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In this paper, we will develop a model of trade and localization, with two countries which differ in productivity levels. Public spending has two possible outcomes: a direct subsidy to immobile households or a wage subsidy to mobile firms. We will show how at the subsidies equilibrium, the country with the higher level of productivity provides firms with a lower after-tax subsidy. Despite this less generous policy, the former country can host a larger share of firms such that its total spending can be higher than in the low-productivity country when trade costs are low enough. Welfare analysis suggests that the second-best optimum requires an increase in subsidy to households in both countries when the economies are weakly integrated, or that the productivity gap is low, and alternatively, a significant portion of capital owners reside outside both economies.