Mr. Jamieson Greer
U.S. Trade Representative
Mr. Greer:
You continue to insist that persistent industrial trade surpluses are evidence that the countries that run these surpluses have built “excess industrial capacity” that harms other countries, including the United States. I have some questions for you.
– Economic theory and history are clear that, when the people of different countries trade with each other, each country will naturally run trade “surpluses” in some sectors and trade “deficits” in others. Yet you repeatedly point to persistent industrial trade surpluses as evidence of “excess industrial capacity.” What economic criterion distinguishes a trade surplus that reflects comparative advantage, specialization, and ordinary market forces from one that demonstrates “excess capacity”? Why, specifically, is the persistence of a sectoral surplus evidence that the capacity producing it is excessive?
– The U.S. persistently runs large trade “surpluses” in services. Is the persistence of these surpluses itself evidence that the U.S. has “excess service-sector capacity”? If not, why is a persistent surplus in manufactured goods evidence of excess capacity while a persistent surplus in services isn’t? What economic principle distinguishes the two? If instead your answer is yes, and America’s persistent services surpluses do reveal “excess capacity,” what policies will the administration pursue to eliminate the U.S. service-sector “surplus”?
– You’re correct that many foreign governments indeed subsidize their manufacturers, causing manufacturing capacity and output in those countries to expand. And you assert that the U.S. government must respond by tariffing – that is, by punitively taxing – Americans’ purchases of these imports in order to “protect” us from this artificially greater abundance of manufactured outputs. But you’re silent about the sectors in foreign countries that are necessarily made smaller by manufacturing subsidies. In any country, resources drawn by subsidies into industries A, B, and C must come from elsewhere in that country – from industries X, Y, and Z. Capacity and output in these other foreign industries thus contract. We Americans consequently have access to fewer – and more expensive – outputs from foreign industries X, Y, and Z than we would absent the subsidies.
Do you therefore believe that the U.S. government must respond by negatively tariffing – that is, by subsidizing – Americans’ purchases of these imports in order to “protect” us from their unnaturally reduced supplies? If not, how do you square your objection to negative tariffs on imports made artificially less abundant with your support for positive tariffs on imports made artificially more abundant?
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
