The Reagan administration, in what would be a complete reversal of longstanding trade policy, is considering providing a $250 million subsidy to help a company in Michigan wrest a major New York City subway car contract from a Canadian corporation.
The administration has angrily criticized the Canadians for providing low-interest, subsidized loans to New York City to help finance the purchase of 825 subway cars from the Bombardier Corp. of Quebec, complaining that the interest rate is well below the minimum level formally agreed to by the major industrial nations.
But the administration, under pressure from Congress and organized labor to help protect American jobs from unfair foreign competition, is seriously considering matching the Canadian subsidy to put the company in Michigan in an equally competitive position, a Treasury Department official said yesterday.
The official, who asked not to be identified, conceded that the costs of matching the Canadian offer might exceed the benefits to the government, but said a matter of principle is involved.
"You want to show the predatory financiers of the world it's not going to pay to come into our market and dump," the Treasury official said. "It's a matter of principle, not necessarily cost beneficial."
"It's not something we're tremendously happy about," said Donald E. deKieffer, general counsel for the office of the U.S. trade representative. "We're in a box on this one. Are we going to let somebody win this thing without using everything at our disposal?"
Other trade officials at Treasury and the Export-Import Bank said the administration is angry about the Canadian deal and wants to fight back. Government trade officials claimed the action wouldn't be a change of administration policy, but they said the administration doesn't want the Canadians "to walk off with this one."
The New York City Transit Authority awarded the contract to build 825 subway cars to Bombardier over bids by The Budd Co. of Troy, Mich., a wholly owned subsidiary of a German firm, and France's Francorail.
The Canadian company's bid allowed the transit authority to borrow 85 percent of the cost of the cars at a 9.7 percent interest rate, which is below the 11.4 percent rate agreed upon as a minimum by the major industrialized nations. The financing was to be provided by a Canadian financing agency. However, the Canadians said they only made that bid to compete with Francorail, which made a similar offer.
Like their counterparts in other recent Republican and Democratic administrations, Reagan administration officials have condemned the use of "predatory" loan subsidies as a serious threat to free trade.
But the subway car contract has become a rallying point for labor and some business leaders who contend that foreign firms continually take away American jobs at a time when the United States is suffering record unemployment.
The Treasury official said the Michigan congressional delegation is pressing Treasury Secretary Donald T. Regan to match the subsidy.
But administration officials fear that if they help one firm, others will line up to ask for subsidies, sources said. "If you do that once, doesn't everyone line up to raid the public till?" one source said.
Reports of the administration's possible shift on the subway issue drew mixed responses from experts.
"I think they may be bluffing," said Lawrence Krause, senior fellow in economics at the Brookings Institution. With the government's tight budget, "It's silly to make an issue of this," he said.
But C. Fred Bergsten, an assistant Treasury secretary under President Carter disagreed. "I have always felt one has to fight fire with fire in this business. Though it's not a wonderful thing to do, I think it's the best course."
Regan must make a decision by July 15, the last date in which the transit authority can cancel the agreement with Bombardier, deKieffer said.