Tweet [1]
… is from pages 173-174 of Richard McKenzie’s 1985 volume, Competing Visions [2]:
While foreign industrial subsidies may cause the contraction of several U.S. industries, it does not follow that American employment opportunities are, on balance, destroyed. Again, trade is a two-way street. If Americans buy subsidized foreign products, then more American products will be purchased by foreigners who will have dollars obtained from their subsidized exports….
Through foreign subsidies on exports, some U.S. industries are harmed, but others are helped. The net effect of the subsidies is an increase in the real aggregate income of the United States (and a reduction in the real aggregate income of Japan and any other country that provides industrial subsidies). As opposed to discouraging the subsidization of foreign industries, the United States should look upon such subsidies as an opportunity to improve the welfare of Americans. The subsidization of foreign exports enables Americans to tap into the income bases of foreign countries and impose a tax on foreigners every time a subsidized product is imported into this country. Communist China, for example, would never consider allowing the U.S. government to tax its one billion citizens directly; nevertheless, that is what China permits indirectly through the subsidies it gives its exporting industries, for example, textiles. The tax is realized in terms of higher prices and lower real incomes in China and lower prices and higher real incomes in the United States.
Yes, yes, yes. In theory it’s possible that, over the very long run, foreign subsidies – by so distorting the global economy – make even the consumers who pay lower prices today as a result of the subsidies worse off. (The range of theoretical possibilities is vast. One mark of a sensible person is an ability – a capacity to exercise sound judgment – to distinguish what’s plausible from what’s merely possible, and then to distinguish what’s probable from what’s plausible.) Yet the practical likelihood is nil that governments will enrich their subjects by using countervailing tariffs, offsetting subsidies, and other interventions meant to counteract subsidies and trade restrictions used by foreign governments [3].