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There IS an Excess Capacity of Excuse-Making for Protectionism

Here’s another letter to Cal Clayton (a new e-mail correspondent of mine):

Mr. Clayton:

I disagree with your assertion that Beijing’s policies result in “overcapacity in global steel making” and that this asserted “overcapacity” hurts us Americans.

Suppose that Jeff Bezos, just for kicks and not expecting to turn a profit on the expenditure, spends $50 billion of his own funds to build and operate steel factories. Global steel-making capacity would thereby rise, and steel (and other metal) prices would fall (thus ensuring, by the way, that all steel that is produced finds willing buyers). Would you call this capacity “excessive”? And would you suppose that Americans are harmed by Bezos’s steel factories?

I wouldn’t, and nor should you. Bezos’s use of his money to build these factories is his own personal concern. His doing so, in this example, bestows a gift on the rest of humanity – namely, a greater abundance of steel, all produced with resources that would otherwise have been used to produce goods and services for his own private consumption. In short, by building these factories that he runs unprofitably, Bezos transfers real wealth from himself to the rest of us.

Of course, Beijing isn’t Bezos. When Chinese government officials spend money to expand steel-making capacity in that country they spend, not their own money, but that of the Chinese people. This fact means that steel-making capacity in China is excessive from the perspective of the Chinese people. It is they – and only they – who have any cause to complain. The rest of us have zero cause to complain because this action by Beijing bestows on us net benefits. From our perspective in this example, Beijing is no different from Bezos in the previous example: in neither case, from our perspective, is the world’s steel-making capacity excessive.

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