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On Other Governments’ Policies

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Are we Americans harmed economically to the extent that foreign governments use tariffs and other policies that reduce the economic growth and dynamism of foreign countries?

Yes, in the sense that Americans’ wealth is higher the higher is the wealth-producing achievements of non-Americans assuming that we Americans trade openly with non-Americans. But from this rather mundane reality it does not follow that the U.S. government is justified in restricting Americans’ trade with non-Americans on the grounds that foreign governments pursue policies that do not maximize their countries’ rates of economic growth.

There are a number of reasons for this conclusion, only a few of which I’ll mention here.

First, reasonable people can and do disagree over what policies are best for maximizing economic growth. I, for example, believe that economic growth is maximized only with government completely or nearly completely out of the picture. Paul Krugman and Marco Rubio (and most other people) believe otherwise. Who in America is to say, with authority unchallenged, what is the growth-maximizing amount of any foreign-government’s involvement in its country’s economy?

Note an irony: libertarians, who believe that even small amounts of intervention reduce an economy’s growth rate, oppose retaliatory interventions by the home government. In contrast, non-libertarians, who believe that a great deal of government intervention is necessary for maximum economic growth, are much more likely than are libertarians to point to a foreign-government’s intervention into its economy as a reason for the home government to ‘retaliate’ with tariffs, subsidies, and other interventions.

Second and relatedly, at least in a world in which almost no one accepts anarcho-capitalism as the baseline for assessing the appropriateness of government intervention – that is, in our world – determining which interventions by foreign government are and aren’t “distorting” is a much more difficult task than it at first appears [2]. One unfortunate result of this difficulty is that rent-seekers at home use this difficulty to game the system – to allege foreign-government malfeasance when, in fact, no such malfeasance exists.

Third, reasonable people can and do disagree over the extent to which economic welfare ought to be traded-off against non-economic considerations. And virtually no one believes that economic considerations should always trump non-economic considerations.

Suppose that there is widespread agreement in Germany that that country’s culture should be protected by preventing the importation of beer from outside of Germany. Would Americans have a valid cause of complaint if, as might be possible, it is shown that Americans’ aggregate wealth would be higher if American brewers could export beer to Germany?

Fourth, nearly every government pursues, for illegitimate reasons, policies that a majority of serious people agree reduce the economic growth of the country over which that government exercises power. The U.S. government is no exception. Given this sad reality, it is unreasonable for the U.S. government, when setting trade policy, to hold any other government to a standard that not only is almost never met, but is not met even by the U.S. government itself and that would not be met by the U.S. government itself even if every other government became devoted to libertarianism.

Fifth, we Americans have no right to whatever additional economic prosperity we’d enjoy if foreigners traded more freely with us or if foreigners arranged for their economics to grow faster.

Suppose that in Chinese culture it is unacceptable to work more than one day each week and, therefore, although not enforced by government, the Chinese people work only one day each week, taking leisure the other six. The result of this cultural trait would be a much less productive Chinese economy. The people who would pay the heaviest economic cost for this high preference for leisure would be the Chinese people themselves.

But it is also likely that we Americans would be made poorer than otherwise compared to a world in which the Chinese people work more than one day per week. Would it, thus, be acceptable for the U.S. government to take steps to force the Chinese people to work more than one day per week? Of course not. Yet how does counseling the U.S. government to mind its own business in this case differ from counseling the U.S. government to mind its own business when the case involves, say, Beijing using tax dollars to subsidize its citizens taking leisure?

Sixth, in practice all complaints in the U.S. about foreign-governments’ (allegedly) distortionary policies are complaints not about foreign governments taking steps to reduce Americans’ prosperity but instead, and overwhelmingly, about foreign governments taking steps to increase Americans’ prosperity with more exports to America or more investment in America. (A smaller set of complaints are about foreign governments reducing the wealth of a handful of American exporters whose outputs confront foreign-government obstructions to trade.)

Although protectionists are masters at masking their pleas for protection with insincere assertions that they seek only to promote the common good, they complain only when Americans have greater access to goods and services supplied by non-Americans, or when Americans are obstructed by foreign governments from producing more goods and services for the consumption of non-Americans. Protectionists fear greater economic output from foreign countries, not less.

Therefore, American protectionists are insincere when they assert that the ‘retaliatory’ trade policies for which they clamor are meant to eventually enrich Americans by prompting foreign governments to pursue policies that will one day result in foreigners exporting more goods and services to America.