Here’s a letter to a new correspondent:
Mr. S__:
Thanks for your e-mail expressing disagreement with my recent blog post on why we Americans should welcome EVs and other valuable goods subsidized by foreign governments. You write that “when we import subsidized electric vehicles we shrink America’s capacity to produce these.”
It’s true that importing more EVs, whether subsidized or not, shrinks the portion of America’s industrial capacity devoted to producing EVs. And so it follows that importing fewer EVs enlarges the portion of America’s industrial capacity devoted to producing EVs. But it’s equally true that importing fewer EVs -and thus increasing EV production in the U.S. – shrinks the portion of America’s industrial capacity devoted to producing outputs other than EVs. If tariffs are imposed on EV imports, why would you not worry about the unavoidable shrinkage of America’s capacity to produce other outputs?
Do you trust government officials to be able to divine that the value to our economy of whatever EV-production capacity is protected by restricting EV imports is greater than the value to our economy of the resulting shrinkage of America’s capacity to produce outputs other than EVs? I certainly have no such trust. Despite their cocky assurances, politicians and their minions can’t possibly know which particular production capacities will shrink in consequence of higher tariffs on EVs. Nor can they trace out the economic consequences of these shrinkages.
The above consideration alone is sufficient reason to reject tariffs on EVs. But the case against such tariffs only grows stronger when it’s further realized that firms protected from competition have reduced incentives to innovate and operate efficiently, and more incentive to spend effort and resources seeking government privileges. Politicizing an economy is no way to strengthen it.
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
