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Repetitive, I Know…

Here’s a letter to a “concerned patriot”:

Mr. Neil Garza

Mr. Garza:

You “have no problem” with American jobs being lost “when foreigners can produce with higher efficiency than us.” But you “strenuously object” if American jobs are lost “when imports’ lower prices exist because [foreign] producers receive subsidies.”

On the first point you’re correct. On the second point, though, you’re mistaken: we Americans shouldn’t care in the least why we’re able to buy more imports at attractive prices. Whatever the reason, we gain.

If more (say) imported lumber is sold here because foreign lumber producers have achieved greater efficiencies, some workers in the U.S. lumber industry will have to find different jobs, and some capital and land that until now were used to produce lumber in America will find other uses. The exact same scenario plays out if more imported lumber is sold here because foreign producers receive subsidies from their governments.

In both cases the price of lumber here falls and we Americans get to consume more lumber than we consumed before the increase in lumber imports. Further, in both cases we get to consume more also of other goods and services – specifically, more of the additional non-lumber goods and services that are produced by the American workers, capital, and land that no longer are used to produce lumber.

You might, like me, pity the foreigners whose governments tax them in order to make us Americans richer than we would otherwise be. But you’re mistaken to conclude that foreign-government subsidies of our imports impoverish us while they enrich foreigners. The result of such subsidies is quite the opposite.

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