Do government subsidies drive global imbalances?

14 August 2026

By Maria Grazia Attinasi, Lukas Boeckelmann, Isabella Moder, Til Pommer and Tajda Spital

Concerns about imbalances in the flow of goods and money have recently resurfaced.^[1] The main cause of global imbalances is still the gap between how much countries save and invest.^[2] But the debate has also turned to policies that shape trade flows, including the growing use of industrial subsidies.^[3]

To examine this issue, we use the fresh OECD dataset on Manufacturing Groups and Industrial Corporations (MAGIC), which provides internationally comparable firm-level data on government support. We compare the public support received by large firms in the United States, China and the euro area. We also examine how subsidies relate to firms’ export performance and the potential implications this has for global trade imbalances.^[4] These imbalances raise concerns as they can fuel trade tensions and protectionist responses, as well as create financial vulnerabilities.

Here are our findings in a nutshell: Government support for large firms is rising globally. Chinese firms, however, stand out for both the amount of support they receive and the number of sectors receiving support – with those receiving more support also tending to export more. This link is much weaker in the United States and the euro area. And while subsidies may not explain a country’s overall trade surplus or deficit, they can influence trade imbalances in key industries.

Yet further research is needed to establish a robust causal link between subsidies and exports. We argue that examining this link at sector level is important, as trade imbalances in strategically important industries such as solar technology, semiconductors and automobiles can put employment and industrial capacity in trading partners under pressure.

Why are industrial subsidies back in focus?

Let’s take a step back and look at the wider picture. Global imbalances are commonly defined as the sum (regardless of whether they are positive or negative) of individual countries’ current account balances as a percentage of world GDP. This captures the overall size of external surpluses and deficits rather than the net global balance.

Global imbalances climbed to 3.7% of world GDP in 2025 (IMF, 2026) after falling to 2.8% in 2019.^[5] Historically, the United States, China and the euro area have been the main contributors to the accumulation of global imbalances (Chart 1, panel a). This points to a marginal increase compared with 2024 (3.6% of world GDP) amid a widening of China’s current account surplus to a record level of 0.6% of world GDP (or 3.8% of Chinese GDP). The United States continues to run the largest deficit (0.9% of world GDP). Meanwhile, the euro area continues to record persistent surpluses (0.3% of world GDP), though these are considerably smaller than China’s surplus and the US deficit.

What’s behind those imbalances? With the exception of the euro area, most of the current account balances of the United States and China come from the goods trade balance (Chart 1, panel b).^[6] China’s current account surplus has increased steadily since it joined the World Trade Organization in 2001. Over time its export portfolio has diversified from low-cost manufacturing into higher-value sectors such as machinery, semiconductors and electric vehicles. By contrast, the United States runs broad-based goods deficits across most sectors, partly offset by agriculture, energy and services exports. The euro area is more mixed, with energy import dependence offset by surpluses in goods (e.g. machinery, capital goods and consumer products) and services trade.

Chart 1

Global imbalances are increasing again, primarily driven by the three largest economies

(percentages of world GDP and percentage points)

a) Global imbalances and country contributions since 1990	b) Composition of current account balance

Discussions among G7 and G20 countries focus on large and persistent external imbalances and the risk of trade tensions and protectionist responses.^[7] A novel aspect in this debate is the role played by industrial policies, as governments increasingly use these tools to address concerns about economic security, strategic autonomy and shifting trade patterns. Industrial policy typically refers to micro-level measures targeting firms or sectors. Their aim is to support innovation, correct market failures and promote long-term growth (IMF, 2024 and OECD, 2024).^[8] However, their impact on the current account balance is not clear a priori. Gourinchas et al. (2026) argue that micro industrial policies such as subsidies and tariffs have ambiguous effects on current account balances and typically require complementary macro policies to have a meaningful impact on external balances.^[9] By contrast, macro industrial policies operate at the country level and influence broader economic conditions, making them more likely to affect the current account. For example, policies that encourage savings or keep the exchange rate undervalued can generate current account surpluses by holding back domestic consumption.

This blog post looks at micro industrial policies in the three largest economies. Focusing first on the intensity and sectoral scope of government intervention, we then investigate whether these subsidies are linked to trade imbalances, particularly in strategic industries.

Four facts about global subsidies

To get a better idea of where support is going, we use a new OECD database on Manufacturing Groups and Industrial Corporations (MAGIC), which is based on publicly accessible information. It records support received by 525 large manufacturing firms across 15 sectors in 52 countries from 2005 to 2024. Government support is classified into below-market-rate borrowing, government grants and tax concessions.^[10] The data show support received by selected companies channelled through different instruments. Although not all companies are represented, the database provides unusually detailed and comparable information. It reveals four key facts.

First, industrial subsidies mainly support a few strategic industries. Since the global financial crisis, government support as a percentage of global firms’ costs (i.e. the sum of costs across sectors and countries) has almost doubled, reaching USD 108 billion in 2024. The largest increase can be observed in China (Chart 2, panel a). Strategic industries such as automobiles and semiconductors received the largest share (Chart 2, panel b). Across sectors, subsidy intensity (i.e. subsidies relative to costs) is larger for semiconductors and solar panels. Here, government support in the last five years averaged around 3.9% and 3.6% of firms’ costs, compared with 0.8% in the automotive industry. Subsidies tend to be awarded relatively more to export-oriented companies. And state-owned companies get a substantially bigger share than private companies, especially in Asia. These patterns suggest that government support tends to prioritise strategically important sectors.

Chart 2

Global subsidies

(percentages of global firms’ costs)

a) Subsidies by region	b) Subsidies by sector

Second, while economic theory suggests that subsidies should be targeted to address specific market failures, OECD data reveal a much more heterogeneous pattern. Companies in China stand out in terms of the scale and sectoral scope of the support received, when measured as a percentage of domestic firms’ costs. In 2024 subsidies accounted for about 2% of domestic firms’ costs in China, compared with 1.4% and 0.6% in the United States and the euro area respectively (Chart 3, panel a). Moreover, China in particular targets a large number of sectors, as opposed to the United States (Chart 3, panel b). Meanwhile, in the euro area, government support has become broader-based in recent years. Between 2010 and 2024, Chinese companies received mainly below-market-rate borrowing, while companies in the United States received mostly tax concessions and those in the euro area mainly government grants.

Chart 3

Scope and size of industrial subsidies vary across countries

(percentages of domestic firms’ costs and HHI index, three-year moving average)

a) Evolution of subsidies across major economies	b) Sectoral concentration of subsidies

Third, the sectoral allocation of subsidies has shifted over time, particularly among Chinese companies. Between 2010 and 2024 subsidies granted to sectors linked to real estate (e.g. aluminium, cement) or more mature industries decreased. At the same time, strategic sectors such as semiconductors, transport, fertilisers and chemicals saw an increase in subsidies (Chart 4). For the United States and the euro area, the pattern is less clear-cut. Here, the sectoral allocation of subsidies has been relatively stable over time. The only exception are the solar and telecommunication sectors, where we observe shifts in the opposite direction in the United States and the euro area.

Chart 4

Sectoral allocation of subsidies: visible strategic shift in China

(percentage point changes)

a) Change in subsidies in China	b) Change in subsidies in the euro area and United States

Fourth, the Chinese industries that receive more support also tend to export more, although this does not prove that subsidies caused the export gains.^[11] OECD data point to a positive correlation between subsidy intensity and foreign revenues (a proxy for exports) across Chinese industries. Heavily subsidised sectors such as semiconductors and solar energy show some of the strongest export gains (Chart 5, panel a). In the euro area, the positive correlation is driven by a single outlier (i.e. semiconductors), with little evidence of a positive association otherwise. In the United States, data do not suggest a systematic relationship between subsidies and export performance (Chart 5, panel b).

But the link may also run the other way: governments may support sectors that were already strong exporters. To better isolate the role of subsidies in driving (our proxy for) exports, we estimate an econometric model for the Chinese sectors covered in the MAGIC database.^[12] Preliminary results point towards two key findings.

First, increases in government support are followed by higher domestic revenues and exports (proxied by foreign revenues) for the subsidised Chinese companies. The effects are strongest in the first two to three years after a subsidy is employed and gradually fade thereafter (Chart 6, panel a).

Second, while subsidies appear to have made only a modest contribution to Chinese firms’ overall export growth, in relative terms their impact is much larger for exports by strategic industries. In sectors such as automotive, solar panels, wind turbines and semiconductors, subsidies are estimated to have contributed between four and fourteen times more to export growth compared with the overall sample (Chart 6, panel b).

Chart 6

Contribution of a subsidy shock to foreign revenue growth

(percentage point change to one standard deviation subsidy shock, ratio of sector-specific vs aggregate subsidy-shock contribution to foreign revenue growth)

a) Impulse response function of foreign revenue growth to a subsidy shock	b) Relative subsidy-shock contribution to foreign revenue growth in selected sectors

Subsidies can have significant effects on strategic sectors’ exports

Industrial subsidies alone are unlikely to drive aggregate global imbalances, which primarily reflect broader saving and investment patterns. But our findings suggest that they may meaningfully reshape trade within strategically important sectors. In particular, if subsidies boost exports beyond what underlying economic conditions would suggest, they may entail significant adjustment costs for trading partners, including job losses or de-industrialisation, ultimately causing trade tensions. This is a topic for future research and the results presented here should be interpreted with caution, as they are based on a relatively small sample of sectors and may not fully separate the effects of subsidies from other factors affecting Chinese firms.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

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