A Note on Relative ‘Efficiencies’ in Trade

by Don Boudreaux on October 12, 2012

in Subsidies, Trade

Having quoted Mark Perry’s re-write of a news report on the Obama administration’s new tariffs on Chinese-made solar panels taxes on Americans who buy Chinese-made solar panels, I heartily approve of Mark’s post.  But I have one tiny nit to pick with it.

In his post Mark describes the Chinese solar-panel producers as “more efficient Chinese rivals.”  I wish Mark would have not described these Chinese producers as such.  The reason is that such a description is too easily mistaken as a weakness in Mark’s superb argument.

I don’t know if the Chinese producers in question are in fact more efficient or not than the American firms seeking protection from these Chinese producers the ability of Americans to spend their money on solar panels offered for sale by these Chinese producers.  It seems likely to me that the government in Beijing really is subsidizing these Chinese producers and, therefore, it’s possible – possible, not at all certain - that the only reason these Chinese producers are able to offer attractive deals to Americans is because they are subsidized.

But this fact is irrelevant for Americans.

The relevant fact is that the Chinese producers are offering solar panels for sale to Americans at prices that many Americans find attractive.  Period.  The source of these low prices is largely irrelevant.

I say largely irrelevant because I recognize that circumstances are possible where the source of low prices might be relevant – say, if the Chinese government kidnapped 50 million Chinese children and forced each of them to work in factories 18 hours a day at zero pay to produce solar panels for sale to Americans.  Such scenarios are possible, although hardly as plausible as many protectionists – ever on the hunt for excuses to create monopoly privileges for domestic producers – would have us believe.  (Slave or child labor might be a narrowly efficient way, from the producer’s standpoint, of picking cotton; it is most assuredly not an efficient way, even from the producer’s narrow perspective, of producing complex manufactured goods such as solar panels.  Those who question the claim of the last sentence need to ask themselves – and to explain to others – why China is a much more successful exporter today than it was when Mao was at the ‘helm’ of that country.)

Because Chinese-made solar panels are in fact not produced with slave labor (or by some other similarly offensive means), the source of the low prices of these panels should be, I repeat, irrelevant to Americans.

It won’t do here to scream “Beijing subsidizes!”  Yes it does.  And Uncle Sam subsidizes.  And European governments subsidize.  And the Japanese government subsidizes.  Most (all?) governments subsidize.   If subsidies in this case – taxes extracted from Chinese citizens and then bestowed for political purposes on select Chinese producers – are such an egregious offense to humanity that Uncle Sam should violate Americans’ freedom to purchase Chinese-made solar panels, then Uncle Sam himself is such an egregious offender of morality and common human decency that Americans would be justified by that fact alone in disobeying Uncle Sam’s diktats.

Because Chinese success in selling to Americans springs from no offenses committed against the Chinese people that are any more egregious than are the offenses that Uncle Sam routinely commits against Americans, there is no ethical case to be made for one particular tax-and-subsidize-happy government (that in Washington) to impose yet further burdens on its citizens simply because another particular tax-and-subsidize-happy government (that in Beijing) does the same to its citizens.

….

When I go to the farmers’ market on Saturday mornings I always buy a few jars of spicy homemade pickles.  (My favorites, btw, are the habanero dills!)  I do not ask and nor do I care why the seller can afford to sell pickles at prices that I find appealing.  If I discovered that he enslaves his neighbors to produce those pickles, I would stop buying his pickles.  But if I discovered that he so loves being a pickle merchant that he chooses to sell his pickles at a monetary loss to himself – or if I discovered that his rich uncle subsidizes his pickle enterprise – I would continue happily to purchase his pickles.  I do not care if he is a “more efficient” or “less efficient” pickle producer than is some other producer or producers.  His prices and products are attractive enough to me to entice me to buy his pickles voluntarily.  Period.  End of story.

I deal with this broader issue in this October 2011 article in Economic Affairs.

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