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How Should Government A Respond When Government B Adopts Policies that Damage the Economy of B?

In this article in the October 2011 issue of the Wiley-Blackwell journal from the Institute of Economic Affairs, Economic Affairs, I ask – and attempt to answer – the question that is its title – “Do Subsidies Justify Retaliatory Protectionism?”  Here’s the abstract:

A theoretical case can be made to justify trade protectionism on the ground that foreign governments are subsidising export industries. This case is based on overall international welfare grounds. However, the country receiving the subsidised products benefits from the subsidies. Furthermore, imposing retaliatory protectionist measures risks encouraging rent-seeking behaviour. In practice, it is impossible to define exactly what behaviour does and does not amount to the grant of subsidies by the government of an exporting country.


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