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It’s a Tax. It’s No Justification for Trade Restrictions.

Here’s another letter to a new correspondent, Mr. Carson Duhe:

Thanks for your follow-up e-mail.  You ask my opinion of Beijing’s demand that many American firms share with Beijing their intellectual property as a condition for those firms to do business in China.

I believe that this policy is foolish and harmful – chiefly for the Chinese.

In setting such a condition for doing business in China, Beijing imposes an in-kind tax upon American companies.  As with most taxes, these companies can choose to pursue the activity and pay the tax, or choose to avoid the tax at the cost of not pursuing the activity.  Any company that chooses to pay this tax does nothing that differs in any essential way from any of the many companies that choose to operate in the U.S. on the condition that they pay whatever taxes – and abide by whatever regulations – that Uncle Sam and state and local governments impose on them.  Also as with most taxes, this in-kind tax imposed by Beijing discourages the activity that is taxed.  In this case, fewer American firms will choose to operate in China, thus reducing the Chinese people’s access to goods, services, capital, and – over time – even to commercial know-how.

I rank second to no one in hostility to taxes, and so I object strongly to this particular tax imposed by Beijing.  Yet I see no reason to be any more outraged by, or more worried about, this tax than to be outraged by, or worried about, any other tax that any government, including any in these United States, routinely imposes on businesses operating within their jurisdictions.  This tax imposed by Beijing supplies no more justification for Uncle Sam to restrict Americans’ freedom to trade than do any of the countless other taxes that are imposed globally upon American producers.

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