for "low prices means less profits", i think we are viewing this statement at different viewpoints. my point of view is not the consequence caused by factors in the market, but the most direct consequence of reducing prices. i mean, i'm standing on the viewpoint of the consequence of reducing the price of only one product, and the profit that this single product can generate to the producer.
lower prices under the circumstance of deflation can cause losses of profits, because, if consumers' damand does not grow as fast as the growth in products produced, many products will be plugged in the market as no one wants them. but during the production process, producers had already spent lots of inputs in producing them. so, if these products can't be sold, producers won't get money back from their outputs, that means, to themselves, they had produced useless products which won't give them any profits.
and then, they will need to lower prices in order to do the clearance of these plugged stuff. in some cases, especially when the amount of supply is too excessive, producers might need to cut prices to a level below cost, because recieving only 50 cents from the sale of a product which costs 1 dollar to make, is still better than getting nothing at all. however, this is still a loss, and the business will only try to minimize this loss, but cannot avoid it.
so, now, relate the above situation to the govt. assistance. what i was trying to state was: if the govt assistance or subsidies increase the amount of products produced, at a global scale, first of all, even though the consumer demand is theoretically unlimited, the pace of its growth is still unpredictable, it can be fast or slow. HERE is one crucial thing i didn't mention earlier and sorry about this: standing on a monetary point of view, low level of demand can be caused by different levels of money supply by each country's central bank, which will influence the demand level of the consumer and the value of currencies in different parts of the world, and the income level is another factor that would affect demand for products; since people in many countries are suffering from low purchasing power of their incomes, which means they will consume less, and adding the effect of exchange rates into it, the purchasing power of these people's incomes might be much lower. one thing should be noticed is that, wage levels in many NICs and developing nations are mainly determined by laws rather than union, which means the minimun wage levels in these countries are often set by the govt. therefore, if every country gives subsidies to their industries, the global outputs of certain types of products will increase rapidly, and the increased amount of products would not immediately be fully consumed by all consumers, generating excessive supply, and prices will largely fall, and those excessively supplied products will then be plugged in the market. in order to minimize the loss, firms will have to cut prices, but they will still lose. but at this stage, their losses still include govt. assistance.
even though the subsidy can minimize the cost, but the point is that, the govt. can only pay for a part of your cost in production. If the situation above occurs, in a short run, it probably won't matter at all, but in a long run, if the govt. increases the subsidy in order to finance the extensive costs by private firms, the govt. will also face extensive budget deficit. therefore, the govt. won't increase the amount of subsidies any more, but retain it at a certain level. but here is a problem, which is, once such deflationary phenomenon appears, the govt. spending on the subsidy will seem like wasting money, because even though you are supporting your firms to produce more and more products, but these products cannot be exchanged in the market and gain profits as producers from other nations are also competing against your own industries by also recieving subsidies. if you regard a govt. as a business enterprise, and regarding industries as machines provided for production, you might find that the govt. now is like a business spending lots of funds but gaining less. so, at this stage, the govt. might stop supporting domestic industries financially.
so, then, in the global economy, as the level of competition increases and finally evolves into a vicious competition due to the excessive supply of a homogeneous product, and many products are plugged, exporters in different nations will face the loss of money, and they have to cut their prices on this product in order to do the clearance, or say, to minimize the loss. some firms might also reduce the number of people employed, because, at this stage, the govt. assistance cannot compensate for their losses even though the govt. is still assisting private firms.
ANYWAYZ...... all these things above are my own opinions and my analysis according to my own reading and my interpretation of the things i'd read... so if there are any errors, please point them out...