More on the Injustice of Trade “Retaliation”

by Don Boudreaux on March 27, 2017

in Myths and Fallacies, Subsidies, Trade

Here’s another letter to the very insistent Mr. Nolan McKinney:

Mr. McKinney:

You again insist that “government is duty-bound to protect our companies from subsidized foreign competitors.”

And I again insist that such foreign subsidies, in addition to enriching Americans as a whole, visit no unfairness or injustice on American producers.  The reason is that American producers aren’t entitled to – they have no property right in – any portion of American-consumers’ incomes.

Suppose that Bill earns his living by mowing his neighbors’ lawns in Buffalo.  One day a new competitor, Joe, from Toronto arrives in Bill’s neighborhood.  Joe offers to mow lawns at prices too low for Bill to match.  All of Bill’s customers soon become his former customers.  Joe, it turns out, is subsidized by the Canadian government to mow Americans’ lawns.

You, Mr. McKinney, believe that this subsidized competition inflicts on Bill an injustice that should be corrected by Uncle Sam.  You believe that the U.S. government should – either with its own subsidies or with tariffs – force Bill’s neighbors to continue to pay to Bill at least the same portion of their incomes that they voluntarily paid to Bill before his subsidized foreign rival appeared.

But now change the example a bit.  Suppose that Bill’s new rival isn’t a subsidized Canadian but, instead, is Tom, an American.  Tom’s parents pay fully for all of Tom’s equipment and fuel.  Because Bill has to pay personally for all of his own equipment and fuel, Bill can no more compete successfully against Tom than he could compete successfully against Joe.

Do you, Mr. McKinney, believe that Uncle Sam should protect Bill from Tom’s competition?  Do you believe that Tom (enjoying, as he does, an unearned cost advantage bestowed on him by his parents) inflicts on Bill an injustice by competing against Bill for customers – an injustice that the government “is duty-bound” to correct by forcing Bill’s neighbors to continue to transfer to Bill at least the same portion of their incomes that they voluntarily transferred to Bill before Tom appeared?

I’m confident that you not believe that Bill is entitled to continue to receive a portion of his neighbors’ incomes when his competitor is Tom.  Yet if Bill here has no such entitlement to a portion of his neighbors’ incomes, how, pray tell, does such an entitlement arise simply because those who bestow the unearned cost advantages on Bill’s rival are foreigners rather than fellow Americans?

I submit that foreign-government subsidies paid to rivals of American producers, while these might well damage some American producers economically, visit upon these producers no injustice.  I submit further that an injustice is visited upon American consumers by the U.S. government whenever it “retaliates” against foreign subsidies with subsidies of its own or with higher tariffs.  Such “retaliation” unjustly transfers to American producers a portion of American-consumers’ incomes – a portion of incomes that these producers are not by right entitled to receive.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


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