.442-457.
Bruckner, T., 2016. Agricultural Subsidies and Farm Consolidation. American Journal of
Economics and Sociology, 75(3), pp.623-648.
Burstein, A. and Vogel, J., 2017. International trade, technology, and the skill
premium. Journal of Political Economy, 125(5), pp.1356-1412.
Chen, Y.H., Wen, X.W., Wang, B. and Nie, P.Y., 2017. Agricultural pollution and regulation:
How to subsidize agriculture?. Journal of Cleaner Production, 164, pp.258-264.
Dupas, P., 2014. Short‐run subsidies and long‐run adoption of new health products: Evidence
from a field experiment. Econometrica, 82(1), pp.197-228.
Dür, A., Baccini, L. and Elsig, M., 2014. The design of international trade agreements:
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Edmond, C., Midrigan, V. and Xu, D.Y., 2015. Competition, markups, and the gains from
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Geels, F.W. and Penna, C.C., 2015. Societal problems and industry reorientation: Elaborating
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subsidies drive electric vehicle adoption? Measuring consumer preferences in the US and
China. Transportation Research Part A: Policy and Practice, 73, pp.96-112.
Hennig, S. and Breustedt, G., 2018. The Incidence of Agricultural Subsidies on Rental Rates
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Hud, M. and Hussinger, K., 2015. The impact of R&D subsidies during the crisis. Research
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