Ignore Foreign Subsidies

by Don Boudreaux on March 9, 2007

in Politics, Trade

In my latest column in the Pittsburgh Tribune-Review I argue that subsidies allegedly paid — or even unquestionably paid — by foreign governments to exporters within their jurisdictions do not justify any "retaliatory" actions by Uncle Sam.

Here’s my concluding paragraph:

I know of no cases in which a country was impoverished, or even
measurably damaged, by its refusal to "retaliate" against alleged
instances of foreign subsidies. This fact, combined with the ease of
abusing the ability to accuse foreign rivals of being subsidized,
counsels strongly in favor of our own government turning a deaf ear to
such accusations.

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{ 2 comments }

Kent Gatewood March 9, 2007 at 1:17 pm

Should private companies that have the right to seek legal help not look to the courts? Those rights might come from existing trade treaties. Should the treaties be repealed?

Martin March 10, 2007 at 9:49 am

You've been at the Mises Juice again.

"One justification for this policy of unilateral free trade was explored in my previous column: Such subsidies are, in effect, a gift to consumers in America. The chief losers continue to be foreign taxpayers."

Hmm, unilateral free trade…sounds a bit too much like 'Unilateral nuclear disarmament' for my taste…it reeks of zealotry…

"Does a government subsidize an industry if it cuts that industry's taxes?"

Specifically that industry's, yes. A universal corporation tax cut, no.

Don, I'm probably begging for egg to be thrown in my face here but are you actually aware of ONE specific industry whose taxes have been given preferential treatment over anothers?

Has this ever actually happened? Anywhere?

I mean, in a normal country, like America or Britain…

"How about if the government builds a first-rate system of highways, roads and bridges in proximity to the chief firms in an industry?"

Only if everyone has to pay for them and nobody other than the 'chief firms' get to use them.

Again, has this ever happened?

"Is an industry subsidized if it benefits from a government-financed engineering school? "

Only if it pays no or reduced taxes and takes a disproportionate number of the graduates.

Again, has this ever happened? Anywhere?

"How about if some of the industry's firms are paid by government to build cutting-edge military equipment?"

If they're paid by the domestic government to produce 'cutting edge' military equipment, it's presuably for the government's own use. In that case the government doesn't seem to be subsidising the corporation – the taxpayers working for the corporation seem to be subsidising the government.

By having taxes deducted they're actually losing on the deal.

"Are firms that depend upon export markets subsidized if their government provides a top-flight navy to ensure the safety of cargo ships sailing under that country's flag?"

Welcome to the 19th Century! Shiver me timbers, matey, there's French privateers to starboard!

Don, the last actual case of piracy that was recorded in Scotland happened in 1971, when a group of fishermen got drunk and stormed the wheelhouse.

Really, Don, when the last time the US Navy fired on pirates? When? Before WW1?

And if they still do it, how often do they do so?

Come on!

"Do governments that use tax revenues to maintain law and order and ensure reliable enforcement of contracts subsidize businesses within their borders?"

A Jim Morrison moment…Come on down to the other side…

You have a JD, right? You are a lawyer, right?

I'm not even going to bother, because that sentence is economistic absurdism at its very worst.

George Mason must be spinning in his grave.

"These other governments will retaliate with their own allegations of unfair subsidies — alleging, for example, that Boeing is unfairly subsidized by the many contracts that it receives from the Pentagon."

They should develop their own indigenous aircraft manufacturing capacity.

Let them drink aviation fuel.

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