Here’s a letter to Joshua Johnson, host of NPR’s 1A:
I very much enjoy your show.
I’ve two comments about a segment that ran earlier today on the looming U.S.-China trade war.
First, you played a clip of Trump’s trade advisor Peter Navarro declaring that among the goals of Trump’s tariffs is to reduce the U.S. trade deficit and to bring more foreign investment to the United States. It’s alarming that the chief trade advisor to the President of the United States makes an elementary mistake that would cause him to fail ECON 101. More foreign investment in the United States causes the U.S. trade deficit to rise, not fall. For Navarro to say that he wants to reduce the U.S. trade deficit and attract more foreign investment to the U.S. – that is, presumably, to attract more global investment on net to the U.S. – makes no more sense than if he’d said that he wants to build a round cube or to eat kosher ham.
Second, one of your listeners accused Beijing of subsidizing all Chinese producers. This claim is nearly as illogical as is Mr. Navarro’s. To subsidize a producer requires that a government divert resources from some of its citizens to the favored producer. But if all producers are subsidized, then all producers not only receive resources from the government, all producers have resources artificially drawn away from them by the government – drawn away either directly in the form of taxes paid by producers or through sales lost because higher taxes on households reduce consumer spending. Any government that attempts to subsidize all producers subsidizes no producer. Therefore, if there are industries in China that indeed artificially expand because of subsidies, there are other industries in China that thereby artificially shrink.
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