Exploring the Ethics of Trade ‘Retaliation’

by Don Boudreaux on February 13, 2018

in Crony Capitalism, Myths and Fallacies, Subsidies, Trade

In a comment on this recent Cafe Hayek post, Ron Warrick asks a good question:

At what point does dealing with a government-subsidized producer become essentially the purchasing of stolen goods (goods made available at a price enabled by government-confiscated funds)? Or would that be okay, too?

I’ll attempt an answer.  And I’ll begin with a practical consideration: no government can be trusted to accurately and apolitically assess the economic interventions of other governments.  This fact alone creates – or should create – a strong presumption against empowering the home government to ‘countervail’ or to otherwise respond to the economic interventions of foreign governments.  The temptation of the home government to wrongly classify as many as possible foreign-government actions as “unfair trade practices” is simply too great to presume that, even if there is in reality a class of foreign-government actions that justify retaliatory actions by an apolitical and well-informed home government, the benefits – ethical and economic – of entrusting any real-world home government with the power to respond will be outweigh the costs.

Remember: most (all?) of the responses carried out by the home government in reaction to alleged foreign-government “unfair trade practices” are impositions of the very same policies at home!  If ‘they’ raise tariffs, ‘we’ respond by raising tariffs.  If ‘they’ subsidize, ‘we’ subsidize.  And if ‘we’ don’t artificially ‘protect’ ‘our’ producers with ‘our’ own subsidies, ‘we’ artificially protect ‘our’ producers with punitive tariffs: either way, ‘our’ government responds by artificially arranging for a subset of ‘our’ existing producers to get hold of more resources than they would otherwise get hold of.  ‘Our’ government responds by subjecting us to the very same or similar unjust extractions that ‘our’ government pretends to find to be so unethical when practiced by foreign governments.

In short, it’s more than a little odd to self-righteously declare against the immorality of a foreign-government’s “unfair trade practices” and then to respond by inflicting the very same, or similar, practices on people in the home country.

That this inconsistency largely escapes notice is due, I’m pretty sure, to the fact that that which is thought to be the wrong that is unleashed by foreign-governments’ “unfair trade practices” is not the damage that such practices inflict on the citizens of the countries whose governments are accused of such “unfairness.”  Instead, that which is thought to be the wrong that is unleashed by foreign-governments’ “unfair trade practices” is the loss of market share, profits, and employment that those practices are thought (often correctly) to be suffered by a subset of home-country producers.

That is, the concern in fact is not with the effects of the foreign-governments’ practices on the citizens and denizens of foreign countries.  The concern is with the effects of these practices on a subset of home-country producers (and with never any consideration being given to the benefits that home-country consumers enjoy as a result of the challenged foreign-government practices).

Despite sometimes posing as champions of poor, beleaguered foreign taxpayers and consumers, protectionists’ only concern is with securing for themselves as much protection from competition as possible.  The fact that these protectionists eagerly call for the same allegedly unethical policies that are practiced abroad to be practiced “in retaliation” in the home country tells you all that you need to know.  It tells you either that protectionists do not really believe protective tariffs and subsidies to be unethical, or that protectionists are themselves so unethical that they are willing to double-down on wrong-doing by having the home-government impose unethical policies at home simply because foreign governments impose unethical polices abroad.

……

I have more to say about this topic, but will save saying more until later. (I do, however, once again remind you of this short Economic Affairs article of mine from 2011 that touches upon the economics of the matter.)

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