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To Repeat: Beijing’s Unfair Trade Practices are Unfair Chiefly to the Chinese People

Here’s a letter to Cafe Hayek reader Andrew Waggoner:

Mr. Waggoner:

Thanks for sending Robert Atkinson’s essay, one that you describe as making “a formidable case that we Americans use tariffs to protect our economy from China’s unfair practices.”

I don’t see matters as you – and Atkinson – see them.

China’s trade-rules violations inflict huge costs directly on the Chinese themselves. Beijing’s subsidies to Chinese producers divert resources away from those resources’ most-productive uses in China and toward Chinese firms that use those resources less productively. The same destructive diversion of resources is wrought by Beijing’s special-interest tax breaks. And note that if these subsidies and tax breaks encourage Chinese firms to lower the prices of their exports, we Americans benefit no less than we benefit when Chinese producers cut their prices as a result of their adoption of cost-saving means of production.

The Chinese are harmed in the long-run even by stealing intellectual property and by any biases that Chinese courts exhibit against non-Chinese firms. The reason is that these practices are in-kind taxes on foreign firms operating in China: the higher these taxes, the fewer and less extensive are foreign-firms’ operations in China. China’s economy is thereby denied the competition, the capital, and additional goods and services – not to mention the additional innovation – that would otherwise occur in that country.

Finally, on this issue of IP theft by the Chinese: as a problem it’s overblown. American protectionists cynically exaggerate and demagogue this problem in order to stir up support for their cronyist trade restrictions – restrictions that are poor tools for discouraging any such theft that does occur. Last month, my Mercatus Center colleague Dan Griswold and I wrote a short paper on this matter titled “How the United States Should Respond to China’s Intellectual Property Practices.”

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