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Exploring the Unseen In Trade and Trade Policy

Here’s a letter to a new patron of Café Hayek:

Mr. D__:

Thanks for your e-mail in response to my criticism of calls to protect American aluminum producers from foreign competition.

You ask: “If we don’t protect our aluminum manufacturers against subsidized imports, what’s the good of low prices now if we wind up with no aluminum manufacturers in the future?”

Your question is fair, and I’ll answer it with some questions of my own.

First, if maintaining a domestic aluminum industry is worth sacrificing the opportunity to buy foreign-made aluminum at low prices, what difference does it make if the low prices of aluminum imports result from subsidies or from the genuinely superior efficiency of foreign aluminum producers? Aren’t subsidies largely a red herring?

Second, because U.S. government protection of American aluminum producers necessarily draws resources away from other American industries, how can you be sure that the resulting shrinkage – or even disappearance – of these other American industries is a price worth paying to artificially buoy American aluminum producers? Asked differently, what’s the good of protecting our aluminum manufacturers if doing so shrinks or even eliminates other American industries?

Third, because foreign-government subsidies of aluminum producers necessarily draw resources away from other foreign industries and, thus, benefit American producers that compete with the shrunken or even eliminated foreign industries, how can you be sure that the negative consequences of foreign aluminum subsidies on American aluminum producers aren’t outweighed by the positive consequences on those American industries that expand – or are even created – because of foreign aluminum subsidies?

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

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