The problem is that when you have political allocation of capital, you create a very inefficient economy. Sure, if the goal is to copy someone else that has pro

The problem is that when you have political allocation of capital, you create a very inefficient economy. Sure, if the goal is to copy someone else that has proven a successful approach you can make good progress with subsidies. But after you drive them out of business, you are stuck with this politically directed R&D agenda that has no one else to copy but is not able to innovate on its own. You quickly lose your way with inefficiencies. This must be weighed against the fact that subsidized businesses will outcompete less subsidized businesses, and so if you want to bankrupt your foreign competitors you can do that by subsidizing your own domestic firms. One approach is to not trade or impose targeted tariffs on government subsidies to help balance the scales. That was basically the idea of the 90s era trade agreements, which hasn't worked out so well, as targeted tariffs don't work. You apply a broad, long lasting blanket tariff on all goods coming from the offending country or nothing. Another approach is to jump in with massive subsidies of your own and create a race to the bottom where every government has to subsidize any industry that some other government is subsidizing. I'd like to throw restrictions on foreign capital inflows into the mix. A combination of banning capital inflows, some subsidies, and some broad, permanent tariffs against bad actors like China might be the best option to deal with the "spend anything to win" problem. Really we don't know. What I don't want to see is governments rushing in to subsidize industry in a race to the bottom. That is bad for innovation as well as for democracy. What the free trade crowd needs to realize that free trade is vulnerable to the subsidize-attack which can destroy your own industries, and right now they have an ideological commitment that is blinding them to this reality.