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Subsidies and Tariffs Impoverish the Home Country

Tweet [1]

Here’s a follow-up letter to Mr. Ehsan Arain:

Mr. Arain:

Thanks for replying to my earlier e-mail [2].

You argue that there is indeed a difference for Americans between Americans buying “Chinese products whose prices naturally are low” and Americans buying Chinese products “whose prices are low only because they are driven artificially down by China’s government.” In your view, prices made artificially low by Beijing’s subsidies, because these are intended to artificially enrich China at America’s expense, are hurtful to Americans in a way that ‘naturally’ low-priced Chinese goods are not.

Again, I respectfully disagree.

Among the first lessons that I teach my freshmen students is that intentions are not results. I don’t deny that government officials in Beijing intend with their subsidies (and also their tariffs) to artificially enrich China at the expense of America and other countries. But I emphatically deny that such enrichment will be the result. In fact, the actual result of Beijing’s subsidies and tariffs will be a China less prosperous than it would otherwise be, along with a possible enrichment of Americans and others outside of China.

Trump and other Americans who believe that America “wins” at trade only insofar as America is elevated economically relative to China should therefore prefer subsidized exports from China to non-subsidized exports from China. These Americans also should applaud rather than bemoan Chinese tariffs.

Of course, while Trump and other economic nationalists do indeed cling to the harebrained notion that international trade is a zero-sum competition among nations, these people’s economic ignorance extends much further than this one misunderstanding. In addition, they are unhindered by any felt obligation to be consistent in their thinking, their statements, or their actions. This ignorance and inconsistency explain why Trump and other protectionists repeat the preposterous dogma that subsidies and tariffs abroad must be met with subsidies and tariffs at home.

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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