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Foreign Subsidies Do Not Justify Protectionist Policies

Here’s a letter to a relatively new Cafe Hayek patron:

Mr. Javier Durand

Mr. Durand:

You ask why I oppose “trade protection for US firms who compete with subsidized foreign firms.”  Good question.  Here’s a three-part answer.

First, subsidized foreign firms that sell outputs in the U.S. make Americans richer, not poorer.  Such subsidies amount to foreign taxpayers subsidizing Americans’ consumption.  You and I are no more made poorer by such subsidies than we would be if our next-door neighbor takes us out to dinner and pays the entire bill.

Second, it’s far more difficult than is commonly realized to accurately identify subsidies.  Outright bounties paid to exporters are clearly export subsidies.  But what about government provision of high-quality roads, bridges, and docks that reduce suppliers’ costs of getting goods to market?  What about government provision of a powerful navy that pirates dare not test?  What about government provision of high-quality STEM education?  What about government provision of courts that businesses use to arbitrate disputes?  What about government provision of a relatively stable currency?  Do these government programs subsidize exporters?*

Third, if it’s appropriate for Uncle Sam to punitively tax Americans who buy goods the production of which is subsidized by foreign taxpayers, it’s equally appropriate for Uncle Sam to tax Americans who buy goods the production of which is subsidized by American taxpayers.  Yet I never hear the likes of Donald Trump, Hillary Clinton, or Barack Obama demanding punitive taxes on Americans’ purchases of American-made solar panels, of Chevy Volts and Tesla Model ‘S’s, of tickets to NFL games played at government-built stadiums, or of any of the many other American-produced goods and services the prices of which are driven artificially lower by government subsidies.

Until and unless protectionists begin to display consistency in their arguments for punitive taxes and other restrictions on domestic consumers, no one should treat these arguments as being anything other than the shams that they are.

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

* There are nuances to this argument, which I deal with in this 2011 article in Economic Affairs.


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