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Competition, Not Coddling, Makes One Competitive

Here’s a letter to my incessant correspondent, Nolan McKinney:

Mr. McKinney:

Not only did I see, I linked to, Scott Sumner’s recent (and excellent) EconLog post in which he quotes Kevin Zhang’s claim that, by protecting American electric-vehicle producers with high tariffs, the U.S. government “has made the strategic decision to prioritize building a competitive EV industry at the expense of the American consumer in the short-term.”

You believe that Mr. Zhang’s observation “decisively contradicts” my “irrational opposition to industrial policy.” In your view, forcing consumers to pay higher prices today for EVs is justified by the “commendable payoff down the road when America will then be in possession of a world-beating EV industry.”

I disagree, for at least two reasons. First – and you’ll pardon me for being repetitive – neither you nor any of the sages in charge of U.S. government trade policy have any idea which other American industries are being damaged by these EV tariffs. All resources directed into the EV industry are drawn away from other industries. Even if the tariffs succeed in fostering a competitive American EV industry, there is no way to know if the benefits of having such an industry will cover the costs we’ll have incurred, in the form of weakening other industries, to create it.

Second, protecting an industry from competition is – to put it mildly – a peculiar means of encouraging that industry to become competitive. Suppose I were to guarantee a particular student A+ grades on all of his exams regardless of how he performs relative to his classmates. And I offer him this protection from failure in exchange for his promise to work as hard as possible to become the best student in my class. Of course, this student would applaud my special treatment of him and promise to work with great diligence and skill. But everyone in his or her right mind would understand that the result would be the opposite of what is promised. Protecting this student from the need to earn high grades would ensure that he never learns the material well. Were I to offer such a guarantee to a student, I’d almost certainly ensure his weakness – rather than promote his excellence – in the subject-matter.

I see no reason why protecting domestic industries would have a different outcome. Do you?

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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