Grinding Away at Protectionism

by Don Boudreaux on September 27, 2010

in Myths and Fallacies, Seen and Unseen, Trade

Here’s a letter to the Washington Post:

Robert Samuelson joins the mob out to lynch Americans who buy Chinese products (“The makings of a trade war with China,” Sept. 27).  This mad mob insists that taking advantage of good deals offered by Chinese producers is unwarranted because the Chinese renminbi is (allegedly) undervalued.

Suppose Bill Gates subsidizes his children’s coffee shops, allowing the younger Gateses to charge prices for their java lower than they could otherwise profitably charge.  Would Americans be harmed by the elder Gates effectively paying part of the price for every cup of coffee consumed by customers of his children’s coffee shops?

If you’re unsure of your answer to the above question, consider this next question.  Suppose Bill Gates – rather than subsidize his children’s coffee-retailing efforts – instead invests in R&D aimed at discovering a method to lower the retail cost of coffee by dramatically reducing the number of workers required to roast, brew, and serve coffee.  If his investment succeeds, both the price of coffee at retail, and the number of workers employed by coffee shops, fall.  Would Mr. Samuelson scold Mr. Gates for this investment on grounds that it lowers the demand for some workers?

In both cases, coffee prices fall; coffee output rises; employment in coffee retailing falls; and the party that caused these happy outcomes is a rich agent that spent money to increase coffee’s availability.  From the standpoint of Americans, Chinese subsidization of its exporters is absolutely no different: we get more output at lower costs.  What’s the problem?

Sincerely,
Donald J. Boudreaux

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{ 1 comment }

Russ Roberts September 29, 2010 at 5:23 pm

Does free trade within the United States have the effects you claim? Do wages get driven down to those of Mississippi? Do all the jobs go there? Do you think that if Massachusetts kept out Mississippi’s products, it would be more prosperous?

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