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Playing Whack-a-Mole

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Here’s another letter to Mr. Roland de Groote:

Mr. de Groote:

Thanks for your follow-up e-mail. In it, you argue that “free trade can’t work if different parties operate under different tax schedules, laws and regulations…. [T]rade policies should offset any contrived advantages enjoyed by foreign businesses.”

I disagree.

First, if (say) the Taiwanese government taxes Taiwanese businesses at lower rates than Uncle Sam taxes American businesses, you presumably would regard Taiwanese businesses as enjoying a ‘contrived advantage’ over American businesses. But why? It is equally valid to instead regard American businesses as suffering, at the hands of their own government, a contrived disadvantage. And so from this perspective, why trust government with the power to ease a disadvantage that it intentionally creates?

Further, recognize that the tariffs that you desire would not ease the disadvantage. They would simply shift it from a relatively small number of American businesses to a multitude of American consumers. Being so shifted and dispersed, the cost of this disadvantage would be merely masked rather than mitigated.

Second, do you believe that the free trade that occurs within the United States doesn’t work? Do you believe, for example, that highly taxed and heavily regulated New Yorkers are harmed by freely trading with lower-taxed and less-regulated Floridians [2]? I suspect not. In fact, I suspect that you understand that the economic damage inflicted on New Yorkers by their state and local governments would be even greater were those governments also able to obstruct New Yorkers’ abilities to trade with Americans in other states.

If New Yorkers’ free trade with other Americans works despite New York’s unusually high taxes and oppressive regulations, what reason is there to suppose that Americans’ free trade with lower-taxed and less-regulated non-Americans won’t work?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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